Understanding Scandinavian Investment Funds: A Regional Overview

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When you track as many mutual funds as investment research giant Morningstar does, you’re bound to end up with a few oddball categories. Consider the firm’s handling of funds that invest in stocks from parti­cular countries or regions. Regions crowded with fund providers, such as China, Europe, Japan and India, get their own categories. Portfolios covering smaller areas are labeled “miscellaneous region” funds—a group easily overlooked.

Fidelity Nordic (symbol FNORX) invests in companies from Denmark, Finland, Norway and Sweden—countries that rarely make financial headlines. But the fund’s performance is hard to ignore. Over the past decade, it has returned an annualized 10.5%, compared with 5.3% for the MSCI EAFE index, which tracks developed-country stocks. Nordic’s results also trounced the average return among funds investing in Chinese, Japanese, Indian and European stocks.

Investors shouldn’t be surprised to learn that Scandinavian stocks have outperformed other foreign markets over long periods, says portfolio manager Andrew Sergeant. Among developed-market firms, Nordic names tend to have among the highest-quality balance sheets and the most shareholder-friendly management teams, he says.

To be included in the portfolio, companies must sport high returns on capital (a measure of profitability) and robust free cash flow (cash profits after outlays to improve the business). Sergeant favors firms that have competitive advantages over peers and have shown resilience during economic downturns. Finally, he wants to pay a fair price, often buying into businesses undergoing temporary problems that belie a strong long-term outlook.

The fund recently added Danish hearing aid and headset manufacturer GN Store Nord. The firm, which typically sells to older customers, took a hit during the stay-at-home mandates induced by COVID-19. Sergeant bought shares when they dipped, and he expects them to bounce back as economies normalize.

The fund holds shares in firms of all sizes, with 46% of assets invested in small and midsize companies. Sergeant isn’t afraid to make big bets on his favorite names; the top 10 in the 39-stock portfolio account for 53% of assets.