Russia Rebound Fueling This Broader EM ETF

Russia’s benchmark Micex Index bottomed on March 14th and since then, stocks there have been in rally mode.

Since that day, the Market Vectors Russia ETF (NYSEArca: RSX), the iShares MSCI Russia Capped ETF (NYSEArca: ERUS) and the SPDR S&P Russia ETF (NYSEArca: RBL) have all gained more than 20%, entering bull markets as global investors have returned to Russian stocks amid signs of ebbing tensions with neighboring Ukraine. [Russia ETFs

Russia’s rebound has benefited more than just the aforementioned ETFs. Predictably, diversified emerging markets ETFs have also gotten a lift, but upside for Russian equities is even more impactful for the WisdomTree Emerging Markets Equity Income Fund (NYSEArca: DEM).

DEM is a prime beneficiary of resurgent Russian equities because the ETF allocates 19.3% of its weight to Russia, well above the weights to that country found in rival diversified emerging markets ETFs. For example, the Vanguard FTSE Emerging Markets ETF (NYSEArca: VWO) and the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) each allocate just over 5% of their respective weights to Russia.

EEM and VWO only feature one Russian stock among their top-10 holdings while DEM has four Russian names in its top-10 lineup. That positioned DEM to benefit when the Micex surged almost 10% in May in what was the index’s biggest monthly gain in nearly three years. [Putin Pause Lifts Russia ETFs]

Although DEM has been previously criticized for its overweight to Russia with critics asserting the ETF is more volatile as a result, those complaints miss the mark. For example, the WisdomTree Emerging Markets Equity income Index (WTEMHY), DEM’s underlying index, has a beta of just 0.81 against the MSCI Emerging Markets Index since June 2007, according to WisdomTree data.