What is a Russia ETF
A Russia ETF is an exchange-traded fund that invests in Russian stocks, either directly through local stocks or by way of American depositary receipts (ADRs) and global depositary receipts listed on U.S. and European exchanges. Russia ETFs intend to replicate broad market Russian averages. Assets invested may represent a high portion of the net market capitalization of publicly traded Russian stocks. Russian ETFs offer investors exposure to one of the world's most populous nation, which is a relatively new market economy on the global stage.
An Introduction To Exchange-Traded Funds (ETFs)
BREAKING DOWN Russia ETF
A Russia ETF is a way for investors to gain exposure to a prominent emerging market. As one of the components of the BRICs, along with Brazil, India and China, investors can trade Russia through six ETFs on the U.S. exchanges. Of those ETFs currently available, three are large-cap funds focused on broad exposure, two offer leveraged and inverse exposure and one is a small-cap fund.
The largest funds provide significant exposure to the energy sector, which can be volatile. Russia’s natural gas conglomerate, Gazprom PJSC ADR, has the largest weight of any component in the index and is used to calculate pricing on leveraged and inverse funds. The small-cap fund offers investors a way to avoid exposure to the natural gas giant.
Another way for investors to add Russia to a portfolio would be to invest in BRIC ETFs, which look to capitalize on the growth of Russia, as well as its major emerging market peers, through select securities.
Russia ETFs and Risk
Any investment in an emerging market like Russia come with added risks. Russia is one of the most influential emerging markets in the world, but Russian equities have not always performed well, plagued by a long history of geopolitical instability and scandal. In addition, its dependence on the energy sector, and oil in particular, makes the market prone to volatility.
But what often excites market participants is the country's wealth of natural resources, including its oil market. Notably, Russia is one of the world's largest oil-producing countries that is not a member of the Organization of Petroleum Exporting Countries (OPEC), but there is more to the economy than just oil. Timber, metals and diamonds are strong markets in Russia as well. On a macro level, Russia also typically has a strong external asset position and a low government debt burden. Generally speaking, there are valid reasons to consider Russian ETFs as the country continues to emerge from the Soviet era.