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Political Uncertainty in Finland: ETFs in Focus

The ruling coalition is at risk in Finland. The anti Euro zone Finns party elected anti-immigration hardliner Jussi Halla-aho as the leader of their party. The current centrist Prime Minister, Juha Sipila said that the alliance could break owing to the nomination of Halla-aho, the poster boy of populist politics in Finland.


There are multiple options for the current government. If it continues with the coalition, it will face mutual agreement issues as the two political parties differ in their ideologies. If this coalition is broken and a new one is mulled over, there will certainly be a cloud of uncertainty.


On the other hand, the Social Democrats and the Greens have urged to hold snap elections. If a snap election is called for, which is a rarity in the country, the polls suggest that the ruling party is likely to witness a loss in support. Per the Yle poll, Sipila’s party is expected to garner 18.4% votes, whereas the Finns are expected to fetch just 9% votes.


The Prime Minister would definitely try to avoid a snap election, evident by the poll numbers. In order to gain a majority without the Finns, analysts are predicting Sipila would be eyeing a possible coalition with the Swedish People’s Party and the Christian Democrats. Excluding Finns, the Centre and National Coalition Party have only 86 out of the 200 seats in the parliament. A possible coalition with the two smaller parties mentioned above would give the ruling government a narrow majority, with 101 parliament seats out of the 200.


The Prime Minster said ”One must not fall in love with this occupation so much that one’s values are put for sale”, citing difference in ideologies as the primary reason for the break up.


Despite the political uncertainty, Finland’s economy is in good shape. It grew 1.2% in the first quarter of 2017, up from 0.6% in the previous period and highest in almost seven years. Moreover, Finland’s business confidence rose to 7.7 in May 2017 from 4.20 in April 2017.


Let us now discuss the most popular ETF focused on providing exposure to Finland (see all European Equity ETFs here).


iShares MSCI Finland Capped ETF EFNL


This fund provides exposure to companies based out of Finland.


It has AUM of $38.12 million and charges a fee of 53 basis points a year. From a sector look, Industrials, Information Technology and Materials are the top three allocations of the fund, with 24.62%, 20.68% and 16.69% exposure, respectively (as of June 9, 2017). Nokia, Sampo, and Kone are the top three holdings of the fund, with 19.10%, 10.85% and 7.68% exposure respectively (as of June 9, 2017). It has returned 22.07% year to date and 32.07% in the last one year (as of June 12, 2017). It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.


Let us now compare the performance of this fund to a broader ETF providing exposure to Nordic countries.


Global X FTSE Nordic Region ETF GXF


This fund seeks to provide exposure to equities in the Nordic region.


It has AUM of $36.37 million and charges a fee of 51 basis points a year. From a geographical perspective, the fund has allocations to Sweden, Denmark, Finland and Norway, with 49.75%, 27.41%, 13.63% and 9.21% exposure, respectively (as of March 31, 2017). From a sector look, Financials, Industrials and Healthcare are the top three allocations of the fund, with 31.95%, 22.16% and 12.59% exposure, respectively (as of March 31, 2017). Novo Nordisk, Nordea Bank, and Nokia are the top three holdings of the fund, with 12.95%, 6.54% and 5.86% exposure, respectively (as of June 12, 2017). It has returned 19.19% year to date and 13.11% in the last one year (as of June 12, 2017). It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.


Below is a chart comparing the year-to-date performance of the two funds.


Source: Yahoo Finance


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