Russia Equity ETFs Rising After Beat-Down

February 13, 2015

Russian equities ETFs have been quietly rallying in 2015 as many investors begin to see the beaten-down market as a prospective value buy.

 

News that Russia has agreed to a ceasefire with the Ukraine has helped support Russian stocks in recent days, fueling hopes that no additional sanctions will be imposed on Russia.

 

The question on everyone’s mind, however, is whether Russian President Vladimir Putin will honor the terms of the ceasefire, which starts Sunday. There’s no doubt that things can turn around quickly if Putin violates the deal.

 

Russian ETF On A Roll

Owning funds such as the Market Vectors Russia ETF (RSX | B-60), the iShares MSCI Russia Capped ETF (ERUS | B-90) and the SPDR S&P Russia (RBL | D-63), among others, has delivered solid gains so far this year.

 

RSX, which is the biggest in the segment, with $1.6 billion in assets, and which tracks a market-cap-weighted index of Russian companies, is up 23 percent year-to-date. Competing ERUS and RBL are up 19 and 21 percent, respectively, as the chart below shows. 

 

 

In a recent panel discussion at ETF.com’s Inside ETFs conference, Dennis Gartman and Mark Yusko both argued the case for value opportunities lurking in Russia stocks, thanks largely to the ongoing difficulties the ruble has been facing.

 

In a broader sense, Gartman argued that regardless of what Putin is or isn’t doing for the economy, there are several vibrant businesses in Russia that are doing quite well. Yes, Putin’s behavior undercuts long-term growth potential in Russia, at least for the time being, but value opportunities abound, Gartman says, and these opportunities are easily tapped into through ETFs.

 

The performance of funds such as RSX, RBL and ERUS seems to echo Gartman’s and Yusko’s views.

 

But while year-to-date performance has been good, in the past 12 months, owning Russia equity ETFs has not delivered positive returns, as the chart below shows. There are plenty of skeptics when it comes to finding value in Russia. 

 

 

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