The Selective Approach to Eastern Europe ETFs

Shares of the Market Vectors Russia ETF (NYSEArca: RSX) are off 4.6% Thursday on volume that is already more than 40% above the daily average on news that armed Russian forces continue to gather along the Ukraine border.

Including Thursday’s tumble, RSX, the oldest and largest Russia ETF, has dropped more than 20% in the past month and is flirting with five-year lows. Currently trading around $21, if RSX falls below $20, it will be the first time the ETF has committed that offense since mid-2009. [Russia With No Love as Ukraine Punishes ETFs]

Although simmering tensions have abated somewhat, an absence of unity among western allies on how to respond to the seizure of the region could embolden Moscow to capture additional territory it deems strategically important to its national interests, which would only worsen the plight of financial markets in the region,” said S&P Capital IQ in a new research note. “Still, military intervention did as much damage, if not more, to Moscow’s markets as it did to those bordering Russia. So, expectations of any additional annexations should encourage further investment outflows from Russian capital markets, the predictable beneficiaries of which would be the refuge currencies of the U.K, Switzerland, the eurozone, and the U.S.”

Although the tenuous situation with Ukraine has adversely affected Russian equities and ETFs, RSX has actually pulled in almost $239 million this month while the iShares MSCI Russia Capped ETF (NYSEArca: ERUS) has seen only modest outflows. That could be a sign investors are finally buying into the notion that Russian stocks are too inexpensive to ignore. However, that faith has not yet been rewarded. [It’s Pricey to Bet Against Russia ETFs]

There are other opportunities in Eastern Europe ETF investors may want to consider.