Few if any emerging markets have been ensconced in as much controversy as Russia has this year, but the most recent bout of scrutiny on President Vladimir Putin has not derailed exchange traded funds holding Russian equities.
Since July 17, the day pro-Russia separatists shot down Malaysia Airlines flight MH17 over Ukraine, the Market Vectors Russia ETF (NYSEArca: RSX) has traded modestly higher. Over that time, RSX, the largest and most heavily traded Russia ETF is up 1.3%.
RSX rose modestly Thursday “as a draft document obtained by Bloomberg showed the EU is preparing to sanction top Russian security officials and didn’t mention targeting any major companies. The 28-member bloc is also considering a ban on European purchases of bonds or shares sold by Russia’s state-owned banks among the options for stepped-up measures against the Kremlin,” reports Halia Pavliva for Bloomberg.
Sanctions against Russian banks, while clearly not good news for Russia ETFs, may not be a major stumbling block to the funds. RSX and rivals such as the iShares MSCI Russia Capped ETF (NYSEArca: ERUS) are not substantially allocated to the financial services sector.
RSX allocates 12% of its weight to the sector, making it the ETF’s fourth-largest sector exposure, but that is well below the fund’s 42.4% energy weight. ERUS has a 16.1% weight to Russian banks, but that is just a third of the ETF’s weight to energy names. [Putin Pause Lifts Russia ETFs]
In March, U.S. and European officials imposed a rash of economic sanctions, including some that targeted energy companies held by Russia ETFs. However, RSX is up 11.4% since March 17. “The U.S. also has blocked OAO Rosneft, OAO Novatek, OAO Gazprombank and Vnesheconombank from accessing American equity or debt markets for new financing with maturities longer than 90 days,” according to Bloomberg.
Even with increased controversy surrounding Russia and elevated fears that Putin’s heavy-handed approach is isolating his country from the West, significant outflows from Russia ETFs have not been a trend in recent days. Since the flight MH17 tragedy, RSX has lost $60 million in assets, but it still has over $1.5 billion. ERUS has seen no outflows over the same period.
Market Vectors Russia ETF
