ETFs to capitalise on “Greek shoots of recovery”

May 9th, 2018 | By | Category: Equities

From an investment perspective, Greece is in much better shape than the dark days of its government debt crisis which ultimately led to it becoming the first Western country to default on its debt repayments to the International Monetary Fund in June 2015.

Greece appears to be on the road to economic recovery.

Greece appears to be on the road to economic recovery.

For those seeking to benefit from improving investor sentiment towards the region, ETFs provide a low-cost means of access.

Thanos Papasavvas, founder and CIO of investment research firm ABP Invest, Papasavvas commented, “’Greek shoots of recovery’ seem to have finally arrived with successful tourist campaigns, firmer northern European economies, a supportive geopolitical environment compared to the region and contained economic uncertainty.”

He added, “Tourism is making new highs every year with the 2017 figures surpassing 30 million visitors, up 100% from 2010. Consumer confidence is further supported by the constant drop of the broad unemployment figures and more importantly across the younger age cohorts.

“Confidence in Greece and the search for yields have led the 10yr bond yield to sub 4% levels, last seen in early 2006, whilst search for value has seen a pickup in real estate and the broader capital markets, both of which are comparatively more attractive.”

While pure-play Greece ETFs are in relative short supply, for investors seeking to capitalise on the upturn in the Greek economy, a trio of ETFs appear well-positioned.

The three on offer are the Lyxor FTSE ATHEX Large Cap UCITS ETF (GRE FP), with listings on Euronext Paris, Xetra and Borsa Italiana, the Expat Greece ASE UCITS ETF (GRX GY) on Xetra and BSE (Sofia), both primarily aimed at European investors, and the Global X MSCI Greece ETF (GREK US) listed on the NYSE Arca with a trading facility also available on the London Stock Exchange*.

GRE, the current go-to Greece fund in Europe, tracks the FTSE/Athex Large Cap Net Total Return Index, which consists of the 25 largest blue-chip companies listed on the Athens Exchange. Eligible securities are subject to investibility screens and are weighted by market capitalisation.

The index is heavily concentrated with the largest three companies – Coca-Cola HBC, Hellenic Telecommunications Organization and Alpha Bank – currently accounting for 43.5% of the index.

GRE has assets under management of just under €230 million, of which about €30m is new money pulled in this year – evidence that some investors are already positioning portfolios for continued recovery in the Greek economy and stock market.

Monthly flows of Lyxor FTSE ATHEX Large Cap UCITS ETF.

Monthly flows in euros of Lyxor FTSE ATHEX Large Cap UCITS ETF (approx).

The returns of the fund also appear to be on the mend following a severe correction from 2014 to 2016.

Percentage returns of Lyxor FTSE ATHEX Large Cap UCITS ETF over the last five years.

Percentage returns of Lyxor FTSE ATHEX Large Cap UCITS ETF over the last five years.

Interestingly, the fund’s 1-year rolling volatility is now down to levels not seen since before the financial crisis and Greece’s debt woes. Since GRE is a proxy for the Greek equity market, this is perhaps a further sign of investors becoming more confident and at ease about the outlook for the stock market.

Rolling 1-year volatility Lyxor FTSE ATHEX Large Cap UCITS ETF.

Rolling 1-year volatility Lyxor FTSE ATHEX Large Cap UCITS ETF.

The fund trades in euros and has a total expense ratio (TER) of 0.45%.

The Expat ETF (GRX) is the newest and also most diversified of the three, and tracks the ASE Index (ATHEX Composite) via a sample-based replication process. The ASE Index is the main equity index of the Athens Stock Exchange and tracks 60 of the largest companies. Its major holdings are Hellenic Telecommunications, Coca-Cola HBC and Piraeus Bank, which together account for 24.8% of the index. The fund has total operating expenses of 1.38%.

US investors, and UK-based who’d prefer not to trade on a continental European exchange, have the Global X fund (GREK) at their disposal. It tracks the MSCI All Greece Select 25/50 Index, which provides broad exposure to Greece equities which meet the criteria of MSCI’s Global Investable Market Index Methodology.

The index only includes securities with a minimum liquidity threshold of $25m average daily trading volume, subject to 15 constituents being included in the Index. If not, securities are added in decreasing order of average daily traded volume until 15 securities are selected. The index targets a minimum of 15 securities at construction.

The index is currently is slightly less concentrated than its FTSE counterpart and excludes the Greek Coca-Cola bottler. The top three holdings – Hellenic Telecommunications Organization, Alpha Bank and OPAP – account for 34.3%.

The fund has AUM of $450m and a TER of 0.62%. It trades in dollars on both NYSE Arca and LSE.

*Investors should file a Form W-8BEN with the US Internal Revenue Service for more efficient tax treatment.

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