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Great Dane: Denmark ETF Hits All-Time Highs

June 2, 2016 9:53 am
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Great Dane: Denmark ETF Hits All-Time Highs

Thanks to rebounding oil prices, Norway exchange traded funds are the leaders of the Nordic ETF group this year with double-digit gains, but don't sleep on the iShares MSCI Denmark Capped ETF (BATS: EDEN).

The iShares MSCI Denmark Capped ETF, the lone ETF dedicated to Danish stocks, is up 5.1 percent year-to-date and hit an all-time high on Wednesday, making it one of just 10 ETFs to accomplish that feat. Among ETFs tracking Nordic economies, only the Norway ETFs have outpaced EDEN this year, meaning EDEN has been a better than its Finland and Sweden rivals.

EDEN does not have the oil advantage that its Norway rivals do because unlike Norway, Denmark is not a major oil producer. The Denmark ETF features no exposure to energy stocks. It can be argued that EDEN's 2016 showing, one that comes on the heels of the fund being one of the better performing Europe single-country ETFs last year, is impressive when considering Denmark's negative interest rate policy.

Applying the logic that higher interest rates are positives for financial services stocks, Denmark's status as a negative rate country, and one of the first to adopt such a policy, should theoretically drag on an ETF that allocates 14.6 percent of its weight to financials. That makes the sector EDEN's third-largest sector allocation.

EDEN's ascent also comes against the backdrop of growing concerns about weakness in the export-driven Danish economy.

“Denmark slashed its estimate for economic growth this year to 1.1 percent from the 1.9 percent it forecast in December,” Reuters reported last month. “The government also cut its growth forecast for 2017, to 1.7 percent from 2.0 percent”

Although Denmark is far from the largest European economy (it is not even the largest Nordic economy), it can be a tell on the economic health of the broader region because a combined quarter of Danish exports go to Sweden and Germany, the Eurozone's largest economy.

EDEN is levered to Denmark's export reputation with a 36.5 percent weight to healthcare stocks, many of which generate the bulk of their revenue outside of Denmark, and a 22.5 percent weight to industrial stocks.

Additionally, Danish stocks are expensive, at least as measured by EDEN. The ETF's price-to-earnings ratio of nearly 25 rich compared to the comparable Sweden ETF and the S&P Europe 350 Index.

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