The Netherlands may not be a hot emerging market, but international investors know the country for its rich history. The Dutch East India Company - founded in 1602 - is often considered to be the first multinational corporation and the first corporation to issue stock before its collapse nearly 200 years later in 1800 due to corruption.
Today, the Netherlands remains an important contributor to the global economy, with its $830 billion economy (2011) and machinery, chemical, fuel and food exports to Germany and other parts of Europe. In this article, we'll take a look at the popular European economy and how investors can build it into their portfolios using a number of different securities.
The Netherlands' Export Economy
The Netherlands has the 17th largest economy in the world by nominal gross domestic product (GDP), according to 2011 data from the World Bank. After the European Sovereign Debt Crisis hit, the country moved into recession where it remains as of early 2013.
The country's economy hinges primarily on manufacturing and energy exports to Germany and other members of the European Union. As the second largest producer of natural gas in Europe, the Netherlands is a leading provider of energy to the region, while machinery and transport represent other important export industries for the economy.
Investing in the Netherlands with ETFs
Exchange-traded funds (ETFs) represent the easiest way to invest in the Netherlands, since they offer instant diversification in a single U.S.-traded security. The most popular Netherlands ETF is the iShares MSCI Netherlands ETF (NYSE: EWN), which has over $150 million in total assets and a relatively low expense ratio of just 0.52%, as of January 2013.
While the ETF holds some 56 different securities, international investors should be aware that the fund is 35% weighted in consumer staples with more than 20% exposure to Unilever N.V. (NYSE: UN) alone. Additional information about the fund, including its prospectus, can be found on iShares website at http://www.ishares.com by searching for "EWN".
Gaining Specific Exposure Using ADRs
International investors looking for exposure to specific industries or companies may also consider purchasing American Depository Receipts (ADRs). While these U.S.-traded securities reflect price movements in Netherlands companies, investors should be aware that liquidity in ADRs might be less than traditional U.S. companies, adding some risk.
Some popular Netherlands ADRs include:
- Unilever N.V. (NYSE: UN)
- ING Groep N.V. (NYSE: ING)
- Koninklijke Philips Electronics N.V. (NYSE: PHG)
- ASML Holding N.V. (NASDAQ: ASML)
- Heineken N.V. (PINK: HINKY)
Benefits & Risks of Investing in the Netherlands
The Netherlands contains some of the world's leading companies, but investors should also consider the risks associated with the region.
Benefits of investing in the Netherlands include:
- Stable Economy. The Netherlands has a stable economy with a long history of supporting multinational corporations, which has resulted in a healthy set of international companies worthy of investor consideration.
- Favorable Policies. The Netherlands is known for its ease of doing business with favorable corporate tax codes and policies. As a result, the country houses a healthy number of businesses within its shores.
Risks of investing in the Netherlands include:
- Contagion Risk. The Netherlands is a member of the European Monetary Union - or eurozone - which means that they may experience adverse currency fluctuations as the region attempts to stabilize countries in precarious situations.
- Export Dependent. The Netherlands derives a substantial portion of its GDP from exports of machinery and transportation equipment and energy, which means that slowdowns in its end market - e.g. Germany - could hurt the economy.
Key Takeaway Points
- The Netherlands represents one of Europe's most promising countries, with a strong export economy geared towards energy and machinery/transportation.
- The easiest way to invest in the Netherlands is using the iShares MSCI Netherlands ETF (NYSE: EWN), which offers broad exposure to the economy.
- There are many different benefits and risks that investors should carefully consider before committing any capital to the ETF or ADRs.