We have recently seen activity in significantly out of the money strikes in RSX (Market Vectors Russia, Expense Ratio 0.63%), specifically in January 12 puts (which traded at $0.70 per contract), and the ETF is registering another new low today with a $16 handle.
It was only several weeks back where we heard several “dip buying” calls out there in RSX when it was in the low 20’s on the street, and one has to wonder if the recent plunge just continues with reckless abandon.
We have not seen option strikes this low trade in the product before this week actually. RSX as a fund has seen about $22 million flow out via redemption activity in the month of December thus far (yield is up to 3.75% on RSX), but in spite of the abominable performance in 2014 (->40% YTD) in the country’s equity market (we won’t even get into the Ruble currency, particularly since no ETF exists anymore that tracks it unfortunately), RSX has net pulled in assets in 2014 (adding >$1.2 billion).
So which are the top holdings in RSX currently? No surprises here, there is a very heavy weighting to the Energy sector (>43% of the fund) and to specifically names like LukOil OAO Sponsored ADR (8.06%) and Gazprom OAO Sponsored ADR (7.87%), making up the top two holdings at the moment. The next highest weighted sector owned in RSX is Materials at about 16.9%.
So it is fair to say that the sell-off that seemingly will never end in Russia is all about oil, as trite as that may sound. RSX is not the only game in the Russia space that has seen trading volumes rise above the normal levels recently, as iShares lists ERUS (iShares MSCI Russia Capped, Expense Ratio 0.62%) which is down in line with RSX year to date roughly, performance wise.
Here, Lukoil is the second largest weighting at 11.98% and Gazprom has a lofty 18.59% weighting, with more than 51% of the overall portfolio being concentrated in the Energy equity space.
It is no wonder the funds have experienced the downward price pressure that they have seen in the past several weeks if not quarter. Interestingly, ERUS has seen some assets trickle out year to date ($-33 million), while its asset base ($217 million) is considerably smaller than the more tenured RSX.
Direxion has a made a mark with all of the recent volatility in Russia given the increasing popularity of both RUSL (Direxion Daily Russia Bull 3X Shares, Expense Ratio 0.95%) and RUSS (Direxion Daily Russia Bear 3X Shares, Expense Ratio 0.95%) which trade 1.3 million shares and 229,000 shares respectively, daily on average at this point in time.
We see that Direxion is planning a reverse split later this month in fact (7 for 1) in RUSL given its plunge and current $4 handle. RSXJ (Market Vectors Russia Small Cap, Expense Ratio 0.67%) was listed in 2011 as a “Junior” offering covering Small Cap stocks in the segment much like the GDX/GDXJ relationship at Market Vectors, and this fund as one might expect is down even more so than the larger cap offerings RSX and ERUS this year (->48% YTD), trading at yet another new low since inception this year.
SPDRs is also in the Russia segment via RBL (SPDR S&P Russia ETF, Expense Ratio 0.59%), although this fund is currently the smallest in the space with about $20 million in AUM. If we look at just fund flows in 2014, distress is really not “evident” in the Russia equity space, although the reality of the matter is considerably more grim given the depths that stocks here have plunged to.
On December 4th we learned from Bloomberg News that President Vladimir Putin “vowed to punish speculators attacking the ruble with harsh measures” but we wonder if Bulls on Russian equities will continue to be punished by the market in coming weeks and months, or will things finally even out?
Market Vectors Russia Small-Cap ETF
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