During the first quarter, economic growth in Russia missed forecasts and slowed to its weakest level since the end of 2017, but that hasn’t stop Russia-focused exchanged-traded funds (ETFs) from gaining as of late. Russia sits atop the leader board when it comes to emerging markets equities ETFs.
The latest data raised the possibility of a rate cut by the country’s central bank.
“The weaker than expected GDP figure which sharply undershot the CBR expectations provides a strong argument for a 25 basis point rate cut at the upcoming June meeting with additional 25-50 basis points needed over the second half of 2019,” said Dmitry Polevoy, economist at Russian Direct Investment Fund.
There could also be a link to gold and Russia in terms of economic strength. While bonds are typically the default play when U.S. equities go awry, gold is also a prime option for diversification as a safe alternative.
Russia is second behind China in terms of shoring up their gold holdings. Juan Carlos Artigas, director of investment research at the World Gold Council, says “There are four drivers of gold that investors need to keep an eye on. The first one is economic expansion. There’s a positive link between economic growth and gold over the long run.”
While China is the more popular option in emerging markets given its status as the second largest economy with respect to gross domestic product. Investors may want to give Russia ETFs a look in the list below:
|Symbol||ETF Name||Total Assets (thousands)||YTD|
|(FLRU)||Franklin FTSE Russia ETF||$12,137.18||19.44%|
|(ERUS )||iShares MSCI Russia ETF||$597,745.33||17.92%|
|(EMQQ )||Emerging Markets Internet & Ecommerce ETF||$391,685.41||16.51%|
|(GREK )||Global X FTSE Greece 20 ETF||$268,087.44||15.36%|
|(RSXJ )||VanEck Vectors Russia Small-Cap ETF||$35,513.58||15.02%|
|(RSX )||VanEck Vectors Russia ETF||$1,315,460.63||14.99%|
For investors looking for the continued upside in emerging market assets, whether driven by a weakening USD or continued developments around trade, the Direxion MSCI Emerging Over Developed Markets ETF (RWED) offers them the ability to benefit not only from emerging markets potentially performing well, but from emerging markets outperforming developed markets.
“Clients are taking these positions to provide a ballast against a rising risk in other parts of their portfolio,” Brett Pybus, the managing director for iShares EMEA fixed income at BlackRock, said in an interview. “There’s a lot of geopolitical and macro uncertainty, such as the US-China trade talks, but that’s been priced in, whereas there is a fairly significant dispersion of returns from EM.”
RWED seeks investment results that track the MSCI Emerging Markets IMI – EAFE IMI 150/50 Return Spread Index. The Index measures the performance of a portfolio that has 150 percent long exposure to the MSCI Emerging Markets IMI Index and 50 percent short exposure to the MSCI EAFE IMI Index.
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