Betting On Red: Building A Russian ETF Portfolio

February 15, 2017

This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today's article is by Mike Venuto, co-founder and chief investment officer of New York-based Toroso Investments.

Russia has been in the news in the past few years, and ETF investors owe it to themselves to take measure. We take a closer look at Russia—a big oil-producing country whose actions affect geopolitical stability, the price of oil and, if you believe it, even the 2016 U.S. presidential election.

Whether you’re long or short, to choose the right ETF for Russia exposure, you need to know what’s available. Let’s start by looking at ETF.com, which lists six ETFs that have exposure to Russia. In reality, only four of those require looking under the hood, because two of the six are triple-exposure funds built around the same index as the VanEck Vectors Russia ETF (RSX), the largest fund in the category.

Including RSX, the four Russia ETFs we’ll evaluate are:

Again, RSX is the largest and most liquid fund in the Russia category. It’s the go-to fund that most investors use. It has $2.8 billion in assets under management. It's also worth noting that between the two triple-exposure plays, a lot more is invested in the long version, which gives you an idea of what the market is thinking.

Overlap Analysis

Now that we know what’s available, let’s plug all this into Toroso’s software, which can analyze any security or ETF, and determines what overlaps with it. We run client portfolios through a similar process to arrive at workable and realistic approaches, but what we’re doing here is a bit different. (We have a 2.17% exposure to Russia in our Global Alpha SMA Strategy.)

 

Ticker Fund Overlap Expense Ratio (bp)
ERUS iShares MSCI Russia 43.9% 61
RBL SPDR S&P Russia ETF 71.1% 59
RSXJ VanEck Vectors Russia Small 0.0% 67

 

The first thing we notice is there’s overlap between RSX, RBL and ERUS. I built a grid to show us the overlaps. RSX overlaps RBL with 72% securities, and RSX has a 44% security overlap with ERUS. Notably, RSX has no overlap with the small-cap Russia fund, RSXJ. Quantifying such overlaps or lack of overlap helps us develop an initial idea of how to construct a portfolio.

 

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