Sweden: A Stock Market for Optimists
One of my favorite books on investing is the beautiful, coffee table quality “Triumph of the Optimists,” by Elroy Dimson, Paul Marsh, and Mike Staunton. The authors, sponsored by the London Business School, gathered, crunched, and cleaned data from around the world from 1900 to 2000 to produce the following conclusion:
“Our study reveals that the risk-takers who optimistically invested in equities were the group who triumphed over the long term.”
Nominal and Real Annualized Returns from 1900 - 2000
Source: Dimson, Marsh, and Staunton, "Triumph of the Optimists"
Another core finding of the book, as evidenced above, is that this was hardly an American only phenomenon. The chart is sorted from lowest to highest real (after inflation) returns. The USA produced a solid 6.7% real return and 10.1% nominal. However, this merely put it in fourth place behind: South Africa, Australia, and Sweden. Sweden is the topic of this week’s note.
Recent Performance and Future Potential
In the period after the study, from 2000 through 2024, the S&P 500 returned 7.3% nominally, while Sweden returned 5.1% nominally in USD. However, when adjusted for the Swedish Krona's depreciation against the dollar, Sweden's performance matches the U.S. Over the extended period from 1900 to 2024, there's remarkably little difference in performance between these two markets. Looking to the future, however, the prospects look better for Sweden.
Why Sweden Is Poised to Outperform
1. Valuation Advantage: The S&P 500 is currently priced 40% above its historical average, suggesting potential overvaluation. In contrast, Sweden's market is trading 17% below its long-term average (as of April 2024).
CAPE for Sweden and the USA 2013 - 2025
Source: Siblis Research
2. Democratic Stability: Sweden ranks fourth globally for freedom and democracy, behind only other Scandinavian countries. The United States, by comparison, ranks 28th. This political and social stability provides a secure foundation for long-term economic growth.
3. Sector Diversification: The Swedish market offers excellent sector diversification: 42% industrials, 21% financials, 15% communication, 7% technology, and other sectors making up the balance.
4. Currency: Sweden is not on the Euro, but uses the Swedish Krona. Sweden has never had a serious problem with inflation. Sweden’s budget deficit-to-GDP ratio is a paltry 0.6% compared to the USA’s unhealthy 6.4%.
Global Champions You Already Know
Sweden is home to numerous global champions that you likely recognize and may already use:
- Spotify (audio streaming)
- Volvo (automotive)
- Ericsson (telecommunications)
These companies have established global footprints and continue to innovate in their respective fields.
The "Berkshire Hathaway of Sweden"
My research also uncovered a fascinating company previously unknown to me: Investor AB (Class B). Founded by the Wallenberg family, this holding company and active investor has established an impressive track record that puts even Warren Buffett's Berkshire Hathaway to shame.
Over the past two decades, while Berkshire Hathaway narrowly outperformed the S&P 500, Investor AB nearly tripled Berkshire's performance. The founding Wallenberg family maintains control of the company and has established several foundations primarily funding initiatives in the hard sciences.
The Wallenberg legacy extends beyond business success. During World War II, Raoul Wallenberg, while serving as a diplomat in Budapest, saved tens of thousands of Jewish lives by issuing protective passports and providing housing.
The Case for iShares Sweden ETF (EWD)
For American investors looking to gain exposure to this promising market, the iSharesSweden ETF (EWD) offers a convenient and diversified entry point. This ETF provides:
- Access to Sweden's diversified economy
- Exposure to global champions
- A market trading at attractive valuations
- The potential to outperform U.S. equities over the coming decade
Conclusion
The United States Administration seeks to rebalance global trade and with it global capital markets. Their goal is to keep the US Dollar as the world’s reserve currency, while also reducing the costs this places on the United States of America. Tilting some of the power back from Wall Street to Main Street in the process. Whether you oppose or support this agenda, the ultimate destination is the same. And the right investment strategy does not change. Stocks in foreign markets with strong economies that are not overvalued should do well.
The United States Dollar has already started to depreciate against major currencies, gold, and bitcoin. US stocks remain priced near their highest levels in history. Meanwhile, investors in foreign markets, like Sweden, can pay an average price for stocks that can allow them to pencil in the 10% per year compounding that investors have come to expect.
With its strong historical performance, current undervaluation, and roster of world-class companies, Sweden represents an opportunity that forward-thinking investors shouldn't ignore. As global markets continue to evolve, those who look beyond their borders may find themselves rewarded for their willingness to expand their investment horizons.