The average weight to the energy sector among the three Russia ETFs is 48% with ERUS allocating 55.3% to Russian oil and gas names. Although RSX has the smallest energy sector weight of the trio (42%), it was able to muster a 1.3% gain last month due to the increased Russian output and a modest increase in Brent futures. The U.S. Brent Oil Fund (NYSEArca: BNO) rose 1.9% last month while the U.S. Oil Fund (NYSEArca: USO), which tracks near-month West Texas Intermediate futures, plunged 5.4%.
While few would argue that the energy sector weights held by Russia ETFs are excessive, there is a potential advantage there, even for dividend investors willing to take on increased volatility. Russia’s Finance Ministry is fighting to require the country’s state-controlled companies to boost the percentage of profits paid out in dividends to 35% by 2016 from the current level of 25%.
Importantly, the Finance Ministry wants Russian firms to reach 35% based on international, not local accounting rules.
Since Russia’s largest oil companies are state-run, the higher dividend push could benefit the aforementioned ETFs. An alternative is the WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM). Russia is the largest country weight by nearly 300 basis points in DEM and the country is the fastest-growing dividend payer in the WisdomTree Emerging Markets Equity Income Index, DEM’s underlying index. [Emerging Markets ETFs Gaining Momentum]
Market Vectors Russia ETF
Tom Lydon’s clients own shares of DEM.