CAPE Valuations June 2018

Ten Cheapest Countries by CAPE Ratio 2018

Last year marked my first full year tracking a basket of ETF’s representing the ten cheapest countries by CAPE ratio.  The data on this was obtained from the excellent starcapital.de website.  My final post of the year for 2017 (see here) showed a before-fees return of 25.59%.

So to kick off 2018 (albeit a little later than planned), which are the ten cheapest countries, and which are the cheapest ETF’s to obtain exposure to them?

The Ten Cheapest Countries

For those of you new to this series, the premise each year is to identify and theoretically buy these ETF’s at the beginning of the year.  These will then be held for the full year.  The only re-balancing is done once a year in January.  I will also be bench-marking these returns against the Vanguard Total World Stock ETF (VT), which carries an expense ratio of 0.11%.  ‘Cheapness’ is defined as the best combination of expense ratio and spread, and ETF’s will be sector neutral.

Last year saw a few countries move out of the list as the year went on, but the ETF of each remained held.  Globally it appears markets in general picked up during 2017.  The average ratio for the ten cheapest at the beginning of last year was 9.59.  This year it is 12.39.  Still cheap by most standards, but approaching something closer to fair value.

So which are the ten cheapest as of January 2018?  (Cape ratio in brackets)

  • Russia (5.8)
  • Czech Republic (9.7)
  • Turkey (11.9)
  • Brazil (12.8)
  • Poland (12.9)
  • Spain (13.4)
  • Portugal (13.7)
  • Singapore (13.9)
  • Israel (14.5)
  • Hungary (15.3)

How to Buy Them

Russia

The iShares MSCI Russia Capped ETF (ERUS) carries a 0.62% expense ratio and has returned 10.81% year-to-date.

Czech Republic

There is no dedicated ETF for the Czech Republic at present.  The ETF with the highest weighting to the Czech republic I could find is the Cambria Global Value ETF (GVAL) with a 2.44% exposure.  This ETF carries a 0.68% expense ratio and has returned 2.55% year-to-date.

Turkey

The iShares MSCI Turkey ETF (TUR) carries a 0.62% expense ratio and has returned 3.38% year-to-date.

Brazil

The Franklin FTSE Brazil ETF (FLBR) carries a 0.19% expense ratio and has returned 12.57% year-to-date.

Poland

The iShares MSCI Poland Capped ETF (EPOL) carries a 0.62% expense ratio and has returned 5.76% year-to-date.

Spain

The iShares MSCI Spain Capped ETF (EWP) carries a 0.49% expense ratio and has returned 6.34year-to-date.

Portugal

The GlobalX MSCI Portugal ETF (PGAL) carries a 0.61% expense ratio and has returned -0.36% year-to-date.

Singapore

The iShares MSCI Singapore Capped ETF (EWS) carries a 0.49% expense ratio and has returned 5.15% year-to-date.

Israel

The iShares MSCI Israel ETF (EIS) carries a 0.62% expense ratio and has returned 2.93% year-to-date.

Hungary

There is no dedicated ETF for Hungary at present.  The ETF with the highest weighting to Hungary I could find is the Guggenheim MSCI Emerging Markets Equal Country Weight ETF (EWEM) with a 4.17% exposure.  This ETF carries a 0.70% expense ratio and has returned 2.10% year-to-date.

Summary

It is obviously very early days to be judging the performance of this basket.  However, the gross return so far for 2018 has been 5.12%.  A very healthy return considering the FTSE 100 is down –3.18%, with the All Share index down 3.2%.  These impressive returns have been almost entirely down to the tremendous performance of the Russian and Brazilian markets, both of whom are on an absolute tear.

However Russia remains by far the cheapest country listed on Starcapital.  Perhaps this is their year?

Happy investing!

 

Leave a comment below, or find me on Twitter @BritishInvestor.

4 thoughts on “Ten Cheapest Countries by CAPE Ratio 2018”

  1. Chriss,

    Thanks for the article.

    As the ETF’s selected to represent Hungary and Czech have an average 3% weighting do you leave them out of your results calculations? Are there any specialist funds for these countries that you could monitor instead?

    You may want to have a look at Baring Eastern Europe which although heavily weighted to Russia has 75.4% in Russia, Turkey, Poland, Hungary and Czech. Another 14% is cash and USA ADR’s/UK/Dutch dual listings I think mainly related to said countries. Only 2.5% in Greece is definitely outside the selected countries. It is obviously company specific but may be worth keeping a Czech on (pun intended!) to see how it performs.

    Regards, Dave

    1. I do leave those ETF’s in my calculations.

      Thanks for the recommendation. When initially I started this I wanted to keep costs as low as possible so eschewed funds in favour of ETF’s. However as it is becoming harder to find adequate coverage of Czech and Hungary, for example, I will have to start looking further afield.

      Thanks for taking the time to comment and recommend. I will definitely check out Baring Eastern Europe.

      Chriss

  2. Hi Chriss

    Check out the iShares MSCI Eastern Europe Capped UCITS ETF (IEER) which rolls Russia, Poland, Hungary and Czech Republic into one (albeit very heavily weighted on Russia).

    Appreciate the article and I’m a big believer in trying to hunt out cheap markets, especially in EM (bought into Russia in late 2014). I do wonder if the higher fees work out in the long term though and I also have no idea when to sell now as it’s much easier to identify something as cheap than to determine when it is fairly valued.

    Keep up the good work

    1. Hi Chris

      Thanks for the recommendation. I myself held a very similar ETF until it shut down in November last year. Sounds like this is a more than adequate replacement.

      I think in terms of valuation you have to look at historical levels. By and large, most companies (in my limited experience) tend to hover around a fairly similar range of ‘fair value’. Congrats on buying into Russia. I hope you still hold!

      Chriss

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