The Cheapest ETF In The World

November 08, 2013

Typically when a market or stock is as cheap as GREK, the shares have been sold in anticipation of a bankruptcy or massive earnings miss. After all, trailing earnings tell us little about the future. In the case of GREK, that conclusion is not that straightforward.

As we pointed out earlier, GREK is up more than 20 percent YTD and by more than 30 percent over the past year. In fact, since its inception in December 2011, GREK is up roughly 60 percent. The fund’s depressed P/E therefore can’t be blamed on a massive sell-off in Greek shares.

It could be that the market expects a massive decline in earnings over the coming months and years. They would not be out of line in their thinking, as the Greek economy is still quite a mess. On the other hand, it could be the market has still vastly undervalued the Greek stock market and the recent gains will persist.

A quick glance at the only global value funds shows just one that includes Greece—the iShares MSCI EAFE Value (EFV | B-91)—and it only gives Greece an 8 bp weighting in its portfolio. That could change, as Greece has been reclassified by most index providers, including MSCI, as an emerging market. It might be that Greek companies will find their way into the iShares MSCI Emerging Markets Value (EVAL | C-95), but even that is no guarantee.

As such, value investors who believe the Greek market is woefully mispriced would have to buy GREK to take advantage. It’s certainly not for the faint of heart, but it is sitting there in the bargain bin waiting for someone to take notice.

At the time this article was written, the author held no positions in the securities mentioned. Contact Paul Baiocchi at [email protected].


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