The VanEck Vectors Russia ETF (NYSEArca: RSX), the largest Russia exchange traded fund trading in the U.S., is down 7.2% year-to-date, a disappointment following the ETF’s epic 47.2% gain in 2016. RSX’s 2017 struggles are all the more painful when considering the MSCI Emerging Markets Index is higher by more than 19%.
President Donald Trump has acted more friendly toward Russia and Russian president Vladimir Putin. Consequently, market observers are speculating that the Trump administration could be more willing to roll back sanctions placed on Russia in response to its actions against Ukraine.
Alternatives to RSX, also the most heavily traded Russia ETF, include the iShares MSCI Russia Capped ETF (NYSEArca: ERUS), SPDR S&P Russia ETF (NYSEArca: RBL) and the VanEck Vectors Russia Small-Cap ETF (NYSEArca: RSXJ).
Potential political controversy is weighing on RSX and Russian stocks as some market observers “think that is still likely, given the investigations in Washington into Trump dealings with Russian government officials,” reports Daisey Maxey for the Wall Street Journal.
More aggressive traders have also turned to the Direxion Daily Russia Bull 3x Shares (NYSE: RUSL), which attempts to deliver triple the daily returns of the same index tracked by RSX. The Direxion Daily Russia Bear 3x Shares (NYSEArca: RUSS) looks to deliver triple the daily inverse returns of that index on a daily basis.
Slumping oil prices are also hampering Russian equities, which is not surprising because the country is the largest oil producer that is not a member of the Organization of Petroleum Exporting Countries (OPEC). RSX allocates close a third of its weight to energy stocks, including the country’s giant state-run energy firms.
“Oil has been on a roller coaster since March amid concerns over mounting stockpiles. OPEC officials extended output cuts into next year, but the price of Brent crude initially fell on disappointment the cuts weren’t bigger,” according to the Journal.
RSXJ, the Russia small-cap ETF, has a fair amount of exposure to the domestic economy as utilities, consumer staples and real estate stocks combine for almost 42% of that ETF’s lineup. As is usually the case, Russian stocks are attractively valued relative to broader emerging markets benchmarks.
“Over the 10 years through May, the fund (RSX) has shed 4.3% each year on average, while the broader VanEck Emerging Markets Fund edged up 1.5%, according to Morningstar,” reports the Journal.