Performance of passive funds
The VanEck Vectors Russia ETF (RSX) is the most heavily traded ETF that invests in Russian equities. The fund manages $1.9 billion in assets and is invested in 32 stocks. Its total returns for 1Q16 stood at 12.9%. Around 40% of the fund’s assets are invested in stocks from the energy sector, with materials holding a distant second place with ~17% exposure. The fund tracks the VanEck Vectors Russia Index.
Among the sectors, energy posted the highest total return in 1Q16, with Rosneft OJSC, Open Joint Stock Company Surgutneftegas (SGTZY), and PJSC Tatneft (OAOFY) gaining the most in the period. Although telecom services formed only a tenth of the fund’s assets, they had the second-best total returns for the quarter, led up by Mobile TeleSystems PJSC (MBT) and the sponsored ADR of VimpelCom Ltd. (VIP).
The iShares MSCI Russia Capped ETF (ERUS) tracks the MSCI Russia 25/50 Index. ERUS is invested in 27 holdings and is managing assets worth $260 million. Over half of its assets are invested in the energy sector and financials are a distant second with 19% exposure. It is this high energy exposure that led to the fund posting 16.4% total returns in 1Q16.
The SPDR S&P Russia ETF (RBL) tracks the S&P Russia Capped BMI Index. RBL is invested in 47 holdings and is managing assets worth $22.7 million. Energy forms 47% of the portfolio while financials are second with ~16% exposure. The fund’s total returns for 1Q16 stood at 13.3%.
Performance of the active fund
The Voya Russia Fund – Class A (LETRX) is quite concentrated as it is invested in just 24 holdings. The fund was managing assets worth $70 million at the end of February 2016. Stocks from the energy sector form 41% of the fund’s assets and materials and financials, in that order, are second and third, forming ~15% of the portfolio each.
The total returns of the LETRX stood at 9.5% for 1Q16. Its picks from materials and financials posted higher total returns than those from the energy sector.
As can be seen from the graph above, all passive funds have outpaced the actively managed LETRX in 1Q16. Picks from the information technology sector did the LETRX in. However, the sector posted negative returns for the quarter, hurting RBL and RSX. The stock picks (LXFT) by LETRX did especially badly. ERUS was not invested in the sector at all.
Another difference was the exposure to the energy sector. The absence of technology stocks and high exposure to the energy sector were behind the success of ERUS. LETRX had the smallest exposure to energy stocks among the four funds. Also, while all passive funds had more than 95% of their portfolios invested in Russian stocks, LETRX had only 84% of its portfolio invested in the country. Thus, it was not able to benefit as much from the rally in Russian stocks.
This is a very short-term analysis, so it is not easy to say whether the active or the passive route is better for investing in Russian stocks.
Let’s move to the next geography among the BRIC nations: India.