Global X continued a busy week of product development; after rolling out a pair of ETFs linked to NASDAQ indexes, the New York-based issuer followed up with the first product offering pure play exposure to Greece. The new FTSE Greece 20 ETF (GREK) will seek to replicate the FTSE/Athex 20 Index, a benchmark that includes 20 of the largest companies that are domiciled in, principally traded in, or whose revenues are derived primarily from Greece. GREK is the first ETF to specifically target Greek equities, and the fund launches at a time when the Greek economy is on the brink of a fiscal nightmare.
Greece has become the center of Europe’s sovereign debt crisis, as the country’s generous social benefits have resulted in a massive debt burden that has now grown too large to realistically manage. Last year, Greece agreed to a series of aggressive spending cuts in order to receive more than $100 billion in aid from the EU and IMF. So far, Greece has received about 20 billion, and has made only moderate progress in reforms and privatizations as a result of intense public pressure to avoid austerity measures.
Greek markets have been pummeled as the debt crisis has intensified. The Athens Stock Exchange General Index, a broad-based measure of Greek stocks, has lost about half of its value since the year started. Since reaching a peak market cap of about $220 billion in 2007, the market cap of the Athens Stock Exchange has fallen by about 90% to less than $30 billion in November. If the new Greek government is able to implement the reform packages to which it has committed, it’s possible that Greek stocks could begin to recover the ground lost as a result of the extended fiscal crisis. But there are certainly a number of obstacles in the way to that goal; strong opposition to any form of austerity threatens to collapse the aid needed to pull the economy out of its malaise.
Under The Hood
GREK’s 20 holdings feature a tilt towards the financial sector, which accounts for about a third of total assets. Other sectors receiving big weightings include industrials (22%) and consumer discretionaries (18%); those three account for about three quarters of total holdings. According to the fund fact sheet, there is no allocation made to health care, technology, or consumer staples.
The largest holding in GREK i sthe National Bank of Greece (about 14%), followed by Coca Cola HBC (13%), Greek Organisation of Football Prognostics (12%), and Hellenic Telecome (9%). The top ten holdings make up about 75% of the portfolio [see the GREK fact sheet].
Previously, the ETFs with the largest allocations to Greece included the Shipping ETF (SEA), Aluminum ETF (ALUM), and Gold Explorers ETF (GLDX)–though none of those made allocations of more than 10%. GREK could be useful as a long-term tactical allocation for those who believe the Greek economy will ultimately recover, and should also generate significant interest among those looking to establish short positions to bet on continued woes for the global economy. “Global X Funds strives to facilitate access to foreign markets. Whether bullish or bearish, this new ETF allows investors to take a viewpoint on the recent news coming out of Greece,” said Bruno del Ama, chief executive officer of Global X Funds.
Despite its issues, Greece is still home to one of the largest economies in the world; the country currently ranks around 32nd. That’s well ahead of a number of markets that have had dedicated “pure play” ETFs for a while now, including Malaysia, Chile, Ireland, and New Zealand.
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Disclosure: No positions at time of writing.