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
The iShares MSCI Russia Capped ETF (ERUS) carries a 0.62% expense ratio and has returned 10.81% year-to-date.
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.
The iShares MSCI Turkey ETF (TUR) carries a 0.62% expense ratio and has returned 3.38% year-to-date.
The Franklin FTSE Brazil ETF (FLBR) carries a 0.19% expense ratio and has returned 12.57% year-to-date.
The iShares MSCI Poland Capped ETF (EPOL) carries a 0.62% expense ratio and has returned 5.76% year-to-date.
The iShares MSCI Spain Capped ETF (EWP) carries a 0.49% expense ratio and has returned 6.34% year-to-date.
The GlobalX MSCI Portugal ETF (PGAL) carries a 0.61% expense ratio and has returned -0.36% year-to-date.
The iShares MSCI Singapore Capped ETF (EWS) carries a 0.49% expense ratio and has returned 5.15% year-to-date.
The iShares MSCI Israel ETF (EIS) carries a 0.62% expense ratio and has returned 2.93% year-to-date.
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.
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?
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