As Russia took full control over Crimea in the weekend, the
situation turned even worse with the U.S. and European Union
imposing various tough sanctions against the country. This has
raised the possibility for Russia being trapped in recession soon
this year, compelling many rating agencies to downgrade their
outlook on Russia.
This is particularly true as the two major rating agencies -
Standard & Poor's and Fitch Ratings - reduced their credit
rating outlook on Russia from stable to negative each (read:
Is It Time to Flee Russian ETFs?
Here are the Russia Sanctions…
The U.S. President has penalized Moscow by freezing personal assets
and banning travels for a number of Putin's allies, as well as
forbidding several Russian companies from doing business with U.S.
firms. The sanctions have hit hard two Russian banks - Bank Rossiya
and SMP Bank - where Visa and MasterCard have stopped their
processing service, as well as several wealthy business Russians,
who were blacklisted, in the second round of prohibitions by the
These bans could accelerate further as Obama could punish key
sectors of the Russian economy, including its huge energy business,
if it continues to destabilize Ukraine.
The European Union also introduced similar types of sanctions like
asset freezes and travel bans against a number of Russian officials
who are closer allies to Putin. Meanwhile, Japan has also joined
the West but imposed moderate sanctions. Japanese Prime Minister
Shinzo Abe has halted negotiations with Russia on investment
accords, space and military activities as well as relaxing visa
All these sanctions led to intensified pressure in the emerging
Cold War between Russia and the West and could hamper the global
economic growth going forward.
Since Russia is an energy-rich nation, Western Europe and other
markets are heavily dependent on Russian production to fuel their
economies. As such, if geopolitical tension heightens further, it
would be a boon for many commodities (read:
3 Energy ETFs to Buy on the Ukraine Crisis
Some commodities are already seeing a strong run-up in their prices
over the past few days and the trend is likely to continue in the
near term given the continued East-West standoff. Though the U.S.
agreed to hold off more economic sanctions until Russia goes beyond
Crimea capture, the situation is unlikely to cool off at least in
the near term.
As a result, investors could easily tap the surge in commodities by
investing in the following ETFs:
Palladium - ETF Securities Physical Palladium Shares (
Palladium is enjoying a huge rally, hitting the highest levels in
more than 2 and half years thanks to concerns on potential trade
restrictions between Russia and the West. Russia, the top producer
of palladium, accounting for nearly 42% of the world supply, might
curtail export of the precious metal, thereby adding to supply
Palladium ETF Surging on Tensions in Ukraine
The palladium market is already witnessing a supply crunch from the
eight-week mining closure and labor unrest in the second largest
producer South Africa, which makes up for about 37% of the total
supply. On the other hand, demand is rising rapidly from the boom
in auto industry, and a growing consumption of palladium in cell
phones, computers and jewelry. The demand/supply imbalances led to
a rise in palladium prices and the pure play ETF in the space.
PALL seeks to match the spot price of palladium, net of fees and
expenses. With AUM of $496.2 million, PALL owns palladium bullion
in plate or ingots kept in Zurich or London under the custody of
JPMorgan Bank. The product has an expense ratio of 0.60% and sees
moderate volume of more than 72,000 shares a day.
The ETF added about 3% in the last five trading sessions and has
room for more upside given the Zacks ETF Rank of 2 or 'Buy' rating.
Wheat - Teucrium Wheat ETF (
Agricultural commodity like wheat is also seeing smooth trading
over the past several days due to the instability in Ukraine, one
of the largest exporters of wheat, which could disrupt the supply
from the Black Sea region resulting in a supply crunch.
Additionally, adverse weather conditions in the U.S. are adding to
production woes. Supply reductions coupled with growing global
demand are pushing wheat price higher.
One way to play this solid trend is with WEAT, which provides
exposure to the wheat market in a unique way and reduces the
effects of both contango and backwardation. Unlike many commodity
ETFs, this product doesn't just cycle into the next month as
expiration approaches, rather it utilizes a much more in-depth
4 Agricultural Commodity ETFs Soaring in 2014
The product uses three futures contracts for wheat, all of which
are traded on the CBOT Futures Exchange. The three contracts
include the second-to-expire contract, weighted 35%; the
third-to-expire contract, weighted 30%; and the contract expiring
in the December following the expiration month of the
third-to-expire contract weighted 35%.
The fund has amassed $16.5 million in its asset base and sees small
volume of around 23,000 shares a day. The product is the high cost
choice in the space as it charges annual fee of 2.23%. WEAT gained
over 4% in the past five days and has a Zacks ETF Rank of 3 or
Brent Oil - United States Brent Oil Fund (
Although Brent oil gains have been capped by a seasonal slump in
demand and sluggish manufacturing data from the world's largest oil
consumer, concerns over supply disruptions in Russia, a major
supplier of oil and natural gas, and Libya act as major catalysts
for the oil price.
If the crisis escalates further or European Union hits Russia with
more sanctions then Russia could freeze European markets out of its
vast oil and natural gas supplies. This will result in higher
, pushing Western Europe in search for other markets to meet their
Investors could easily take advantage of this situation by playing
with BNO, which provides direct exposure to the spot price of Brent
crude oil on a daily basis through future contracts. The fund has
amassed $27.8 million in its asset base and trades in light volume
of roughly 38,000 shares a day (see:
all Energy ETFs here
The ETF charges 75 bps in annual fees and expenses and is just up
0.21% over the past five trading sessions.
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US BRENT OIL FD (BNO): ETF Research Reports
ETFS-PALLADIUM (PALL): ETF Research Reports
TEUCRM-WHEAT FD (WEAT): ETF Research Reports
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