Is Nordic Small Cap funds a viable option to stock picking?

They might be, but you need to be aware of how they define small caps and the cost structures.

*This post was first published in November 2020, but is as relevant today.

At NSC we define Nordic small caps as companies with a market cap up to $300m. In our view, this is a segment with less competition due to low institutional interest and harder-to-find information. 

You might be thinking that this is indeed a part of the market you’d like to be exposed to. However, you gather that the best way is through a mutual fund or an ETF. 

In most cases we’d agree. The problem is that the Nordic Small Cap funds have a different definition of what a small cap is. Let’s take a look at some of the most popular funds and what they contain.

The Nordic Small Cap Index

One popular route these days is investing in index funds. Again, we agree in most cases. This is an easy and cheap way to get exposure to a part of the market or the market as a whole. 

For Nordic Small Caps, an example of an index fund is the MSCI Nordic Small Cap Index.

The index has, as of October 2020, 213 holdings across four different countries. Iceland is the one left out.

Top holdings:

If you use the American definition of small caps, the MSCI Nordic Small Cap Index is indeed a small cap index. With that said, if you use the American definition, most Nordic companies would be considered small caps. 

Tomra, the tenth biggest position in the index, is Norway’s thirteenth largest company in terms of market cap. Kesko is the eight in Finland, just above Huhtamahki on a thirteenth place.

Mutual fundsBe aware of high costs

Another viable option is funds using the VINX Small Cap EUR NI as a benchmark. The VINX Small Cap represents the bottom 20% of shares in terms of market capitalization across the Nordics. However, these funds are often expensive. Not every Nordic Small Cap fund has the VINX as a benchmark either, so you have to read the description and terms in detail.

Using Morningstar, we’ve picked the two highest rated small cap funds. Both have a 5-star rating. SEB Nordic Small Cap Fund IC has between 40 and 80 holdings and 75% of the fund is focused on the Nordics. You’d might get none-Nordic companies in the fund, albeit the largest positions are Nordic companies as of today.


Revenio has the lowest market cap with ~$1bn, while Sinch has the highest with ~$6bn.

Nordea Nordic Small Cap invests in Nordic companies with a market cap up to 0,5% of the total market value of the Nordic markets. 


The market cap of these companies is lower on average than the SEB Nordic Small Cap Fund. The largest company is Electrolux with a market cap of ~$6bn, whereas the Finnish companies Vaisala and Uponor are trading at ~$1bn.


If you’d like to get exposure to Nordic Small Caps through an ETF, there’s not a lot of options. While there are several focusing on Europe, few limit themselves to the Nordics. 

The best option might be the XACT Svenska Småbolag, but this is limited to Swedish small caps. As of today, the ETF contains over 100 holdings.

The 10 largest:

The XACT fund doesn’t follow the “normal” definition of small caps. Kinnevik, the largest holding, has a market cap of ~$10bn. The smallest of the top ten are Trelleborg and Getinge with a market cap of ~$5bn.

An advantage for retail investors

Institutional investors and mutual funds look for companies with a decent float. These are often transaction intensive and have a high AUM. Many of the companies we follow trades on low volumes, some doesn’t even have any volume on a given day. Even if a bigger fund is able to buy into one of those, they probably won’t manage to get a size that moves the needle. 

Thus, institutional investors and mutual funds enter later – when the company has a higher market cap and is more liquid.

For the retail investor this is an interesting hunting ground. There’s less competition and less public attention. You might be able to find good opportunities no matter what strategy you have – small caps are as diverse as other parts of the market.

Be aware of risks

Even though small caps might be a good hunting ground, there are a lot of dangers. The companies might be bad, their accounting practices might differ, you might not get the chance to easily exit a position and the operational risks are often higher due to customer concentration or bad loan terms.

And, of course, the stocks are often volatile or going sideways for years. You need to have a stomach made of steel and a patience of a monk to succeed.

Join a collective of like-minded investors

What we’ve found out, as small cap investors, is that we work better together in the investing process. We offer each other different perspectives, participate in due diligence and give feedback. In that way, we’re able to find better investment opportunities in a more efficient and thoughtful manner. 

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