The Sweden ETF, An Excellent Long-Term Investment Track Record (EWD)

  • Since inception this Swedish ETF has outperformed the EAFE index, the FTSE Europe index and the S&P 500 index
  • This Swedish ETF holds 30 of some of the best run companies in the world
  • This Swedish ETF can potentially add European exposure to your portfolio without eroding returns

As an ETF investor, one of my objectives is to be diversified throughout the worldwide equity markets. As such, I have spent considerable time researching which International Large Cap Blend fund would be worth investing in for the long haul. Unfortunately, my search has always come up with the fact that this particular asset class underperforms nearly all other equity asset classes when back-tested to 1986. For example, here is a chart comparing the U.S. Large Cap Blend asset class and the International Developed ex-U.S. asset class. (1986 – 2017)

As you can see, the International asset class lags the U.S. considerably. Things are not all bad with the International asset class, as it does have a decent positive return of 7.37% CAGR and a relatively low correlation coefficient to U.S. Markets at just 0.69.

In the next chart, I’ll shorten the time frame to the oldest available EAFE index ETF’s inception date. The iShares MSCI EAFE ETF (EFA : $EFA) has been around since August 2001. Here’s the chart comparing the EFA ETF with the S&P 500 since 2001 (August 2001 – October 2017):

From 2001 through 2014 it looks like the EFA ETF would have been a great asset to hold in your portfolio. But, as this current bull market wears on, the U.S. market continues to outpace the EFA ETF significantly. This particular chart makes me want to have exposure to the International Large Cap Blend asset class, but how can I achieve this exposure without eroding long-term gains? Read on to find out how.

As you may have guessed, even though EFA is the oldest International Large Cap Blend fund available, it’s not necessarily the best. In this chart I have back-tested the three best in class ETFs available (VEU, VEA, CWI) to the EFA ETF (August 2007 – October 2017):

In the chart above, the Vanguard FTSE All-World ex-US ETF (VEU : $VEU) has the best long-term performance. I will, therefore, use VEU as the proxy for the International Large Cap Blend asset class later in this article.

Since this article is about a Swedish ETF, let’s narrow our research to the European equity markets. In this chart we’ll use the iShares MSCI Eurozone ETF (EZU : $EZU). EZU is the oldest available European ETF with an inception date of July 2000.  (July 2000 – October 2017)

Like the EFA ETF above, the EZU ETF performed well, but it began to lag even earlier in 2011. Once again, I think I want exposure to these markets, but how can I do that with any confidence that my investment will do well over the long haul? Continue reading to see how.

Just as EFA wasn’t necessarily the best International ETF, EZU doesn’t have the best track record in the European equity asset class. Here’s a chart comparing EZU with three top performing European ETFs (VGK, IEV, ADRU) (April 2005 – October 2017):

In the chart above, the Vanguard FTSE Europe ETF (VGK : $VGK) is clearly the best performing fund so I will be using it as a proxy for the European asset class.

I now introduce to you the iShares MSCI Sweden Capped ETF (EWD : $EWD). This single country ETF has approximately 30 companies in it and Morningstar refers to it as a large cap blend fund. Sweden is obviously in Europe and this is why I’ve spent some time back-testing the European funds. Let’s look at how EWD has performed versus the European fund VGK (April 2000 – October 2017):

Next is Sweden (EWD) versus International (VEU) (April 2007 – October 2017):

Next is Sweden (EWD) vs Europe (VGK) vs International (VEU) (April 2007 – October 2017):

Next is Sweden (EWD) vs Europe (EZU) vs International (EFA) (September 2001 – October 2017):

Next is Sweden (EWD) vs Europe (EZU) vs International (EFA) vs S&P 500 (VFINX) (September 2001 – October 2017):

And last, but not least, Sweden (EWD) vs S&P 500 (SPY) (May 1996 – October 2017):

If you’ve made it this far through this chart storm, you’ve by now found that this Swedish ETF has held up very well over the last 21 years. While EWD does not demolish the S&P returns, it certainly outperforms in both the short and longer term back-tests. Additionally, having exposure to the Swedish equity market could potentially give your portfolio some arbitrage opportunities with its’ correlation coefficient of 0.80 as compared to the U.S. markets.

As with any investment that you are considering, it is wise to look at the prospectus and other documentation that is available to you. So, here are some of the pertinents and such that I discovered while perusing the documentation available at iShares on this ETF (EWD) (as of 11/22/2017):

  • Objective: The iShares MSCI Sweden Capped ETF seeks to track the investment results of an index composed of Swedish equities
  • Assets under management: $484M
  • Holdings: 31
  • Benchmark: MSCI Sweden 25/50 Index
  • Inception date: 03/12/1996
  • Yield: 2.14%
  • Dividend paid: semi-annually (March & December)
  • Expense ratio: 0.48%
  • Price/Earnings ratio: 18.23
  • Price/Book ratio: 2.22
  • iShares EWD Fact sheet
  • iShares EWD Prospectus
  • iShares EWD Summary Prospectus

Top 10 EWD holdings:

Single country index funds tend to add more risk to a portfolio without a sufficient amount of reward in exchange for that risk. In the case of this Swedish ETF, I have concluded that the risk of holding this particular fund is in-line with its’ potential reward.

Disclosure: We own some shares of the EWD ETF and intend to buy more in the future. I am not an investment advisor. Please perform your own due diligence or consult a registered investment advisor prior to making any investment decisions.

Thank you for taking time to read this article.

Respectfully yours, the Deep Value ETF Accumulator, aka Micah McDonald

 

 

 

 

 

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