Donald Trump is ‘making Russian ETFs great again’

Jan 12th, 2017 | By | Category: Equities

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In the world of Donald Trump’s post-truth politics, one fact remains undisputed: Russian equity ETFs have performed well in 2016 and analysts expect this performance to continue this year.

Donald Trump is 'making Russia ETFs great again'

The widely-followed MICEX Index rose 27.6% during 2016 in Russian rouble terms, compared to the fall in the MSCI Emerging Markets Index of 6.7% in US dollars over the same period.

The bounce back of crude oil prices and the olive branch from the US President-elect to Russian President Vladimir Putin helped the widely-followed MICEX Index to rise 27.6% during 2016 in Russian rouble terms, compared to the fall of the MSCI Emerging Markets Index of 6.7% in US dollars over the same period. The MICEX Index is a price-weighted reference for the performance of the ten most liquid stocks on the Moscow Exchange.

Brent crude oil futures are trading around $56 per barrel, rising from a low of $27.90 per barrel at the start of last year, as OPEC planned to cut production.

State-owned oil giants dominate the largest stocks in Russian equity indices, and are therefore the top weightings in Russian ETFs.

There are six ETFs listed in Europe that track Russian equities, from Lyxor, iShares, Deutsche Asset Management, ComStage, RBS and HSBC.

The largest is the $680m Lyxor UCITS Russia ETF (LON: RUSU) which is up 59.7% over the past 12 months in USD terms. It costs 0.65% in fees and has 30.2% in industrials and energy stocks, including the top holding of 4.6% in Gazprom and 4.1% in Total SA.

So far in January it is up 3.2%.

Another popular fund is the $293m iShares MSCI Russia ADR/GDR UCITS ETF (LON: CSRU) which tracks the MSCI Russia Index. The index rose 30.3% in 2016 in Russian rouble terms due to a 54% allocation to the energy sector. The ETF is fairly concentrated with just 14 holdings but has produced better returns of 62.6% over the last 12 months in USD terms (its trading currency).

The cheapest options both cost 0.60%, from ComStage and HSBC. The HSBC MSCI Russia Capped UCITS ETF (LON: HRUD)is up 61% over 12 months in USD terms and up 91.1% in GBP terms (LON: HRUB) over the same period. The underlying index has just 22 holdings with 53% in energy stocks.

President-elect Trump has largely dismissed accusations that Vladimir Putin authorised hacking of the Democratic National Committee’s and the White House’s email servers in order to give the Republican candidate a helping hand, and said that any hacking from “Russia, China and other countries” had no effect on the outcome of the election.

Trump’s friendly stance towards and praise of Putin has led analysts to forecast that economic sanctions upon Russia, imposed by President Barack Obama, will be rolled back this year under President Trump.

Trump’s incoming Secretary of State, Rex Tillerson, has close ties to the Kremlin and is a director of a Russian subsidiary of ExxonMobil which is registered in the Bahamas. Tillerson is a vocal opponent of sanctions.

James Duffy, Product Manager at Van Ecksaid: “Trump is making Russia great again”.

Russia would still have to face sanctions from the European Union, however, which were implemented after Russia’s invasion of Ukraine.

And despite rallying since the election, Russian ETFs are not immune to the fallout surrounding the security breach scandal in the US.

Many Russian ETFs fell last week as US intelligence officials testified in a senate hearing about the ongoing risks posed by Russian cyber hacks. CSRU fell by 1.3% between 4 and 5 January.

James Clapper, Director of National Intelligence, testified that it could only have been the most senior Russian officials behind the hacks, a statement also espoused by Mr Obama.

Mr Trump said the claims were “ridiculous” and repeatedly cast doubt on the credibility of the FBI and the CIA.

He said on New Year’s Eve that he “knew a lot about hacking” and promised to reveal what he knew in the first week in January, despite tweeting “What is going on?” the evening prior to his intelligence briefing on Friday 6th.

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