emerging markets funds
, have shown noticeable signs of weakness in recent days. That is
not the case for all small-cap ETFs and an arguably surprising
candidate is showing signs of leadership.
The Market Vectors Russia Small-Cap ETF (NYSE:
), the worst performer among the
the four major BRIC small-cap funds last year
, has shown signs of life in 2013.
Accounting for Thursday's gain of almost 1.3 percent, RSXJ is
now up nearly three percent year-to-date, a performance that
easily tops comparable BRIC small-cap ETFs such as the Market
Vectors Brazil Small-Cap ETF (NYSE:
) and the Market Vectors India Small-Cap ETF (NYSE:
). RSXJ has also easily outpaced the Guggenheim China Small-Cap
) since the start of the year.
With just $10.2 million in assets under management and average
daily volume below 15,100 shares, RSXJ is often overlooked in
favor of large-cap funds in the Russia ETF conversation. ETFs
have fed demand for Russian large-caps, leading to a widening
valuation chasm between the countries large and small market
according to JPMorgan research
That market value should not diminish the allure of RSXJ
because Russian small-caps have their own virtues relative to
their larger peers. Indeed, investing in a Russia ETF usually
means significant exposure to the energy sector and that works
when oil prices rise. However, RSXJ is more diverse than Russian
RSXJ has an 18.1 percent allocation to the energy sector. That
can be viewed as enough to give the ETF some correlation to
rising oil prices, but not so much that the fund should suffer
mightily if oil prices experience significant price retrenchment.
On the other hand, the Market Vectors Russia ETF (NYSE:
) devotes almost 43 percent of its weight to energy names, many
of which are state-controlled.
That brings up another point in favor of RSXJ, which is that
as a small-cap fund, it is not excessively weighted to state-run
firms. For example, the ETF has just a 0.2 percent weight to
utilities stocks, arguably Russia's most heavily relegated sector
and that is not known for stable dividends or an ability to
generate free cash, as JPMorgan noted.
In an effort to attract more foreign investment, is
legitimately working to diversify its economy away from energy
dependence to greater domestic consumption. Should those efforts
bear fruit in the near-term, RSXJ could benefit due to its
combined 18 percent weight to discretionary and staples
One reason may be performing well this year is that investors
according to Market Vectors data
. The SPDR S&P Emerging Markets Small Cap ETF (NYSE:
) has a P/E ratio of almost 13 and a price-to-book ratio of
For more on Russia, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
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