3 Russian ETFs to Play Putin’s Big Plans


Let’s face facts — things haven’t exactly been that great for Mother Russia and Russian stocks over the last few years. Point blank, Russia’s economy is in shambles.

3 Russian ETFs To Play Putin's Big Plans

The vast bulk of the nation’s revenues and income come from natural resources. Prices for everything from crude oil and natural gas to nickel and coal have cratered.

With the majority of Russian stocks in the commodity sectors, earnings have been nonexistent. Compounding that fact has been the continued sanctions by the rest of the world for Russia’s involvement in the Ukraine.

All of this has translated into big-time problems for the nation’s finances. It’s basically broke. And while Russian stocks and Russian ETFs have bounced back a bit thanks to their extreme values, they need a major shot in the arm to get back to cooking.

Which is why Vladimir Putin is doing something extreme — selling an $11 billion piece of state oil giant Rosneft (RNFTF). The deal will give China and India a 19.5% stake in the oil major.

Ultimately, the deal could be seen as a net positive for Russian stocks and links three of the four BRIC economies ever closer together. Over the longer term, that linkage should help strengthen Russian stocks further and help them overcome the nation’s commodity and budget woes.

With that in mind, the time to buy Russian stocks could be now. Here are three Russian ETFs to do just that.

Russian ETFs To Play Putin’s Big Plan: VanEck Vectors Russia ETF (RSX)

Russian ETFs To Play Putin's Big Plan: VanEck Vectors Russia ETF (RSX)Expenses: 0.67%, or $67 annually for every $10,000 invested

Obviously, the big play for Putin’s plans to shore up Russia’s finances is directly in Russian stocks. And while there are a few ways to tap the nation’s equities, the $1.7 billion VanEck Vectors Russia ETF (RSX) is the only one that matters.

For starters, RSX has the largest percentage of its assets in Rosneft currently at around 5%. If the deal goes through, the ETF will be the largest direct beneficiary. It should “feel” the gains by a larger amount.

Secondly, RSX is very commodity heavy. More than 55% of its assets are tied to natural resources. Top holdings for the ETF include Gazprom (OGZPY), Lukoil (LUKOY) and Norilsk Nickel (NILSY).

The proposed sale could be the real start of future commodity deals between Russia and China/India. Over the longer term, this could provide Russia with guaranteed sources of buyers for its products.

Finally, RSX’s high exposure to Russian financial stocks should provide a benefit, as the deal is designed to boost the nation’s pension plans and economy.

At the end of the day, RSX is the best and easiest way to buy Russian stocks and play Putin’s plans to jump-start the economy. Expenses for RSX run 0.67%.

Russian ETFs To Play Putin’s Big Plans: iShares MSCI BRIC Index Fund (ETF) (BKF)

ishares ewzExpenses: 0.7%

In retrospect, the BRIC countries (Brazil, Russia, India and China) could have been seen as just a catchy marketing gimmick. The Great Recession and global credit crisis took much of the appeal of investing in the four nations out of the equation.

However, the deal to sell off a piece one of the prime jewels in terms of Russian stocks could change that.

As we said before, the deal will continue to strengthen ties between China/India and Russia. The two Asian emerging-market giants need commodities to fuel their growth and Russia has them in spades. Together, they really are stronger than separate. With that in mind, maybe the concept of the BRICs — Brazil aside — is sound.

To that end, the iShares MSCI BRIC Index Fund (ETF) (BKF) could be worth looking at again. Sure there are plenty of Russian stocks in the ETF, but the fund also holds plenty of Chinese and Indian equities.

At the end of the day, the deal to sell off Rosneft is just as much about coming together as it is about just Russia. The flow of natural resources — and in time, capital and labor — should help boost all the nations in the bloc. BKF is really the only game in town to play Russian stocks and Chinese and Indian ones at the same time.

Expenses for the BRIC ETF run at just 0.7%.

Russian ETFs To Play Putin’s Big Plans: Direxion Daily Russia Bull 3X ETF (RUSL)

Russian ETFs To Play Putin's Big Plans: Direxion Shares Exchange Traded Fund Trust (RUSL)Expenses: 1.02%

Despite the potential for Russia over the long term because of this deal, it’s still a risky place. I can certainly understand he apprehension over buying and holding Russian stocks. Perhaps, the best way to profit from the deal is with a short-term play.

The Direxion Daily Russia Bull 3X ETF (RUSL) is that play.

RUSL is a leveraged ETF, meaning it uses futures and swaps to juice its returns over the short term. In this case, RUSL provides three times the daily return of the underlying index that RSX uses — the MVIS Russia Index. So if RSX goes up 1% on a day, RUSL is supposed to go up 3%. For investor looking for some serious short-term gains from the deal when it’s officially announced, RUSL is the play.

Now, keep in mind, RUSL does have some risks of its own. If RSX falls, RUSL will fall by a greater amount. Also there is a compounding/decay effect when holding it over multiple weeks or months. Because it resets each day, RUSL returns over longer periods of time can be more or less than just 3x RSX’s.

But when it comes to making the most on Russian stocks over the short term, RUSL is still the best vehicle to use. Expenses for the leveraged ETF come in at 1.02%.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2016/06/russian-etfs-rsx-bkf-rusl/.

©2023 InvestorPlace Media, LLC