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Tickers in this Article: RSX, FXI
Sometimes timing really is everything. Certainly investment manager Van Eck Global is not complaining about the timing for launch of its new Market Vectors Russia ETF (NYSE:RSX).

The exchange-traded fund (ETF) was first offered in May of this year, just about the time that Russia's equity markets shook off a mediocre start to the year and joined the emerging markets party.

Since its May 7 close, RSX is up a robust 21.7% as of October 25. All four BRIC countries (Brazil, Russia, India and China) are now accessible through ETF or exchange traded notes. Two things here are worth considering. First, there are some peculiarities about Russia that warrant careful consideration before taking the plunge. Second, having made the decision, investors should consider the relative merits of investing in the ETF versus direct exposure through ADRs or other managed vehicles such as mutual funds. (For related reading, see Exchange Traded Notes - An Alternative To ETFs.)

All About Oil & Gas
You don't get far into a discussion about Russian equities without talking about the country's exposure to oil & gas. Rosneft and Gazprom are the twin giants of these energy sectors. Rosneft has over 40 billion barrels in proved, probable and possible oil and gas reserves, according to the company's website, while Gazprom is the world's largest gas company and a major influencing factor in the energy markets of western Europe. The Russian government has a controlling stake in both companies.

As of August 31, 2007, these two stocks added up to about 15% of the total market capitalization of the 30 listed companies on the DAXglobal Russia+ Index. Van Eck's Russia ETF uses this index as an exposure benchmark, meaning that about one-fifth of your investment will be tied up in the fates of these two companies. Other oil & gas concerns including Lukoil, Surgutneftegaz and Tatneft add another signifcant amount of exposure to this sector. Additionally 8.7% of the index consists of energy utilities RAO UES and Mosenergo, resulting in an asset with almost 50% of its exposure in energy. Risks and Considerations
Investing in Russia is a highly risky proposition. Apart from the sector concentration described above there are numerous legal, political and economic risks that, while common to any emerging market, are particularly pertinent in Russia. The Russian government under President Vladimir Putin has become increasingly involved in the country's economy over the past several years and exerts a particularly strong influence over the country's energy sector. The European Union has introduced a handful of policy proposals this year aimed at limiting the ongoing influence of Gazprom and other energy companies in the lucrative European retail energy markets.


Still, for investors who favor a high-risk, high-return approach there may be a place for the Russia ETF in a portfolio. Its net expense ratio of 0.69% is not particularly expensive in comparison to other country ETFs. For example the iShares FTSE/Xinhua China 25 ETF (NYSE:FXI) has an expense ratio of 0.74%, and that is cheaper still than the expense ratios and sales charges for many emerging markets mutual funds (e.g. the ING Russia Fund, a mutual fund, with a net expense ratio of 2.11%). Higher fees tend to go hand-in-hand with more actively managed funds. However, given the relatively small number of Russian stocks with sufficient size and liquidity from which to make active portfolio bets, it is somewhat hard to see what justifies that cost differential. (To learn more on expense ratios, read Stop Paying High Fees.)

Conclusions
Russia was a bit late to this year's emerging markets party, but it's had a strong run as of late. This volatile and unpredictable market is not for the fainthearted; however, investors who make the decision to invest in Russia may find the convenient one-stop approach of the Russia ETF to be an effective way to obtain exposure.

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