A small cap rally is certainly fueling the markets, but can it work in tandem with single-country exposure? In the case of Russia, it certainly has, with the VanEck Vectors Russia Small-Cap ETF (RSXJ) up close to 50% in the past year.
RSXJ seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® Russia Small-Cap Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.
The index includes securities of Russian small-capitalization companies. It will normally invest at least 80% of its total assets in securities of small-capitalization Russian companies.
Summarily, RSXJ gives investors a:
- Small Cap Focus: Small caps may offer greater exposure to domestic growth, less exposure to global cyclicals.
- Value Opportunity: Russia’s equity market is currently offering deep discounts when compared to other emerging markets.
- Pure Play: Fund companies must be incorporated in or derive at least 50% of total revenues from Russia to be added to the index.
RSXJ is stealthily outpacing the broader MSCI Russian index by about 5% within the last 12 months. Adding that exposure to a small cap rally is helping the fund get that added performance.
A Value Play on a Russian Rebound
With small cap growth providing tailwinds, it will still be an uphill climb for RSXJ. The economy is still battling Covid-19.
“Russia’s gross domestic product (GDP) fell 2.8% year-on-year in February, the economy ministry said on Friday, compared to a drop of 2.2% year-on-year the previous month,” a Reuters article said. “After shrinking 3.1% in 2020, its sharpest contraction in 11 years, Russia’s oil-dependent economy is set to recover to pre-crisis levels by the end of this year, the central bank said on Friday while raising interest rates.”
Nonetheless, from a technical standpoint, the momentum is strong. RXSJ could be presenting a value-added option with the relative strength index (RSI) close to oversold levels at 40.98 in the one-year chart. Meanwhile, the 50-day moving average remains above the 200-day moving average.
When adding another momentum indicator to the mix, the stochastic relative strength index (StochRSI), the fund is within oversold levels, making it an ideal buying opportunity. At some point, the Russian economy will turn around, and if small caps continue to be a hot commodity, so will RSXJ.
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