It has been a trying year in which to be long Russia exchange traded funds and that is saying something. With a three-year standard deviation of almost 30%, which is about 1,000 basis points above the MSCI Emerging Markets Index, the Market Vectors Russia ETF (NYSEArca: RSX) can be unnerving for skittish investors.
Year-to-date RSX, the largest and most heavily traded Russia ETF, is off 10.4%. Since mid-March, around the time some members of the Obama Administration were dispensing some rather dreadful advice about shorting Russian equities, RSX is up 15.2%. That has not been an easy move, either. Over the past 90 days, RSX is down 5.4%, roughly the same amount the ETF has gained over the past month. [White House is no Place for ETF Advice]
On the surface, trading RSX and other Russia ETFs appears difficult, but trading these ETFs from the long side is easier on days in which Russian President Vladimir Putin says he supports a peace accord with Ukraine, notes Bloomberg.
That theory was put to the test last week when RSX jumped on Wednesday after news agencies reported that Putin and Ukrainian President Petro Poroshenko had been in talks about a cease-fire. RSX would finish the week on a down note as investors learned those talks were tenuous at best. [Cease-Fire Talks Lift Russia ETFs]
Further affirming RSX’s sensitivity to Putin’s peace overtures, hallow as they may be, the ETF “has posted one-day rallies of 2.4 percent or more on at least eight occasions following conciliatory signals from Putin’s administration,” according to Bloomberg.
Some emerging markets investors have become so wary of Russian equities that S&P Dow Jones Indices recently surveyed clients regarding their feelings about removing Russian stocks from that provider’s indices. MSCI (NYSE: MSCI) has created indices that exclude Russian companies, and while there has been some demand for those ex-Russia indices, none has come from ETF providers, according to the Financial Times.
Russia’s conflict with Ukraine has, obviously, had an indelible impact on RSX and rival ETFs. Russian stocks, though among the emerging world’s least expensive have been hampered by S&P lowering its rating on Russian sovereign debt to BBB-, the lowest investment grade, and a raft of economic sanctions against the country by the West.
Those scenarios and others have created a spate of anecdotal evidence that underscores just how tricky trading Russia ETFS can be. For example, Russia ETFs were among the worst non-leveraged performers in the first quarter before being among the best non-leveraged ETFs in May.
RSX has spent so much time in the spotlight in 2014 that it has been one of the 10 most searched ETFs on ETF Trends on a weekly basis nearly 10 times since the start of the year.
Market Vectors Russia ETF
ETF Trends editorial team contributed to this post.