A play on Russia is basically a play on oil exposure as the commodity contributes to a large chunk of the country’s gross domestic product. You can now choose from three single-country Russia exchange traded funds (ETFs) to get your fix. How do they stack up against one another?
Although Russia has its risks, behind those risks lie a fast-growing economy that’s got one eye firmly fixed on the future. Their economy is forecast to grow next quarter at the fastest pace since 2008 as government spending, rebounding consumer demand and bank lending spur recovery. GDP is expected to grow up to 5.3% in the first half of 2011 as well. [New ETFs: Russia and Inflation-Linked Bonds.]
Still, annual growth may slow to 2% in 2011-2013 if prices for oil and gas fall. Oil prices present one of the biggest risks, but Russia in recent years has recognized this and made an effort to further diversify. [Russia ETFs May Benefit from Modernization.]
- iShares MSCI Russia (NYSEArca: ERUS). ERUS has an expense ratio of 0.65%. Sector allocations: Energy 51.56%, Materials 17.97%, Financials 14.1%, Utilities 7.97%, Consumer Staples 4.41% and Telecommunications Services 4%.
- Market Vectors Russia (NYSEArca: RSX). RSX has an expense ratio of 0.62%. Sector allocations: Oil & Gas 39.5%, Finance 14.8%, Iron/Steel 13.2%, Telecommunications 12.7%, Energy 7.4% and Other 12.4%.
- SPDR S&P Russia ETF (NYSEArca: RBL). RBL has an expense ratio of 0.59%. Sector allocations: Energy 41.95%, Telecommunications 20.38%, Materials 15.87%, Financials 10.86%, Consumer Staples 5.6%, Utilities 3.64%, Health Care 1.04% and Consumer Discretionary 0.66%.
It should be noted that all three funds are heavily weighted toward the oil-energy sector, with significant allocations in the state-run Gazprom energy producer, and the ETFs are also weighted in the financial and materials sectors. The only major difference in the funds is that ERUS has a lower holding in telecommunications but makes it up with higher weightings in utilities.
The ETF you ultimately choose really comes down to which sector you want to have the most exposure to, what kind of expense ratio you want to pay and overall liquidity. RSX is the largest Russia ETF, with $2.1 billion in assets, so if liquidity is a concern, it’s an option.
For more information on Russia, visit our Russia category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.