Why Greece's Default Matters - Cabot Wealth Network

Why Greece’s Default Matters

Why Greece’s Potential Default is Important to You

You May Want to Rebalance Your Holdings

Five ETFs with the Largest Exposure to Greece

Why Greece’s Default Matters

This morning’s business headlines are all about Greece. CNN is giving the country a 90% chance of default. While the Greeks continue to protest additional austerity programs, the nation has announced that its banks will be closed for six days, and is limiting its citizens’ ATM withdrawals to 60 euros/day (about $67).

It’s a critical time for Greece, its countrymen, the nations that hold its debt and its investors. The big question is: Will Greece default on its 1.5 billion euro debt payments that are due tomorrow on the 322 billion euros that it owes to other countries? Most economists seem to think it will.

And even if—by some miracle—it doesn’t default on its loans—the same problems remain: Too much debt (debt-to-GDP is 177%, second after Japan with 230%), unemployment stands at 27% of the population and its GDP has declined by 25% in the past five years. And the Greeks, who have tired of the forced austerity, aren’t interested in prolonging it. Unfortunately, they really don’t have a choice. The country is in a hole that’s getting deeper.

It’s certainly a tragedy for the country and its citizens, but there’s a bigger issue at stake. The disruption could spread, and that fear of contagion is on the minds of investors worldwide.

A Tightening of Belts Worldwide

The three largest holders of Greece’s debt are Germany, with 65 billion euros, France with 49 billion and Italy with 43 billion. If the country defaults, it will hurt. But that debt is a small part of their economies, so it won’t cripple them. But there are some smaller countries whose exposure to Greek debt will hurt far more. The three most-exposed nations are Slovenia (3.06% of its GDP), Malta (3.03%) and Spain (2.78%).

Many countries will be affected by a Greek default, with their taxpayers absorbing the debt. But the longer-term fallout may be global markets. During the past few months, rumors of a default have stirred the markets a bit, creating some volatility, but investors have mostly ignored the issue. European stocks have staged a nice recovery so far in 2015, rising about 10%, and according to Lipper, investors have been pouring money into non-U.S. equity funds for 22 consecutive weeks (even Greek funds!). But those gains may be over, at least temporarily. Worldwide market futures are significantly down this morning, as the default becomes real in investors’ minds.

You May Want to Rebalance

Investors have had a fabulous ride in the markets for the past few years, and I fully expect more growth ahead. However, this “Greek tragedy” may roil the markets for a bit and certainly will have an impact on investors directly exposed to Greek equities.

With that in mind, I did a bit of research and found the following five ETFs with the highest exposure to Greece:

ETF Greece Weighting
Global X FTSE Greece 20 ETF (GREK) 79.10%
Cambria Global Value ETF (GVAL) 10.04%
RevenueShares Global Growth ETF (RGRO) 9.59%
Claymore/Delta Global Shipping (SEA) 9.27%
Yorkville High Income MLP (YMLP) 6.38%

The full list can be found here

Most of these ETFs have already declined on rising default fears, but if you still own them, now might be a good time to vacate your positions.

And while you are in the mood for a little rebalancing, it might not be a bad idea to take a look at your other sector holdings, too.

Over the years, I’ve seen the market go up and down many, many times. Generally, after we’ve had a pretty good run up, sector funds become very popular, as folks begin to believe that they are the key to beating the market’s average returns. And they often are! But they can also be the last place you want to be if the market begins a period of increasing volatility.

During those cycles, holding a broad, diversified basket of stocks looks pretty attractive.


Nancy Zambell

Editor of Investment Digest and Divdiend Digest.

P.S. If you would like help in selecting strong stocks in a wide range of sectors, consider taking a risk-free trial subscription to Investment Digest. I scour more than 200 advisories and research reports to select the top recommendations including growth stocks, value stocks, technology, small-caps, biotech, materials, funds, ETFs and more. You’ll receive one top recommendation in your email box each morning.


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