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Eric Dutram

Believe It Or Not: Greece ETF Surging To Start 2012

GREK

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Although the current sovereign debt crisis in Europe has engulfed a variety of nations, one country is still considered ground zero for the debacle, Greece. That country, thanks to misreported figures and a slowdown in global growth, finds itself at the epicenter of the crisis, threatening to default on its debt and take down a variety of other nations in the process.

This disastrous situation, which has been spurred on by the failure of the ECB to act decisively one way or another, has led to a near collapse in both Greek equities and bonds. In fact, over the last three year period, the Athens Stock Exchange General Index has seen its value plummet by close to 50% including a nearly 30% loss in the past year alone. Greek bonds have done even worse by some measures as two-year Greek government debt has seen yields spike to the 170% level, an enormous increase when compared to the roughly 3.5% rate they were fetching at the start of 2010 (also read Hungarian Crisis Crushes Austria ETF).

Yet while the performance in the country has been downright horrific over the long-term, there is some hope for investors looking to play the extremely beaten down country now. This is especially true given the recent launch of an ETF to track the Greek market, the FTSE Greece 20 ETF (GREK - ETF report) from Global X. This product, which debuted in December of 2011, may have just missed the worst of the Greek calamity and could offer investors an interesting way to play the crisis—or lack thereof-- going forward (see Global X Debuts Greece ETF).

In fact, GREK, over the last one month period, has surged by just under 24.3% including a 14.9% surge in the past seven day period alone.  At first, these incredible gains in this short time period might seem a little surprising, especially given how poorly Greek equities have done over the long term. However, a closer look at the fund’s holdings could offer some clues as to why GREK has been such a star performer to start the year:

Most notably, is the fund’s heavy concentration in financials which make up more than 35% of total exposure. These securities have been huge beneficiaries from the temporary decline in fears regarding both a default in Greece as well as several other euro zone countries. Thanks to these improving mood, at least over the short-term, the top holding in GREK, the National Bank of Greece, has seen its price, as represented by the ADR, has surged by just over 75% in the past month alone, a pretty impressive feat for the company that makes up nearly 13% of the fund’s total assets (see Three Low Beta Sector ETFs).

Beyond this, some of the biggest holdings in the fund—which are in very different industries than financials—have also seen huge gains as well to start the year. Coca-Cola HBC, for example, which makes up close to 13.3% of the fund’s total assets, has seen a double digit increase over the past month (when looking at the ADR), while Hellenic Telecom and Greek Organisation of Football Prognostics which combine to take up another 20% of the total assets have also gained double digits in the last one month period as well (see Five Cheaper ETFs You Probably Overlooked).

Obviously, there is no guaranteeing that this trend will continue into February or that Greek stocks will not slump in the weeks and months ahead. However, the performance of Greek equities, as represented by GREK, over the past few weeks certainly has to be encouraging, especially for those that are betting on a return to strength across the continent. So while the trend in GREK may not continue, the fund could be worth a closer look in the near term by investors who have both an extremely high risk tolerance and a desire to make a contrarian play on the still extremely beaten down Greek economy in 2012 (also see EUFN: The Best ETF For The Euro Crisis).

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