For those of you following my quarterly CAPE updates, you’ll know I have been tracking the ten cheapest markets worldwide, as listed on starcapital.de. Last year saw a fantastic before-fees return of 25.59%.
I have started the same process again this year, with a post early in 2018 kicking it all off. You can read it here.
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.
So which were the ten cheapest as of January 2018 that entered the portfolio? (Current CAPE ratio in brackets)
- Russia (6.3)
- Czech Republic (9.8)
- Turkey (9.4)
- Brazil (12.3)
- Poland (11.2)
- Spain (13.2)
- Portugal (15)
- Singapore (13.4)
- Israel (15.3)
- Hungary (13.6)
How to Buy Them
The iShares MSCI Russia Capped ETF (ERUS) carries a 0.62% expense ratio and has returned 1.96% 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 -0.5% year-to-date.
The iShares MSCI Turkey ETF (TUR) carries a 0.62% expense ratio and has returned -36.52% year-to-date.
The Franklin FTSE Brazil ETF (FLBR) carries a 0.19% expense ratio and has returned -5.38% year-to-date.
The iShares MSCI Poland Capped ETF (EPOL) carries a 0.62% expense ratio and has returned -11.65% year-to-date.
The iShares MSCI Spain Capped ETF (EWP) carries a 0.49% expense ratio and has returned -4.4% year-to-date.
The GlobalX MSCI Portugal ETF (PGAL) carries a 0.61% expense ratio and has returned 12.13% year-to-date.
The iShares MSCI Singapore Capped ETF (EWS) carries a 0.49% expense ratio and has returned -6.58% year-to-date.
The iShares MSCI Israel ETF (EIS) carries a 0.62% expense ratio and has returned 3.31% 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 0.4% year-to-date.
The ETF basket produced a gross return of 5.12% at the end of January 2018. Gross return in Q1 was a negative -0.728% and returns have only gotten worse since. As of Q2 2018 the portfolio has returned -4.723% YTD. The big drop was obviously in Turkey, losing over 30% in one quarter alone. A stark reminder of the volatility of these less developed markets. After all, there are only 65 holdings in the iShares MSCI Turkey ETF that we use, which is actually one of the more diversified ETF’s in this portfolio! The benchmark (Vanguard Total World Stock ETF) was down -5.63% in Q1 but has since rebounded to a positive return of 6.78% in the first half of the year. We are therefore trailing our benchmark by -11.503%. After such a stonking 2017, it remains to be seen if we can add to our returns this year.
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