The Road To Greece Is Flawed

May 31, 2012

Troubled Greece could well abandon the euro soon. But my concern here is with the troubles of the ETF market’s only Greece-focused fund.

After all, the Global X FTSE Greece 20 ETF (NYSEArca: GREK) does a pretty mediocre job of canvassing the southern European country’s equities market.

At a cost of 55 basis points, GREK attempts to reflect the performance of the 20-largest securities listed on the Athens Stock Exchange.

The reality of the situation is that investors are left with a ridiculously top-heavy fund that does little to represent the broad list of securities held on the Athens Stock Exchange.

GREK, which is still quite small at $2.82 million in assets, is based on the FTSE/ATHEX 20 Capped Index. The index basically selects the top 20 firms by market capitalization listed in Athens.

A quick look at GREK’s holdings immediately shows some obvious flaws.

 

GREK Holdings

 

A local Coca-Cola bottling division—Coca-Cola Hellenic—makes up nearly 20 percent of the fund. The National Bank of Greece comes in at a distant, but not insignificant, second—accounting for 13 percent of the fund.

In third place is Opap SA—Europe’s largest betting company, which organizes and manages bets on sporting events and lottery games.

My intention isn’t to go off on the quality of the top three holdings.

After all, they are the largest listed on the Athens Exchange. My real problem is the lack of depth and diversity within the fund. Simply put: 55 basis points is a lot to pay for a scrape off the top.

Even worse is when you consider the one benefit that should result from such a top-heavy portfolio—investability.

Ideally, the securities held in GREK should be incredibly liquid and available. Unfortunately, that’s not exactly the case.

 

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