ETF Investors Aren't Afraid Of Greek Default

The continuing saga over a Greek sovereign default has seemingly reached critical mass. Market watchers are divided over whether a deal can be reached to meet financial obligations and set the country on a sound fiscal course.

The Global X FTSE Greece 20 ETF (Global X Funds GREK) is the only exchange-traded fund solely dedicated to the 20 largest and most liquid stocks trading on the Athens Stock Exchange. GREK has nearly $300 million in total assets and charges an expense ratio of 0.61 percent.

Since the beginning of the year, GREK has lost over 20 percent. In fact, half of those losses have come in just the last four trading days, as debt repayment deadlines loom and pessimism sets in.

GREK Investing

Typical investor psychology would dictate that money should be flowing out of this fund as fear and recent underperformance guide faulty investment decisions. Nevertheless, ETF investors have been pouring money into Greek stocks at a rapid pace and are ostensibly unafraid of recent volatility in this market.

GREK has accumulated $234 million in net inflows this year, accounting for nearly 80 percent of its total assets. In addition, there have only been five days of relatively miniscule net outflows in this ETF since the beginning of 2015.

That conviction speaks to a potentially aggressive move by a cadre of investors seeking a deep value area of the global market. GREK has the potential for a big snapback if the government can find the means to satisfy its detractors. 

Related Link: EU's Juncker Says Greece Negotiations Going Nowhere

The risk of this logic is that conditions can quickly worsen if Greece defaults on its obligations and finds itself in a “worst case scenario.”

Not New Phenomenon

This same playbook was used with some success in the geopolitical conflict between Russia and Ukraine last year. The Market Vectors Russia ETF Trust RSX was heavily discounted during 2014 and still managed to accumulate $1.34 billion in net new assets.

RSX has now rallied over 28 percent this year and is one of the top emerging market countries in 2015.

Those ETF investors seeking more diversified global value opportunities may be interested in researching the Cambria Global Value ETF GVAL or ValueShares International Quantitative Value ETF IVAL as well.

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