By Eric Dutram
As expected, the current Prime Minister of Russia, Vladimir Putin, easily won the Russian Presidential election, ensuring his return to the Presidency for a six year term. Putin easily beat out his competitors, garnering over 63% of the vote, although widespread ballot stuffing and other voting irregularities were reported across the country. Thanks to this, as well as general opposition to another round of Putin’s rule by many in the opposition, protests hit major cities in Russia leading to hundreds of arrests.
As a result, there was an uneasy tone across much of the country as Putin inevitable takes over from current leader Medvedev. The news of the protests and the subsequent arrests lead some to believe that the new Putin regime will be pretty similar to the old one, although it should be noted that at least there were no casualties among the protestors, at least at time of writing. Nevertheless, the ratings agency Fitch warned about the dangers of confrontation, suggesting that an escalation in the country could do harm to investor confidence in the nation at this uncertain time (read Is Now The Time To Buy Russia ETFs?).
Due to this perception, as well as the uncertainty over how aggressive the opposition will become in the weeks and months ahead, Russian stocks sold off recently following the protests. The MICEX Index—a cap weighted benchmark of the 30 largest and most liquid Russian stocks—plunged by nearly 4.5% in trading during, and immediately following, the protests. Meanwhile, the U.S. dollar continued to strengthen against the Russian ruble, rising from just under one dollar to 29.0 rubles at the end of the month to its current level of one dollar for every 29.62 rubles.
Furthermore, the slump in crude oil didn’t help matters either for Russian stocks, as the economy of the key market is heavily dependent on petroleum products. Prices of Brent crude oil have fallen by nearly $3/bbl. in about two trading sessions while natural gas prices have remained weak as well. This downturn in hydrocarbon prices, as well as continued concern over the Greek crisis, have helped to push demand down for risky BRIC stocks, adding to Russian equity woes in recent trading.
While only a handful of Russian securities trade on U.S. exchanges, investors still have several options to play the market via ETFs. Beyond the two 3x products from Direxion that track the market on a daily basis—RUSS and RUSL - there are currently four products that follow Russian stocks. Below, we look to briefly highlight these funds and how they have performed in the wake of Putin’s win and the recent downturn in the price of oil:
Market Vectors Russia ETF (RSX)
This fund is by far the most popular ETF tracking the Russia market, having amassed over $2.2 billion in AUM. The ETF currently holds 47 components in its basket, giving high weightings to the energy (39%), basic materials (21%), and financials (12%). Large cap exposure dominates the fund, making up just over 70% of the product, although mid and small caps do receive a decent allocation as well. In trading immediately following the protest, the ETF sank by 5.8%, pushing the losses to 6.1% for the past five day period (read Three Overlooked Emerging Market ETFs).
iShares MSCI Russia Capped Index Fund (ERUS)
iShares’ entrant in the space is ERUS, a fund that holds about 27 securities and charges investors 65 basis points a year in fees. The fund is heavily concentrated in energy stocks as this sector makes up 55% of the total fund exposure. In terms of industry holdings, this leads integrated oil & gas firms to a 43% allocation, banks with a 14% holding, and energy exploration and production firms in third with nine percent. Additionally, the fund is also heavily concentrated from an individual holding perspective; Gazprom (OGZPY.PK), Lukoil (LUKOY.PK) and Sberbank (SBRBF.PK) of Russia combine to account for roughly 44% of the total assets. With this backdrop, the fund lost about 6.5% in Tuesday trading while it has lost less over the past five days, falling by 5.3%.
SPDR S&P Russia ETF (RBL)
For the cheapest—but least popular—ETF in the Russia space, investors should look no further than RBL. The fund holds 42 securities in its basket while charging investors 59 basis points a year in fees. The product has a similar concentration and top holdings profile as ERUS, although it does put slightly more into the basic materials sector. The fund also does pay a decent dividend—2.2%-- but it does have the least in volume among the three. In terms of performance, RBL was down about 4.4% after the protests and the slide in oil, while it lost 5.1% in the trailing five day period (see Five Cheaper ETFs You Probably Overlooked).
Market Vectors Russia Small-Cap ETF (RSXJ)
If investors are looking for a small cap play on the Russian market, RSXJ is the only real choice at this time. The fund trades on light volume and has seen little in inflows, giving the fund a relatively wide bid ask spread compared to many of its peers in the space. Nevertheless, it could give investors a different way to play the market since small caps account for 76% of the fund and micro caps make up another 22%. In terms of sectors, energy still receives the top spot, but industrials come in second and are closely trailed by basic materials, and cyclical consumer stocks. For performance, RSXJ declined by 4.4% in Tuesday trading, pushing the product to a 6.3% loss in the trailing five day period.