Oil is the heart of the modern Russian economy, but portfolios that reflect this bias also expose investors to boom-and-bust volatility. Here is a better way to play Moscow.
First, take a look at a fund like RSX. It is a perfectly decent index-driven Russian portfolio, but 40% of its assets are in oil and another 7% are "energy," which is to say Gazprom (OGZPY.PK). Counting the banks and the "other" category, only 40% of the fund's holdings have any exposure to the Russian consumer economy at all.
RBL is about as bad: 47% weighting to energy, only 35% of the portfolio with any consumer-facing exposure at all. (In both funds, miners and steel manufacturers round out the rest of the holdings.)
Until someone comes out with a Russian consumer fund, here is a more balanced index that reflects both the vast (but volatile) Russian export economy and the fast-growing Russian domestic economy. Compared to the existing ETFs, this basket has heavy weightings to consumer products -- almost nonexistent in RSX or RBL -- and solid exposure to both big telecom names.
Because VIP is not primarily traded in Moscow, it is not even a major component of RBL or RSX. Telecom is your proxy to improved disposable income in any emerging market, so why cheat yourself out of one of the two key players just because it is not technically a Russian stock?