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Undoubtedly, 2012 has been a year to forget for the Greeks. The country remains ravaged by strife thanks to austerity measures, uncertain election outcomes, and a string of bailouts that have politically-untenable terms attached.

The outlook isn’t much better for the country, as debt loads remain an issue while unemployment rates are reaching Depression levels. Furthermore, without the ability to inflate their currency, the issue could drag on for quite some time in the current state, suggesting that investors could continue to see concerns stemming from the country as we enter 2013.

If this wasn’t enough, the country’s biggest stock by market capitalization, Coca-Cola Hellenic, recently announced plans to leave the country and relist elsewhere. The firm doesn’t exactly do a lot of sales in Greece, but its role as a gigantic consumer staples firm in the nation definitely helped to stabilize the market during some of the rough trading patches we have seen (read Beyond the PIIGS: Three troubled European ETFs to Watch).

Given this exodus by one of the largest companies in the nation and the uncertain outlook for the country in the months and years ahead, one might expect the main way to play the country in ETF form, the Global X FTSE Greece 20 ETF (GREK) would be an extremely weak performer, both as of late and so far in 2012.

However, this really hasn’t been the case as although GREK is down about 6.5% in the past month, the fund has actually added just under 40% for the past three months, and an impressive 19.8% YTD. Yes, that is right, GREK has actually been outperforming the S&P 500 so far in 2012, albeit with significantly greater levels of volatility.

Clearly, despite all the doom and gloom about the nation, the country has found a way to post some solid returns, even with a pretty cloudy outlook. In fact, GREK is actually within striking distance of its 52 week high, showcasing just how resilient the economy has been—at least in stock market terms—below the surface (see Three Resilient European ETFs Still Going Strong).

Still, we look for GREK to underperform over the next 12 months, as the fund currently has a Zacks ETF Rank of 5 or ‘Strong Sell’. With the likely exit of Coca-Cola Hellenic from the fund, the product looks to be even more volatile and more dependent on risky sectors, instead of a smoother return thanks to the calming presence of Coca-Cola Hellenic as the biggest holding in the portfolio.

With this backdrop, we look for GREK’s miracle run to end, and end soon, as the worries over Greek bailouts and the economy’s recessionary characteristics seem likely to catch up with stock market performance sooner rather than later (read For Europe ETFs, It Is Hard to Beat Switzerland).  

After all, there were several three month periods in which GREK lost double digits, suggesting that the fund is definitely prone to missteps despite its overall solid performance in 2012. If anything, it just shows how diligent investors must be with this volatile ETF going forward and that huge swings are the norm in GREK.

Lastly, no matter what you think about the Greek economy, it is important to note that the stock market performance has been exceptional (overall) in 2012. This demonstrates that when dealing with country ETFs, a basic understanding of a national economy isn’t enough, and that the holdings—and where their exposure lies—can make or break a return in a particular ETF in the short to medium term.

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Follow @Eric Dutram on Twitter

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