Equity: Russia - Total Market
Representative exposure in Russia means 2 things: High concentration risk and a portfolio heavy in energy companies. The top 10 Russian stocks by market capitalization account for over 80%
“The top 10 Russian stocks account for over 80% of our benchmark” of our benchmark, with energy giants Gazprom, Lukoil, Surgutneftegaz and Rosneft alone comprising about half of that weighting.
Out of the 3 ETFs targeting the broader Russian market, ERUS is the best Fit to our MSCI benchmark, but that does not necessarily mean it’s the most comprehensive. Since ERUS tracks an MSCI index, the fund (and our MSCI benchmark) excludes some significant Russian companies that incorporate and/or list overseas, like Vimpelcom, X5 Retail Group and Mail.Ru. In that regard, RSX and RBL offer the widest scope to the Russian equity market.
RSX is the most popular fund in segment, with the most AUM by far. Both RSX and RBL offer portfolios with less concentration risk than ERUS. RBL and RSX have a couple of things in common—they underweight energy and tilt smaller, with significantly more exposure to midcaps than ERUS.
In Tradability, RSX outshines its competition handily. The fund trades in the hundreds of millions of dollars a day at pennywide bid/ask spreads. Spreads widen out as investors move to less liquid option in the segment such as ERUS and even more so for RBL.
Costwise, all 3 ETFs charge within a few bps of each other. (Insight updated 11/20/17)
ETF.com Efficiency Insight
RSX is light-years ahead of its competitors in AUM, likely due to its first-mover status in the Russian ETF space. This robust asset base puts it far away from any kind of fund-closure
“The 3 ETFs charge within a few bps of each other.” risk. Technically, closure risk isn’t an issue for ERUS or RBL either but RBL’s asset base is quite low and could elevate closure risk in the future.
Costwise, the 3 ETFs charge within a few bps of each other. But if we’re going to be nitpicky, RBL is the segment’s cheapest fund. As a rule of thumb, lower holdings costs translate into more efficient index tracking. But in this case, RBL trailed its index by more than the expense ratio—sometimes significantly.
Beyond their expense ratios, all three funds are tax efficient as they have managed to avoid capital gains payouts in recent years. (Insight updated 11/20/17)
ETF.com Tradability Insight
RSX dominates the sector in Tradability. It is leagues ahead of its competition, with robust daily median trading volume and pennywide bid/ask spreads. ERUS isn’t as liquid as RSX but
“RSX dominates the sector in Tradability.” it does see impressive volume and hosts reasonable bid/ask spreads. RBL is a big step down as it trades significantly less and sees much wider spreads.
Investors may want to trade early in the morning when Russian and US markets are both open to minimize NAV distortions. (Insight updated 11/20/17)
ETF.com Fit Insight
For 3 plain-vanilla ETFs that try to capture the same market, ERUS, RSX and RBL are very different. While ERUS has the best Fit score because it tracks an MSCI index similar to our
“RSX and RBL offer more comprehensive coverage of the Russian market” benchmark, RSX and RBL offer more comprehensive coverage of the Russian market, since they’re also inclusive of offshore incorporated and/or listed names like Vimpelcom, X5 Retail Group and Mail.Ru, which are missing in the benchmark. ERUS readily embraces the concentrated nature of the segment by allocating almost 75% of its holdings to the top 10 names. Energy companies rightfully dominate sector splits, leaving other industries in supporting roles.
Yet for investors who want to shy away from holding highly concentrated portfolios, RSX and RBL may be better options. RSX is the least concentrated Russian ETF, although less concentration risk translates to a smaller tilt and growth bias. Roughly half of its holdings overlap with our benchmark, which also helps explain RSXs tilts both in size and sector splits. Like our benchmark, roughly half of RBL’s assets are allocated to energy stocks such as Gazprom and Lukoil.
Overall, while ERUS fits our benchmark closely and consistently, for investors who want a more comprehensive exposure to the Russian market and want to dilute their exposure to energy titans should look deeper into what RSX and RBL have to offer. (Insight updated 11/20/17)