Van Eck Global launched the Market Vectors Russia Small-Cap ETF (NYSEARCA:RSXJ) last week. RXSJ is the first US-listed fund to target Russian small cap stocks. The underlying index from 4asset-management includes companies in the bottom 10% of market capitalization and incorporated in Russia, or that generate the majority of their revenue in Russia.
Currently RSXJ holds 35 stocks with an average market capitalization of $2.3 billion. Six holdings have weightings of 5% or more and are likely unfamiliar to U.S. investors: Pharmstandard 8.0%, Lsr Group 8.0%, O’Key Group 6.5%, AK Transneft OAO 6.3%, and Inter Rao Ues 5.1%.
Rather than compete directly with existing large cap Russia ETFs, RSXJ complements them. For example, the portfolio of Market Vectors Russia (NYSEARCA:RSX) has an average capitalization of $20.3 billion, nearly nine times larger than RSXJ. Furthermore, the two funds appear to have minimal overlap. Sector weightings are also quite different. Van Eck’s Investment Case for Russian Small Caps (pdf) describes some of the perceived benefits.
The press release (pdf) suggests that large-cap Russia is more “appealing as a commodity or energy component of a portfolio, but leaves the domestic Russian consumer story largely untouched.” The large cap RSX fund has an Energy weighting of almost 44%. In contrast, the sector breakdown for RSXJ is Utilities 17.8%, Materials 17.8%, Energy 17.5%, Industrials 14.6%, Consumer Staples 10.0%, Health Care 8.0%, Consumer Discretionary 7.7%, Financials 3.7%, and Telecommunications 2.9%.
Unlike most ETFs, RSXJ expects to settle some of its share creation/redemption activity with cash instead of in-kind share exchanges. This increases the risk of tracking error and could potentially lead to a significant premium or discount to the fund’s N.A.V. (net asset value). Van Eck uses this process for Market Vectors Egypt (NYSEARCA:EGPT) and Market Vectors Colombia ETF (NYSEARCA:COLX).
Disclosure: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.