Russian stocks have bounced back to life in the first half of 2019 after five years struggling to gain traction amid U.S. sanctions, plunging oil prices, and an unstable float of the country's ruble currency that effectively cut equity values by half. The RTS Index (RTS.RS), a dollar-denominated equivalent of the MOEX Russia Index, closed at 1,346.98 on Thursday, June 13, its highest finish since July 15, 2014.
Russia's newfound financial stability, recent currency appreciation, and discounted equity valuations offer investors a level of insulation against ongoing trade tensions that threaten to derail global economic growth. Furthermore, U.S. President Donald Trump's persistent ire at China over fair trade has helped ease fears of new Uncle Sam sanctions placed on Russia.
"The absence of new sanctions has been a major driver for the Russian ruble and bonds, and that has triggered a revaluing of equities," Elena Loven, a portfolio manager at Swedbank, told Bloomberg.
Traders can gain access to the country's stocks using these three Russia exchange-traded funds (ETFs). Let's take a closer look at each fund and determine a suitable entry point using technical analysis.
VanEck Vectors Russia ETF (RSX)
Launched in 2007, the VanEck Vectors Russia ETF (RSX) aims to closely track the price and yield performance of the MVIS Russia Index. To achieve this, the fund invests at least 80% of its asset base in stocks that make up the benchmark index. RSX provides a tilt toward the energy and basic materials sectors, with respective weightings of 40.76% and 22.38%. Key stocks in its basket of 29 holdings include Public Joint-Stock Company Federal Hydro-Generating Company - RusHydro (RSHYY), Sberbank of Russia (SBRCY), and PJSC LUKOIL (LUKOY). The fund has assets under management (AUM) of $1.28 billion, offers an enticing 4.45% dividend yield, and is trading up 21.55% on the year, outperforming the S&P 500 Index by 6.2% over the same period as of June 14, 2019. The ETF's 0.65% management fee sits in line with the 0.68% category average.
The price of RSX carved out a double bottom between September and December 2018 and has since trended steadily higher into bull market territory. More recently, RSX shares dipped below the 50-day simple moving average (SMA) before commencing their current move higher to print a 52-week high at $22.95 in yesterday's trading session. Traders should look to buy dips to $22, where previous resistance now becomes support.
iShares MSCI Russia Capped ETF (ERUS)
With net assets of $615.80 million, the iShares MSCI Russia Capped ETF (ERUS) seeks to provide similar returns to the MSCI Russia 25/50 Index – a market-cap-weighted index of securities listed on Russian stock exchanges. The ETF's top 10 holdings account for almost 70% of its portfolio, making it a somewhat top-heavy fund. Like RSX, ERUS favors the energy and basic materials sectors, making it a suitable instrument for traders who want a bet on those market segments. Daily turnover of roughly 300,000 shares and an average spread of just 0.04% keep trading costs low, while the fund's 0.59% expense ratio won't break the bank either. As of June 14, 2019, ERUS has an impressive year-to-date (YTD) return of 25.29%, jumping 11.11% in the last month alone. Investors receive a 3.93% dividend yield.
ERUS shares have continued their march higher after the 50-day SMA crossed above the 200-day SMA in early January to generate a "golden cross" buy signal. The fund has retraced to the 50-day SMA twice this year before running to its current 52-week high at $38.88. Those wanting to go long should seek an entry point at the $36.50 level – an area where the price finds a confluence of support from the mid-April swing high and 50% Fibonacci retracement level.
Direxion Daily Russia Bull 3X Shares ETF (RUSL)
The Direxion Daily Russia Bull 3X Shares ETF (RUSL) sets an objective to return three times the daily performance of the MVIS Russia Index, making it suitable for traders who want an aggressive short-term bullish bet on Russian stocks. Its benchmark provides comprehensive exposure to Russia, inclusive of Russian companies, regardless of where they're domiciled or traded, as well as non-Russian firms that generate at least 50% of their revenues in Russia. The ETF provides competitive trading costs with an average spread of 0.16% and average dollar volume liquidity of roughly $6 million. Its use of derivative products contributes to the fund's expensive 1.36% management fee, although this shouldn't overly affect short holding periods. RUSL issues a 1.88% dividend yield, has AUM of $124.43 million, and sports a healthy 66.13% YTD gain as of June 14, 2019.
RUSL shares added most of their YTD gains in January and June, with the fund trading in roughly a seven-point range in between those months. The ETF's recent rally made its push from the support of the 200-day SMA, registering a 52-week high at $49.60 in Thursday trade. Sporadic volume has accompanied the move higher, showing some sizable tactical bets. Traders wanting to join the party should consider buying pullbacks to $43, where the price encounters significant support from the top of this year's four-month trading range.