The Up And Down Of The Greece ETF

Perhaps due to the struggles of the iShares MSCI Italy Index (ETF) EWI, the Global X MSCI Greece ETF (Global X Funds GREK) is not the most notorious member of the quintet of single-country exchange-traded funds dedicated to PIIGS economies.

Nor is GREK the worst performing member of the group. That dubious distinction belongs to the aforementioned EWI, which is down 18.5 percent, or more than double the 8 percent year-to-date loss incurred by GREK.

Like EWI, GREK faces headwinds brought on by a fragile banking sector. There are problems aplenty for Greek banks, too, and that is problematic for GREK because the ETF allocates nearly 39 percent of its weight to bank stocks. That is more than double GREK's second-largest sector weight, consumer discretionary.

Greek Concerns

Pressure on Greek banks, a lingering theme over the past several years of financial struggles, makes GREK volatile relative to other single-country emerging markets ETFs. For example, GREK's standard deviation of 37.5 percent is high compared to diversified emerging market ETFs and even some Latin America ETFs.

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However, Greece is making some progress.

“The Eurogroup said yesterday that the Greek authorities' implementation of 15 milestones in areas such as privatisation reform and bank governance had paved the way for Greece to receive EUR1.1bn from the European Stability Mechanism (ESM) for debt servicing.

“A further EUR1.7 billion should be disbursed shortly, to be used for further arrears clearance. Arrears repayment also supports private consumption, contributing to our forecast of a moderate pick-up in GDP later this year, followed by growth of 1.8 percent in 2017,” said Fitch Ratings in a recent note.

Due to the lengthy retrenchment in Greek stocks, the average market value of GREK's holdings is just $1.08 billion. Not to mention, Greece is classified as an emerging market, making GREK a de facto emerging markets small-cap ETF.

It's Not All Bad

Still, Greece, in its efforts to regain the confidence of global investors, would do well to pick up the pace of reforms.

“However, progress in meeting the milestones has been slower than expected, even though they are less demanding than the earlier measures required under the first programme review, such as pension and income tax reform. We think this reflects the Greek government's competing policy priorities and relatively weak domestic political ownership of the programme,” added Fitch.

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