Russian ETFs offer highly specialized exposure to the ninth most populous nation and its relatively new market economy. This BRIC component, along with Brazil, India and China, presents a hot spot in worldwide economic development, generating the bulk of industrial growth in the last two decades. Continued Western dependence on these countries seems inevitable as financial markets head toward the next decade.  

Russian equities and funds traded on U.S. exchanges exploded in volume in 2014 and 2015, in reaction to Ukrainian military intervention that undermined years of peaceful relations with the West. Political and military tensions have continued into 2016, intensified by Russia’s energy dependence during the worst commodity decline in decades.  Further, Russia's involvement in the Syrian conflict has added to the stress, raising dark memories of the Iron Curtain era.

Russian ETF Overview

Investors and market timers can trade Russian political and economic developments through six ETFs on the U.S. exchanges. It’s a well-balanced grouping, with three large cap funds focused on broad exposure, two on leveraged and inverse exposure while a single fund covers the Russian small cap universe. Take time to choose wisely between these instruments because performance can vary greatly.

The big cap funds offer outsized exposure to the energy sector, which has been battered by the commodity collapse. Gazprom PJSC ADR, Russia’s natural gas conglomerate, stands at the top of their holding lists and is the top component of the index, used to calculate pricing on leveraged and inverse funds. Only the small cap fund allows market players to avoid exposure to this mega cap, which holds the world’s largest natural gas reserves.

The Top Russia ETFs

Name

Assets in 1000s

Market Vectors Russia ETF (RSX)

$1,658,580

iShares MSCI Russia Capped ETF (ERUS)

$213,844

Daily Russia Bull 3x Shares (RUSL)

$167,551

Daily Russia Bear 3x Shares (RUSS)

$34,297

Market Vectors Russia Small-Cap ETF (RSXJ)

$30,957

SPDR S&P Russia ETF (RBL)

$21,536

Market Vectors Russia ETF offers the group’s most popular fund, trading more than 13-million average shares per day. It’s an expensive instrument with a .63% expense ratio, but high liquidity and tight bid/ask spread balance this higher cost. It came to life in August 2007, at the height of the last bull market and has been stuck in a downtrend since April 2011, at the same time that crude oil topped out. Not surprisingly, it’s posted a 5-year return of -57.82%.

The fund tracks the market-cap weighted Market Vectors Russia Index. It holds a 7.72% Gazprom weighting, while the energy sector comprises 35% of the total weighting. Basic materials, financials and telecommunications together constitute a nearly equal weighting, allowing the fund to offer a broader performance base. It currently pays a 3.61% annual distribution yield.

iShares MSCI Russia Capped ETF takes a different approach, tracking the MSCI Russia 25/50 Index, a free float-adjusted market cap weighted index confined to the top 85% of stocks listed on Russian exchanges. It carries a high expense ratio at .62% but tight bid/ask spread and 542K shares per day on average lower overall costs. The fund has been in existence since November 2010, posting a dismal 5-year return of -53.69%

Gazprom is also this fund’s biggest holding, above RSX at 8.67%. It currently contains 27 total holdings, with 63% in the blue chip to mega cap category. The sector breakdown is skewed to a 50% energy allocation, while financial services and basic materials comprise another 25%. It currently pays a 3.90% annual distribution yield.

SPDR S&P Russia ETF offers the broadest country exposure, tracking the S&P Russia Capped BMI Index, a market cap weighted index of publically traded stocks on Russian exchanges. Unlike ERUS, it holds Russian companies listed on foreign exchanges, including the U.S. The fund carries the lowest expense ratio in the group at .59% but trades one of a wide bid/ask spread due to the low average daily volume of just over 12K shares. It currently pays a 3.61% distribution yield.

Market Vectors Russia Small-Cap ETF tracks a market-weighted index of Russian exchange-listed and depositary receipt small caps. It carries a high expense ratio at .68% and wide bid/ask spread aggravated by the low 33.8K average daily volume. 20% of fund exposure comes from companies headquartered or listed outside of Russia, with 17% UK, 4.6% U.S. and 4% Sweden. Energy comprises a much smaller share of weighting than other funds in the group, at only 1%. It currently pays a 2.14% distribution yield.

Daily Russia Bull 3x Shares and Daily Russia Bear 3x Shares offer leveraged and inverse country exposure in highly liquid instruments that track Market Vectors Russia Index, the same market-cap weighted index used to calculate RSX. These are costly funds to trade, with expense ratios of 1.11% and .98% respectively, but that’s typical in leveraged instruments. The bull fund posts nearly five times the average volume of the bear fund, at 2.05-million vs. 422K shares per day.

The Bottom Line

Six Russia ETFs offer broad exposure to that country’s publically traded companies, with Market Vectors Russia ETF presenting the best choice for the majority of investment and short selling objectives.