Flirting With Finland...The ETF

Finland’s investment thesis can be said to be an enigma wrapped in a riddle. The country that is home to Nokia (NYSE: NOK), is the lone Nordic state that is a member of the Eurozone.

During the darkest days of the monetary union’s sovereign debt crisis, investors may have considered dodging Finland in favor of Nordic markets not jaundiced by the Eurozone label. On the other hand, Finland has an AAA credit rating, something not many other Eurozone members can say.

The enigmatic Finnish investment thesis explains why the iShares MSCI Finland Capped ETF (NYSEArca: EFNL) has not caught many investors’ attention. Perhaps the Europe should be higher up on the ETF totem. Undoubtedly, it has earned a spot with a year-to-date gain of 24.5%. EFNL also hit a new all-time high Tuesday before drifting lower.

In local currency terms, Finnish stocks, as a group, are the third-best performers in the developed world this year behind Japan and fellow Eurozone member Ireland, according to Bespoke Investment Group. The Bespoke data also indicate Finnish equities have outpaced the U.S. and the other Nordic nations. Finnish stocks have also been the top performers among the AAA-rated nations.

Since there is no such thing as a free lunch, there is a cautionary side to the EFNL story. Finland’s lethargic growth and rising debt-to-GDP ratio are putting EFNL’s good news story at risk. [The Good and the Bad of the Finland ETF]

The Finnish government is desperate to maintain its AAA rating and is employing austerity as a means of doing so. That decreased government spending is crimping Finnish firms and some EFNL constituents. Companies that cut their profit outlooks in the past month and a half represent about 16 percent of the market value of Nasdaq OMX Helsinki, Bloomberg reported last month