Can You Pick Undervalued Markets With the CAPE Ratio? The ETF Route, the 14.7% Backtest, and the 8.3% Reality
Can you buy the world's cheapest stock markets the same way you buy an index fund?
Yes — two ETFs try exactly that. But the one with a live track record has returned 8.3% a year since it launched, against 13.3% for the S&P 500.
The US market trades at nearly 40 times its ten-year average earnings. Turkey's trades at 6 times. That gap is the whole pitch for CAPE-based investing: use Robert Shiller's cyclically adjusted price-to-earnings ratio to find the cheap markets, then buy them. This briefing shows the October 2026 map, how the two ETFs that do this actually work, what the famous 14.7% backtest really says, and the three traps to know before using the ratio at all. All figures are as of November 9–11, 2026, unless noted otherwise.
What the CAPE ratio actually measures
The CAPE divides a market's price by its average inflation-adjusted earnings over the past ten years.
That ten-year window is the point. A normal P/E uses one year of earnings, so it jumps around with recessions and booms. The CAPE smooths the cycle out. Shiller popularised it in the late 1990s, and it has become the standard gauge for asking whether a whole market is expensive.
On November 9, 2026, the S&P 500's CAPE stood at 39.85, against a long-run mean of 17.45 going back to 1871. The ratio has been above 40 every month since May 2026. Before this year, it had only ever done that once — from January 1999 through September 2000, when it peaked at 44.19 in December 1999. For comparison, the index's ordinary trailing P/E was 25.75 on the same date, against its own long-run mean of 16.24. We covered what the index returned the last time its CAPE was above 39 in yesterday's briefing — the short version is that early buyers had a strong final year, and everyone else got a lost decade.
The October 2026 map: where the cheap markets are
On one consistent dataset, the US is the second-priciest major market in the world — and the cheapest is Turkey, at a CAPE of 6.0.
Source: Siblis Research, month-end October 2026. *Siblis's US reading covers the broad market; Shiller's own S&P 500 CAPE was 39.85 on November 9. Different coverage, same message. For the aggregates: global markets 28.5, developed markets 30.6, emerging markets 17.4, and the world excluding the US 19.9.
But a low number next to the US is not the same as a cheap market. A market is only cheap against its own history. The UK's CAPE of 19.6 looks like a bargain next to 35.1 — yet the UK's long-run median is 14.8, so it is actually above its own normal level. Emerging markets at 17.4 sit above their median of 15.2 too. The US, at roughly double its median of 16.5, is the outlier in the other direction. That is the first thing most CAPE articles skip: cross-country comparisons mislead unless each market is measured against itself.
Route 1: the US sector CAPE ETF
The best-known CAPE ETF never leaves the United States — it rotates between cheap sectors inside one expensive market.
The DoubleLine Shiller CAPE U.S. Equities ETF (ticker CAPE) tracks the Shiller Barclays CAPE US Sector Index. Its method, from the fund's prospectus, runs in four steps:
1. Rank all 11 US sectors by their modified CAPE ratio
Each sector's price is divided by ten years of inflation-adjusted earnings, with a relative adjustment so sectors are judged against their own norms.
2. Add a 12-month momentum screen
A sector that looks cheap because its price has been falling for fundamental reasons gets filtered out.
3. Buy the four cheapest sectors that pass, equally weighted
Five sectors qualify on value; the one with the worst recent momentum is dropped.
4. Repeat every month
The portfolio turns over fast — 255% in the most recent fiscal year, according to the prospectus.
- Cost: 0.65% a year in expenses, against 0.03% for a plain S&P 500 ETF.
- Size: about $211 million in assets. It closed at $32.84 on November 11, 2026, inside a 52-week range of $29.74 to $34.25.
- What it actually holds: as of September 29, 2026, its two largest holdings were Amazon (6.3%) and Tesla (4.5%). A "value" ETF whose biggest positions are two of the market's most famous growth names is the honest reality of sector rotation: it buys stocks in cheap sectors, not cheap stocks.
- The limit: it cannot buy Turkey at 6.0 or Brazil at 13.2. It can only shuffle between US sectors. Sector leadership changes constantly — we ranked which sectors actually led after midterm elections — but the fund is still fishing in the world's priciest pond.
Route 2: the country-rotation ETF
The second route does what the question actually asks: it buys the cheapest countries.
The Cambria Global Value ETF (ticker GVAL), launched in March 2014, starts with a universe of 45 developed and emerging countries. It selects the cheapest 25% by CAPE-based long-term valuation, then picks the 10 most undervalued stocks inside each chosen country using traditional value metrics — trailing P/E, price-to-book, price-to-sales, price-to-free-cash-flow, and EV/EBITDA. The result is about 100 stocks, with no single country outside the US above 20% of the fund.
- Cost: 0.68% a year in total expenses, per Cambria's own fund page.
- Size: about $550 million in assets.
- What it actually holds: the country mix shows the strategy doing what it says — Turkey 8.7%, Chile 9.3%, Colombia 9.1%, Austria 9.1%, Singapore 9.8%, Brazil 6.9%. Its largest single holding is a Czech bank, Moneta Money Bank, at about 2.8%. These are markets and names most US investors never own.
- The difference: GVAL buys cheap countries; the CAPE ETF rotates cheap sectors in the US. Same ratio, two very different portfolios.
What the live product actually returned
Since its March 2022 launch, the CAPE ETF has returned 8.30% a year, against 13.31% for the S&P 500.
Year-by-year total returns from PortfoliosLab, through November 6, 2026. The since-inception figures (8.30% vs 13.31% a year) come from the fund's February 2026 prospectus, for the period ended December 31, 2025. Note the one exception: in 2023 the CAPE ETF did beat the index, 27.65% to 26.32%. Every other year in the table, it trailed — and the gap widened as the US market's most expensive sectors kept leading.
The fee is real but small next to that gap. On a $10,000 holding, the CAPE ETF costs about $65 a year; a plain S&P 500 ETF costs about $3. The $62 difference repeats every year, and over a decade it compounds into real money. But the return gap since launch is roughly five percentage points a year — the fee explains only a fraction of it. The strategy itself has lagged, not just its price tag.
The 14.7% backtest that started it all
The idea behind both funds comes from a 1980–2011 backtest that returned 14.7% a year in real terms.
Mebane Faber's "Global Value" study tested a simple rule: each year, buy the cheapest third of 32 countries by CAPE, but only those with a CAPE below 15, equally weighted, rebalanced annually. The result was 14.7% a year after inflation — a number that has launched a thousand articles about buying cheap countries.
A backtest is not a product, and the gap between the two is the whole story here. The 14.7% excludes trading costs, management fees, and taxes, which the paper's own summary discloses. It also picks its rules with hindsight: the cheapest third and the CAPE-below-15 filter were chosen after seeing which rules worked. And the test period — 1980 to 2011 — includes market eras that will not repeat in the same form. None of that makes the backtest useless. It makes it a hypothesis, not a promise — and the live fund's 8.30% against 13.31% is what the hypothesis has actually delivered so far.
Three traps before you use CAPE at all
- Compare a market only to its own history: the UK at 19.6 looks cheap next to the US at 35.1, but it is above its own long-run median of 14.8. Emerging markets at 17.4 are above their median of 15.2 too. A CAPE number means nothing until you ask what that market usually trades at. (Medians are Research Affiliates' long-run figures compiled by Monevator; current readings are Siblis Research, October 2026. Providers build their series differently, so read the comparison as directional, not exact.)
- CAPE is a 10-year gauge, not a timing tool: research by Norbert Keimling found that CAPE by country explained about 48% of subsequent 10-to-15-year returns in developed markets. That is a strong long-run signal — and it says almost nothing about next year. A CAPE above 40 did not stop US stocks rising through 1999 and most of 2000. A CAPE of 6.0 does not mean a rebound starts next month.
- Cheap can stay cheap — or get cheaper for a reason: Turkey's 6.0 reflects currency, inflation, and political risk that the ratio cannot see. A low CAPE can mean earnings that will not repeat, a market investors avoid for reasons the numbers miss, or both. Value traps are the oldest story in this strategy: the cheapest market on the list is often cheap because something is wrong, not because the market made an arithmetic error.
Key Takeaway
The CAPE ratio does something genuinely useful: it shows you, in one number per market, where the world's cheap stock markets are. In October 2026, that map pointed far from the United States — to Turkey at 6.0, Brazil at 13.2, and China at 16.0, against 35.1 at home. Two ETFs turn that map into a portfolio, one by rotating US sectors and one by buying the cheapest countries outright.
But the ratio cannot tell you when cheap markets get less cheap, and the fund built on it has so far charged more and delivered less than the market it tries to beat.
Sources:
- Siblis Research — CAPE Ratios by Country, October 2026
- Monevator — CAPE ratio by country (Research Affiliates medians; Keimling 48% finding)
- Quantpedia — Value Factor: CAPE Effect Within Countries (Faber backtest summary)
- DoubleLine — Summary Prospectus, February 2, 2026 (SEC Form 497K)
- Cambria Funds — Cambria Global Value ETF (GVAL)
- PortfoliosLab — CAPE vs VOO performance comparison
- Exent — Is the S&P 500 Overvalued Right Now? (Shiller CAPE 39.85, Nov 9, 2026)
- The Motley Fool — The S&P 500's Shiller P/E Is Above 40 (Nov 2, 2026)
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