If Russia were a stock, it would be considered cheap but well-positioned—and that has boosted a Russia-focused exchange-traded fund.
In 2016, VanEck Vectors Russia ETF (RSX) was one of the best-performing single-country ETFs focusing on emerging markets, with a total return of 44%. Todd Rosenbluth, a senior director at S&P Global Market Intelligence, says that ETFs “exposed to energy and materials companies, as RSX, have performed well and could continue to move higher if there’s further global economic growth in 2017.”
Some investors see part of the gains as an offshoot of the “Trump rally,” but others say there is more to it than that.
David Garff, president and chief investment officer at Accuvest Global Advisors, says Russia is “the only country we follow that has a trailing P/E [or price-earnings ratio] of less than 10 times.” (He puts it at 8.5.) “The average country trades at over 20.”
Of investing in Russia, he says: “There are obvious risks in terms of politics, economic sanctions and an economy dependent on the price of oil.”
Mr. Rosenbluth sees risks, too, saying “investing in single-country emerging-market ETFs results in higher volatility, so investors should prepare for a bumpy ride.”
Still, trading activity in RSX has climbed in recent months, helping to enhance liquidity and keep trading costs low.
Why are stocks so cheap? Distrust of the Russian government and the leadership of Vladimir Putin, says Rob Lutts, chief investment officer of Cabot Wealth Management in Salem, Mass. He says Russia today reminds him of what China felt like during his first visit there in 2002. “There was very little confidence in the leadership in China then, and stock prices reflected it.”
The VanEck fund’s top holdings include oil companies such as Gazprom, Lukoil and Novatek, and banking company Sberbank of Russia.