For our analysis on the ‘R’ of BRICS, we will consider two Russian ETFs: the VanEck Vectors Russia ETF (RSX) and the iShares MSCI Russia Capped ETF (ERUS). RSX has 50 stocks in its portfolio currently, the same as Russia’s RTS Index. However, RSX’s composition is quite different.
RSX, which is benchmarked to the VanEck Vectors Russia Index, has Open Joint Stock Company Magnitogorsk Iron & Steel Works as its largest holding, with 7.9% exposure, while the RTS Index has Public Joint Stock Company Gazprom (OGZPY) as its largest holding, with 14.7% exposure. On the other hand, ERUS has just 28 stocks in its portfolio presently and has Gazprom as its largest holding, with an exposure of 8.8% of its total assets.
According to its current holdings, RSX has a combined exposure of 15.3% to Mobile TeleSystems Public Joint Stock Company (MBT), Open Joint Stock Company Surgutneftegas (SGTZY), and Public Joint Stock Company Oil Company LUKOIL (LUKOY).
The YTD (year-to-date) return of RSX until August 24 stood at -1.6% while that of ERUS stood at -3.8%. Let’s see why.
The YTD average sectoral composition of our Russian ETFs RSX and ERUS is quite different. While RSX invests across sectors, ERUS does not have exposure to the consumer discretionary, healthcare, industrials, and information technology sectors. It has a higher exposure to the energy and the financials sectors than RSX, and exposure to these sectors has been partly responsible for ERUS’ underperformance when compared to RSX.
The energy sector can keep both Russian ETFs down until crude oil prices do not reverse their slide. A fall in energy sector stocks would impact both Russian ETFs, although the impact on the ERUS could be higher than that on RSX, as it is more diversified.
Next, let’s move to Indian ETFs.