Russia has not been kind to investors over the last several years. The Russian ruble is down 57% in value relative to the U.S. dollar from June 30, 2014 through Jan. 15, 2016 and down 65% since May 2, 2011. The precipitous drop in Russia's currency has negatively impacted virtually all types of investments in the emerging market nation, as equities have experienced similar declines to those of the ruble.
There is no exchange-traded fund (ETF) out in the marketplace that invests solely in the ruble. The CurrencyShares Russian Ruble Trust ETF closed in 2011. The best way to play the Russian ruble is to gain indirect exposure through investments that are affected by the currency's movement.
Russian government bonds offer perhaps the best direct exposure to the ruble. However, there aren't any ETFs in existence that focus solely on Russian fixed income. Emerging markets bond funds such as the Vanguard Emerging Markets Government Bond ETF often invest in Russian government notes but normally do so in allocations of 10% or less. To get the greatest exposure to the ruble, investors need to look at Russian equities.
The number of ETFs providing pure equity exposure to Russia is relatively limited. The performance of many of these funds over the last several years is relatively poor, but they remain among the best ETFs available for exposure to the Russian ruble.
Market Vectors Russia ETF
With over $1.5 billion in assets, the Market Vectors Russia ETF (NYSEARCA: RSX) is the largest of the Russia-focused ETFs. According to the fund's fact sheet, this fund invests in companies that are either headquartered in Russia or derive at least 50% of their revenues in Russia.
As of Jan. 5, 2016, the fund is relatively concentrated with just 34 holdings. It invests primarily in Russia's largest companies, and over half of its assets are invested in the energy and materials sectors. The fund's expense ratio of 0.63% is quite reasonable given the hurdles that often come with investing in emerging markets, and the dividend yield, which has historically been somewhat volatile, currently sits at an attractive 4.2%.
iShares MSCI Russia Capped ETF
With limited ETF options available for Russian investment and few large, well-established companies to invest in, investors likely won't be surprised to discover that the iShares MSCI Russia Capped ETF (NYSEARCA: ERUS) looks very similar to the Market Vectors Russia ETF. The term "capped" in the fund's name indicates that its expenses are capped at a certain level.
This fund is concentrated similarly to RSX with just 27 holdings, and 60% of fund assets are invested in the fund's top 10 holdings as of Jan. 5, 2016. This fund also claims energy as its top sector, but it also maintains an above-average weighting in financial services stocks.
SPDR S&P Russia ETF
Many ETFs with the "SPDR" name are the largest funds in their particular peer groups, but the SPDR S&P Russia ETF (NYSEARCA: RBL) is one of the smaller funds among its peers. Consequently, with just $20 million in assets as of Jan. 14, 2016 and fewer than 10,000 shares traded daily on average, liquidity and transaction costs become a greater concern for this fund than some of its larger counterparts.
This fund compares favorably from a standpoint of both diversity and expense, however. It has almost 50 names in its portfolio and, with an expense ratio of 0.59%, it comes as one of the cheaper options available.
SPDR S&P Emerging Europe ETF
The SPDR S&P Emerging Europe ETF (NYSEARCA: GUR) is another choice for significant exposure to the Russian ruble, although without the pure exposure to Russia.
As of Jan. 5, 2016, this fund has about half of its assets under management (AUM) invested in Russia with another 40% committed to Turkey and Poland. This fund has performed just about as poorly as the aforementioned Russia-focused ETFs thanks to the general overall weakness in emerging markets. While this fund won't provide as much exposure to the Russian ruble, it is a way to gain significant exposure to the currency as long as the fund managers' investment in Russia remains significant.
