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Commodity ETFs

Despite its tiny size, the Greek economy has been front-and-center throughout 2011 thanks to the ongoing debt crisis plaguing the nation. Public debt as a percentage of GDP and the budget deficit as a percentage of GDP have both been among the highest rates in euro zone, creating a devastating situation for the nation’s ability to participate in the sovereign debt market. In fact, yields on two-year Greek government debt are now hovering around the 140% mark, an unsustainable level that is more than 10 times the rate that Greek debt was yielding just 12 months ago.

Yet, for investors seeking to make a play on the Greek economy, options were (and continue to be) extremely limited. Only a few U.S. listed-equities offer meaningful exposure to the nation while ETF exposure is even lighter as only the Guggenheim Shipping ETF (SEA - ETF report) allocates a sizable chunk of assets to the highly-indebted country. Now, for the first time, investors will be able to gain exposure to the Greek economy via a single ticker thanks to the brand new fund from Global X (read ETFs vs. Mutual Funds).

It’s All GREK To Me

The new Greece ETF (GREK - ETF report) from the New York-based issuer will seek to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the FTSE/ATHEX 20 Capped Index. This benchmark is designed to reflect the performance of the twenty largest securities listed on the Athens Stock Exchange and is designed to reflect broad based equity market performance of the country.

In terms of sector exposure, financials take up just over 35% of total assets, followed by industrials (22%), and consumer discretionary firms (18.4%). Top individual components consist of the National Bank of Greece at 14.4% of the total, which is closely followed by Coca-Cola HBC (12.7%) and the Greek Organization of Football Prognostics (12.1%). The fund has a net expense ratio of 69 basis points, a figure that is in line with many smaller country-specific ETFs (also see Forget FXI: Try These Three China ETFs Instead).

Greek Economic Situation

The restrictive clauses of euro zone membership at one time allowed Greece to obtain debt cheaply thanks to the stability of the bloc and the confidence that it instilled in investors. Those days are long gone, however, as Greece’s membership in the euro is preventing the country from devaluing its currency in order to make debt more manageable, creating a precarious situation for the nation that could push it towards default. Yet, Greek bond holders, unsurprisingly, remain staunch opponents of the plan and are pushing for further measures that will kick the can down the road and keep Greek bonds out of default. This could be especially important for many of the euro zone banks which remain holders of the securities but seem unable to survive a credit event in Greece or any other number of PIIGS nations (read HDGE: The Active Bear ETF Under The Microscope).

There are also worries that a Greek default would lead to a contagion spreading across the common currency area with other weak members, such as Portugal and even Spain or Italy, coming under significant pressure in the bond market. While a Portuguese situation is likely to be an issue on par with Greece, a Greek-style meltdown in Italy or Spain could take a number of banks into insolvency and is likely to be at the forefront of policymakers’ minds as they attempt to stave off a default (see Top Three Precious Metal Mining ETFs).

Beyond these broad macro issues, which have put the Greek economy in focus, the timing of the fund’s launch seems impeccable as it comes right before an EU Summit that could decide the fate of the euro. Furthermore, the debut of GREK comes just hours after the ECB cut rates by another quarter of a percent although the central bank did not discuss any plans for government bond purchases, a situation that could have definitely been to Greece’s favor. Thanks to this precarious situation as well as the uncertainty going forward, Greece’s stock market has been under significant pressure over the past few years as the total market cap of the Athens stock exchange has lost about 90% of its value since the peak in 2007.

With this backdrop, the Greek market could be an interesting one for investors both in terms of long and short plays on the economy. If one thinks that Greece is destined to leave the euro or that more austerity pain is in the country’s future, GREK could make for an interesting short play. On the other hand, long-term investors could view the fund, at current levels, as an interesting entry point assuming of course that one is willing to stomach significant short-term volatility.

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