Russia ETF On Fire (And Not In A Good Way)

by on August 13, 2010 | ETFs Mentioned:

Through the first eight months of 2010, a number of unexpected disasters–both natural and man-made–have taken their toll on equity markets around the world. Chile was battered by a devastating earthquake. The airline industry took a hit from a volcanic eruption in Iceland. And the oil industry has been slammed by the Deepwater Horizon fiasco in the Gulf of Mexico. Now another unexpected natural disaster is wrecking havoc across large parts of the world’s largest country, Russia. In addition to a record heat wave in the country’s capital and most populous city, much of the country has been experiencing a drought that has ravaged crop yields and forced the nation to cut off wheat exports. Moreover, massive wildfires stretching across much of the western portions of the country are threatening to choke off Moscow from the rest of the world [see Three Unlucky ETFs].

This disaster is one of the worst wildfires in Russian history; more than 650,000 acres have already fallen victim to the blaze. The location of the blaze complicates matters; it’s burning right on the outskirts of Moscow, the country’s economic and political heart and home to more than 10 million people. Flights have been grounded at the city’s vital airports and residents have been urged to wear protective masks whenever they go outside to protect against elevated levels of smog. Health officials in Russia compare daily exposure to the air pollution to smoking several packs of cigarettes [also see Seven Most Corrupt Country ETFs].

The turmoil is now spreading beyond suburban Moscow; fourteen regions have declared a state of emergency after wildfires engulfed entire villages, leaving 28 people dead and more than 2,000 homeless, according to Rossiya-24, the Russian state-run broadcasting outlet. About 180,000 rescuers are battling the fires, aided by 18 aircraft, which have dropped 3,000 tons of water to douse the flames in a single day, said Emergency Situations Ministry spokeswoman Irina Andrianova.

As this disaster spreads, it is is beginning to have a noticeable effect on the Russian economy. The fires have swallowed up large chunks of farmland, further intensifying the severe wheat crisis in a country that was recently one of the main exporters of the crop. Some experts now believe that the fires, drought and Moscow heatwave will combine to cost the economy over $15 billion dollars, or about 1% of GDP. Below, we profile three ETFs that look to be the most impacted by this ongoing crisis [find all the ETFs that offer exposure to Russia with our brand new country exposure tool]:

Market Vectors Russia ETF (RSX)

This fund is the most popular a single country ETF in the Emerging Markets ETFdb Category, with more than $1.8 billion in assets and 3.3 million shares trading hands on an average trading day. RSX offers investors heavy weightings towards energy and industrial material sectors, which combine to make up roughly 55% of the fund’s total assets. The fund is dominated by large cap equities; RSX allocates roughly 75% of its assets to giant and large cap companies. Not surprisingly, large oil and gas companies dominate the top individual holdings; Lukoil ADRs top the list, making up 8.1% of assets. Other big holding include OJSC OC Rosneft and Gazprom, which both make up 7.7% of the fund. RSX has slumped lately, posting a loss of over 6.2% over the past month [also see Why Russia's Trade Pact Is Big News For RSX].


This relatively new fund may not have the volume or assets under management that more established counterpart has, but RBL does manage to beat the Market Vectors fund by three basis points in terms of expenses. RBL tracks the S&P Russia Capped BMI Index, a float adjusted market cap index designed to define and measure the investable universe of publicly-traded companies domiciled in Russia. The fund is heavily weighted towards energy companies, which make up more than 40% of the fund’s total assets. Its top two holdings are oil and natural gas giants Gazprom (16.2%) and Lukoil (9.4%). Since its inception in mid-March, the fund has lost almost 5% [also read ETF Plays To Follow Cisco Into Russia].

CurrencyShares Russian Ruble Trust (XRU)

For investors seeking to play the Russian currency, XRU offers the only pure play option. Although the fund is up marginally over the past 52 weeks, it has lost more than 2.4% over the past week as investors have grown increasingly concerned over the Russian economy and the effect these disasters will have on exports [see Three Country ETFs With Low Debt-To GDP].

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Disclosure: No positions at time of writing.