Over the past 20 years, the Nordic markets have performed extremely well. Both corporate and fixed income asset classes as well as specific equity strategies have benefited significantly as a result.
Despite difficult conditions, we identify attractive opportunities at appropriate levels of risk. There are several reasons for this. One is certainly that economies are solid and are operating in a robust environment. The economies are very open, with exports accounting for 40% to 60% of GDP. The Nordic region is home to many global market leaders in numerous industries. The high standard of education, with many countries ranking at the top of national performance indicators - including education, quality of life, income equality or social development - also contribute to the strong economic situation.
Although the forecasts for the economies of Sweden and Norway have had to be revised downward somewhat, they are still very positive at 3% and 3.5% respectively. Rising interest rates mean that Nordic and Swedish bonds are currently an attractive option for investors. This also applies to investment grade bonds. Even in relatively low-risk sectors, a widening of spreads can be observed. These include, for example, companies from low-risk sectors such as utilities producing electricity from hydropower and producers of basic consumer goods.
In the high-yield sector, Nordic bonds have clearly outperformed EU and US high yields since the beginning of the year. Given the impact of the Ukraine war, there is still value to be seen here, especially in the energy and shipping sectors. The performance differential, combined with broad sector diversification and stability with regard to management, is over 9%.
Another area benefiting from the general conditions in the Nordics is the so-called Nordic small caps. This niche has performed excellently over the last 20, 10, but also 3 years. DNB Fund Nordic Small Caps, for example, has generated a return (in Norwegian kroner) of around 50% since its launch in December 2019, significantly outperforming its benchmark. Industrials, which is a broad and large sector, make up 25% of the fund. Within this industrial sector, there is a very diversified group of companies. In addition, the fund has larger positions in the communications sector, which are essentially gaming companies, as well as stocks in the technology and healthcare sectors.
Conclusion: It is always worth looking to the far north. Particularly for fixed-income investors and investors looking for undiscovered gems.