The FTSE Greece 20 ETF (GREK - Free Report) was one of the best performing European ETFs in the past one month gaining on the back of improving fundamentals. The fund returned an impressive 14% as compared to the broader European ETF – FTSE Europe ETF (VGK - Free Report) – which returned a modest 1.5%.
Here’s Why Things Are Turning In Its Favor
Greece’s economy contracted at the slowest pace in more than four years during the first three months of 2014, according to a Bloomberg Report. Gross Domestic Product (GDP) declined 0.9% year over year as compared to a 2.3% contraction during the fourth quarter of 2013 – marking the smallest contraction since the first quarter of 2010.
The recent GDP numbers have raised hopes that Greece might manage to come out of its six-year recession this year. The economy has lost 25% of its GDP since 2008 – one of the most protracted periods of recession in modern history (read: Beat the market with fundamentally strong ETFs).
Moreover, the unemployment rate is also showing a declining trend. Greece’s unemployment has decreased to 26.8% in March from 26.9% in February – the lowest in the past 12 months. Investors should however keep in mind the country’s unemployment remains the highest in the European Union.
Additionally foreign investments in the country are picking up with the tourism sector expected to have a banner year. Tourism is one of the primary contributors to Greece’s economy and accounts for roughly 15% of the country’s economic output. Greece expects to attract a record number of tourists this year – signaling that the country is winning back foreigners.
Also, the government is making every effort to liberalize its products and services market, as per a survey by the International Monetary Fund. The government has successfully attained a primary surplus this year, that too well ahead of schedule.
Last month, rating agency Fitch has raised Greece’s long-term debt to B from B- on account of an improving fiscal and economic outlook. The rating agency expects the economy to bottom out this year.
However, Greek’s mounting debt is still the albatross tied to its neck. For a small economy, its debt currently stands at 174% of GDP – the highest in Europe. The country needs to implement a series of structural reforms to bring down its debt to sustainable levels (see all European Equities ETF here).
Nonetheless, the substantial progress made by Greece in restoring fiscal and external stability is noteworthy. Moreover, the government’s ability to tap the bond market recently reflects an important milestone to bring the country’s economic and financial condition back to health.
Given the positive feelers, the European Commission estimates that Greece will emerge from recession this year and expects its economy to expand by 2.9% in 2015.
Also, the recent measures announced by the European Central Bank (ECB) aimed at fighting deflationary threats and boosting growth within the Euro-zone are expected to be of great help to Greece (read: Easy Money Policies in Europe are Great for These European ETFs).
The GREK ETF is thus expected to continue with its recent uptrend in the upcoming months. For investors who believe that the rise will likely continue, we have highlighted in detail the ETF below.
GREK in Focus
The product tracks the FTSE/ATHEX Custom Capped Index and manages a small asset base of $286 million. The product holds a small basket of 24 stocks and has heavy exposure to the top six firms – Piraeus Bank, National Bank of Greece ADR, Coca Cola HBC AG, Hellenic Telecom and Opap S.A. – that collectively make up 64% of total assets. The fund charges a fee of 65 basis points on an annual basis.
The product is also focused from a sector perspective, with Financial Services and Consumer Discretionary occupying over 40% of fund assets. The fund charges a fee of 65 basis points annually (read: 3 Country ETFs Hitting 52 Week Highs).
Though gains for the year-to date frame have not been stellar, the fund has been picking up of late. The fund has gained 9% in the past two weeks and 6% in the past week. Thus, if Greece continues to make steady progress, we might see some more gains coming from the GREK ETF.
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