Norway's ETN market takes off, European sectoral indices in focus

The range of listed products in Norway has never been greater and the turnover of exchange-traded notes (ETNs) has soared over the last couple of years, according to figures released by the Oslo stock exchange. There are currently 266 ETNs listed with exposure to single shares, commodities and indices with both bull and bear varieties and different degrees of leverage. Sales in 2016 reached a record level, both measured in Norwegian krone (NOK7.5bn/€845m) and number of trades (176 million). The most traded ETN was Nordea's Bull Brent X3 ND linked to Brent Crude Oil offering a daily leverage times three. Oil was the most popular underlying of 2016 with the top four traded products all linked to the Brent price.

There are NOK-denominated ETNs being traded both on Oslo Stock Exchange and on NDX Norway, with Oslo Stock Exchange taking the lion's share of the country's turnover (approximately 97% in 2016). The Oslo Stock Exchange ETN market in 2016 has been dominated by DNB (56% market share) and Nordea (41% market share, Nordea entering the market in September 2015) with Svenska Handelsbanken as a third and marginal player (approximately 4% market share).

Nordea's chief analyst, Frode Hagen, confirmed the increasing interest in ETNs among Norwegian investors, and that many investors prefer higher gearing. "Our most traded products so far in 2017 are Bull and Bear OBX, both with x8 daily leverage," said Hagen.

The turnover volumes have seen a positive development over the last couple of years (2014: NOK3.3bn, 2015: NOK5.1bn, 2016: NOK7.6bn) and there is an increased interest in both ungeared and geared ETNs, according to Alexander Kleiven (pictured), an equity derivatives trader at DNB.

"DNB [is] trying to give our clients a new kind of exposure that is not easily found elsewhere, and we prefer the development of the products to go in a direction of greater access and broader underlying assortment instead of higher gearing like we have seen in other markets," said Kleiven.

According to Kleiven, the path dependency increases with increased gearing, making a multi-day position in highly geared ETNs more unpredictable than those with lower gearing. "In terms of underlyings traded we see a great interest in both ungeared and geared Brent crude products (probably not so unnatural with Norwegian clients)," he said. "OBX products are also popular, and also various stocks much driven by events in the different companies."

DNB has currently 117 products in the market, based on four different stock indices, 10 commodities and 25 single stocks. "We hope to grow this market even more in the next few years and still see a great potential for even bigger use of these products both by retail and institutional clients," added Kleiven.

The Norwegian ETN product range has been growing steadily with both DNB and Nordea bringing to market new products several times a year. Last week Nordea Norway launched 20 new Bull & Bear products listed onto the Norwegian Stock Exchange. The new range consists of European sector indices (Stoxx Europe 600) with 3x or 5x times gearing in both rising and falling markets. The bank introduced the Stoxx index to the Oslo Boers, offering Norwegian investors exposure to equities in the sectors banking, health care, telecom, oil and materials.

Since last year Norwegian investors have also been able to trade ETNs that follow a seafood Index (OBSFX) and shipping Index (OBSHX); two key sectors on the Oslo stock exchange, in addition to the OBX index. ETNs with exposure to foreign equity indices such as the S&P 500, DAX 30 and Eurostoxx 50 are also available.

"We usually issues new products 2-3 times per year," said Kleiven. "In 2016 we launched products on a couple of new Norwegian sector indices (OBSFX - seafood and OBSHX - shipping) where we have had great interest in especially the seafood index. We have also launched a number of ungeared short instruments (called "Short") and a few new geared bull and bear on Norwegian single stocks."

The latest sector indices follow different Stoxx Europe 600 indices. Four of the products are linked to the Stoxx Europe 600 Banks Index, which currently consists of 25 of the largest banks in the euro zone. Four other products are linked to the Stoxx Europe 600 Health Care Index, which currently consists of 42 leading companies in the health sector. The other three indices are Oil & Gas, Basic Resources and Telecommunications.

The Norwegian database currently holds over 3,000 leverage products from Nordea (118), DNB (117), and Handelsbanken (25), Commerzbank (1783) and Royal Bank of Scotland (1258) with products listed on the Nordic Growth Exchange and the Oslo Boers.