Greek ETF Shakeup: Coca-Cola Hellenic Leaving Greece


The much-maligned Greek economy has obviously been under some serious pressure as of late. The country faces strikes, austerity, and worries over its long term health as it struggles to meet bailout terms and maintain membership in the euro zone at the same time.

Still, the country’s stock market hasn’t exactly been a bad performer this year—albeit a volatile one—as the market represented by the Global X FTSE Greece 20 ETF (GREK) is actually up double digits so far in 2012. Furthermore, over the last three months, the ETF has added over 40%, suggesting that some gloom over the nation’s future is beginning to dissipate (read Are the Troubled European ETFs Back on Track?).

Yet while the market has certainly seen some good news, it could be in for some trouble in the months ahead, especially if a trend appears in some of the country’s top components, specifically if firms follow in the footsteps of Coca-Cola Hellenic Bottling Company (CCH). This firm is one of the biggest bottlers of Coca-Cola products in the world, primarily distributing and selling across the greater European region, and it is also a huge component of the Greek stock market.

In fact, the firm accounts for over 16% of GREK, making it the biggest holding of the firm by a decent margin. Yet unfortunately for Greece—and maybe for GREK as well—the company has decided that it isn’t worth it to be based in and listed in Greece anymore, seeking safer pastures in Western Europe instead (see Three Resilient European ETFs Still Going Strong).

After all, the stock has undoubtedly been hurt by a risk off attitude towards Greece in recent years, despite the fact that the company only does about 5% of its business in the Greek market. Seemingly, management at the company is sick of being tied to Greek problems given that they aren’t that reliant on the nation for returns.

Instead, it looks as though CCH will move to Switzerland in order to make that country its home while it will list shares on the London Stock Exchange. This will allow the firm to maintain a position in Europe while still having access to a wide and deep investor pool at the same time.

 Although it remains to be seen how much this will impact the perception and health of the Greek economy, one thing is for sure; it will have an enormous impact on the Greek ETF (also read Is the Ireland ETF No Longer A PIIGS Member?).

Unfortunately, the index provider’s PDF about the benchmark isn’t exactly helpful when it comes to detailing what happens when a stock is removed from the underlying index. It only states that the index will be ‘reviewed semiannually in June and December’ although it says it will use market data at the close of trading in March and September.

This seemingly suggests that the fund will maintain a holding in Coca-Cola Hellenic for at least a bit longer. However, it goes on to say that ‘a constituent will be deleted from the index when it is removed from the index’ so we could see a quicker removal of the stock from the fund after all.

When this happens, it will pretty much remove all of GREK’s assets in the consumer non-cyclical space and leave the fund devoid of stocks in the beverages industry. Furthermore, it will nearly halve the amount of large caps in the fund, possibly making GREK more volatile, and potentially more concentrated in a few choice sectors (also read The Truth about Low Volume ETFs).

Whether this negatively impacts the overall return of the fund though remains to be seen, although it seems certain to make the product more focused on small cap securities for its exposure. Either way, this looks to be a bad trend for Greece and their market, especially if others follow Coca-Cola Hellenic’s lead, possibly making GREK even more volatile in the long term.

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