The Top Russia-ETF Value Play

March 18, 2014

Russian equities have been hit hard in recent weeks, putting Russia-focused ETFs in play.

In a recent interview with Jim Rogers, the legendary commodities investor told ETF.com that he's optimistic on Russia and that its "neglected" equity market was cheap. Well, with all the tension recently involving Russia, Ukraine and Crimea, Russia's stock market has gotten even cheaper.

On March 3, 2014, the MICEX Index, which tracks the 50 largest and most liquid Russian stocks traded on the Moscow Exchange, plummeted nearly 11 percent. Two weeks later, the index still sits roughly 11 percent below its closing level on Feb. 28, 2014.

In line with Rogers' observation, if you look at the price/earnings multiples (P/E ratios) of Russia ETFs compared with those of other ETFs focused on the emerging markets in general or on the collection of the BRIC countries, Russia all by itself currently looks like a steal.

Trailing P/E Ratios Of Russia ETFs Vs. Emerging Markets
Ticker Fund P/E
ERUS iShares MSCI Russia Capped
4.33
RUDR VelocityShares Russia Select DR
4.25
RBL SPDR S&P Russia
4.79
RSX Market Vectors Russia
6.36
MCHI iShares MSCI China
9.39
EWY iShares MSCI Korea Capped
11.72
EWZ iShares MSCI Brazil Capped
13.86
EWT iShares MSCI Taiwan Capped
15.49
INDA iShares MSCI India
15.49
EEM iShares MSCI Emerging Markets
10.01

Source: ETF.com; as of 3/17/14

Of course Russia can get even "cheaper," depending on how the situation in Ukraine plays out.

But for those considering a Russia ETF to buy on the "cheap," it's imperative to know what you're getting, because Russia ETFs are not created equal.

The Three Practical Choices

Investors looking to tap directly into Russian equities through ETFs have three practical choices: the Market Vectors Russia ETF (RSX | C-65), the iShares MSCI Russia Capped ETF (ERUS | C-92) and the SPDR S&P Russia ETF (RBL | D-69).

Van Eck was the early bird in the space with its launch of RSX in April 2007. RSX holds the lion's share of all assets in the segment, with over $910 million, and more than $120 million in RSX shares changes hands on most days.

iShares' ERUS is not as popular as RSX, but it has $204 million in assets and trades more than $8 million a day—decent by most standards. Even though RBL launched eight months before ERUS, in March 2010, it lags behind in assets, with only $14 million.

The fourth and newest of the bunch, the VelocityShares Russia ETF (RUDR | F-76) has only $2 million in assets. According to our ETF.com analytics, RUDR is at high risk for closure and barely trades (the last execution was on Dec. 26, 2013, for 200 shares), so I'll leave RUDR out of the mix for now.

So how do the three main Russia ETFs differ?

In terms of cost, not much. They all charge between 59 and 62 basis points—between $59 and $62 per $10,000 invested, or within 3 basis points of one another. With regard to trading costs, RSX clearly leads the pack. RSX trades at penny-wide spreads (4 basis points), whereas ERUS and RBL trade at 9-12 basis points spreads, on average.

Where they really differ, however, is in exposure. And this is where the Russian market gets a bit quirky.

If you look at sector breakdowns below, you'll see some big differences.

As expected, the Russian market is dominated by energy, mostly from state-owned oil and gas companies, like Gazprom and Lukoil.

 

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