Categories: Exchange Traded Funds (ETFs)International Investing

Why Russian Small Caps are a Contrarian Pick

World Economic Forum, CC BY SA 2.0

Due to Russian President Vladimir Putin’s shenanigans and the ongoing Ukraine situation, many Western investors are fleeing Russia. However, contrarian investors view this as an excellent opportunity to enter the Russian market on the cheap. After all, Russia’s political troubles cannot erase its large market, or its vast natural resources. If those give you enough reason to bet against the negative sentiment surrounding Russia, you may want to look into Market Vectors Russia Small-Cap ETF (RSXJ).

This non-diversified fund seeks to match the performance, before fees and expenses, of an index composed of Russian small-capitalization companies.

This exchange-traded fund (ETF) is down a whopping 22.26% this year, mainly due to a precipitous drop in February and March, along with a smaller fall in recent months. This demonstrates just how negative investor sentiment has turned against Russia. However, RSXJ has begun to rally and is quickly approaching its 50- and 200-day moving averages. This fund offers a yield of 3.86%.

Reflecting Russia’s diverse economy, RSXJ is invested in a broad variety of sectors, with its largest allocations to real estate, 16.97%; industrials, 16.61%; basic materials, 16.13%; and utilities, 15.53%. This fund also has smaller weightings in energy, consumer cyclical, financial services, healthcare and consumer defensive.

RSXJ invests 64.09% of its assets in its top 10 individually held stocks. The top five of these holdings are Ak Transneft Oao-Pref, 8.44%; Transneft OJSC, 8.32%; Aeroflot Russian (AERZY), 7.15%; Aeroflot Russian Airlines JSC (AFLT), 7.08%; and PIK Group OJSC GDR (PIK), 6.63%.

If you believe the Russian market has reached a bottom and wish to bet against the negative investor sentiment swirling around Putin and his country’s actions, you may want to consider an investment in Market Vectors Russia Small-Cap ETF (RSXJ).

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

In case you missed it, I encourage you to read my article from last week about a Brazilian infrastructure ETF. I also invite you to share your thoughts below.

Doug Fabian

Doug Fabian is the Editor of Weekly ETF Report, a free weekly e-newsletter, and the newsletter Successful ETF Investing. He’s also the host of the syndicated radio show, “Doug Fabian’s Wealth Strategies.” Doug also edits the fast-paced trading service ETF Trader’s Edge, for investors who want to take their profits to the next level. Taking over the reins from his dad, Dick Fabian, back in 1992, Doug has continued to uphold the reputation of the newsletter as the #1 risk-adjusted market timer as ranked by Hulbert’s Investment Digest. Doug became a member of the “SmartMoney 30” in 1999 — a listing of the most influential individuals in the mutual fund industry. In the feature, SmartMoney magazine exclaims that Doug is the best-known “trend follower” among the $56 billion (and growing) group of financial advisors. In 2001, Doug wrote “Maverick Investing,” published by McGraw-Hill. He also regularly appears at seminars around the country, stands out on the pages of the largest newspapers (The Wall Street Journal, The Los Angeles Times, and The New York Times), and speaks on national television (CNBC, Fox News, and Bloomberg Forum). For more than 35 years, Successful ETF Investing (formerly the Telephone Switch Newsletter and Successful Investing) has produced double-digit percentage annual gains. Doug has become known for his expert knowledge and timely use of innovative tools, such as exchange-traded funds, bear funds, and enhanced-index funds to profit in any market climate. For more information about Doug’s services, go to http://www.fabian.com/