Van Eck, the New York-based fund sponsor known for its natural resources strategies, today launched the first ETF to tap directly into the small-cap segment of the Russian stock market.
The Market Vectors Russia Small-Cap ETF (NYSEArca: RSXJ) is designed to tap into what Van Eck sees as a good value opportunity relative to other emerging markets equities.
Small-cap companies are thought to provide more direct exposure to domestic themes and be less susceptible to “state risk” than larger companies, David Semple, Van Eck’s director of international equity, said in a conference call on April 14.
“Russia is currently among the least expensive of the major emerging markets from a valuation perspective,” the company said in a press release. “Russia’s stock market price/earnings ratio is just 6.6, which represents a significant discount versus emerging markets stocks in general.”
While Russia’s huge energy sector is part of the allure of investing there, the new small-cap RSXJ isn’t focused as much on energy as its large-cap Van Eck counterpart, the $4 billion Market Vectors Russia ETF (NYSEArca: RSX). It’s designed more to focus on the domestic-demand story, Semple said.
“It’s not like RSXJ is devoid of energy plays,” Semple said in the conference. “It drills down into domestic demand. Domestic demand is one of the best parts of the Russian economy.”
RSXJ tracks an index comprising companies that are headquartered in Russia or that derive at least 50 percent of their revenues from that country. The benchmark has 35 companies, including Pharmstandard, as well as property developer LSR Group and O’Key Group.
The index caps each security at 8 percent to ensure diversification, according to Van Eck. Average market capitalization of its holdings is about $2.3 billion, which compares to $20 billion in average market cap for the index benchmarking RSX.
RSXJ’s heavier sector allocations are to utilities, materials and energy companies, each representing just over 17 percent of the basket. Industrials and consumer staples also ranked high in the mix.
RSXJ costs a net expense ratio of 0.67 percent.
Trial by fire is one way to discover why ETF transparency matters.
Most people now realize leveraged ETFs can hurt you, but how, then, to use them?
What would a shift out of a mutual fund and into an ETF look like up close?
China A-shares in a broad emerging market fund may be the right idea at a terrible time.