Watching the news for the past 2 weeks or so has brought some very disturbing images of Russia and of its capital Moscow which has been suffering from two major threats. First off, the worst heat wave in Moscow has been making life very difficult for its citizens. Even more critical have been the large fires that have been going on in the Western part of Russia. They have been so serious as to force the government to advise its citizens to stay home even in the capital because of the poor quality of the air.A major part of the worries has also been the impact of these fires on the agricultural economy in Russia, which is one of the top agricultural exporters in the world. It has had major impacts on prices of many grains such as wheat when the government confirmed that Russia would not be doing any exports this year in order to have sufficient resources for its own citizens which have already suffered too much with between 700 and 100 deaths already.
Every crisis has its opportunities
Like almost any other tragic event, there are opportunities and I wanted to take a look at a few ETF’s that could help profit from these opportunities. We could also go into specific companies but for now, let’s start with ETF’s, which provide an efficient way of playing these trends.
While it remains unclear how much this will end up costing in the short and medium term, estimates have started to be published. Barclays Capital has estimated that it would cost Russia around $15 billion, about 1% of its GDP. Where are these costs coming from? The most obvious origin is agriculture, which represents 4.6% of the Russian economy. A large portion of that will be lost this year. Obviously the effects of that slowdown will be widespread.
Another major factor is retail spending. About 20% of Russia’s retail spending takes place in Moscow, which has been in “shutdown mode” for a few weeks now and could be so for a some more time. A slowdown of the Russian economy, combined with tough conditions on other exports to China, the US and Europe (because of their own slowdowns) could mean a crisis in the BRIC member economy.
The flip side of course is that Russia is becoming less dependent on the oil and agriculture economies as it works on creating its own Silicon Valley. Research also shows that tax revenues from the government are up this year despite a flat oil price which confirms the theory of diminishing dependence on natural resources.
The two obvious plays on the Russian economy are trading its entire stock market or its currency (Ruble). Here are ETF’s that allow you to do just that:
Ticker Name Market Cap Price Return YTD Fees 1Y Return Dividend Yield
RSX Market Vectors - Russia ETF 1853893000 30.7701 -1.507 0.62 33.382 0.256743593
XRU CurrencyShares Russian Ruble Trust 6520000 32.6 0.349 0.4 6.748 1.21257669
RBL SPDR S&P Russia ETF 4288500 28.59 #N/A N/A 0.59 #N/A N/A 0.632161619
We did mention that some commodities would not be allowed to be exported from Russia and that has obviously already has signifcant impacts on some grains and by far the most significant is wheat. Just take a look at the wheat price movements in the past few weeks.
Unfortunately, there are no US ETF’s that track what. There is one in London such WEAT LN. But some grain ETF’s in the US do have a significant portion of their holdings in wheat. Here are the main ones to be considered:
Ticker Name Market Cap Price Return YTD Fees 1Y Return Wheat weight
JJG iPath Dow Jones-UBS Grains Subindex Total Return ETN 124585200 41.476 1.064 0.75 6.221 0.3
DBA PowerShares DB Agriculture Fund 1970801000 25.99 -1.853 0.85 -1.779 0.25
GRU ELEMENTS Linked to the MLCX Grains Index Total Return 15516000 5.9748 4.727 0.75 7.321 0.47
RJA ELEMENTS Linked to the Rogers International Commodity Index - Agri Tot Return 300288000 8.1762 2.267 0.75 10.476 0.2
JJA iPath Dow Jones-UBS Agriculture Subindex Total Return ETN 77849930 46.59 1.459 0.75 6.024 0.2
And finally, another good way to play Russia has always been and continues to be energy plays. A huge part of the Russian economy depends on oil and natural gas. As goes the price of these two resources, as goes the Russian economy in many regards. You could take a bet that thanks to increasing oil prices, the Russian economy will largely espcae the problems. Here are the main crude oil ETF’s:
Ticker Name Market Cap Price Return YTD Fees 1Y Return
OIH Oil Services Holders Trust 2201152000 102.5502 -12.566 0 1.397
USO United States Oil Fund LP 1722581000 33.71 -13.646 0.45 -9.183
OIL iPath Goldman Sachs Crude Oil Total Return Index ETN 569421400 21.93 -14.645 0.75 -10.276
IEZ iShares Dow Jones US Oil Equipment & Services Index Fund 328082000 40.01 -6.659 0.47 11.631
DBO PowerShares DB Oil Fund 474209000 23.94 -12.876 0.75 -8.669
IEO iShares Dow Jones US Oil & Gas Exploration & Production Index Fund 337705000 49.3 -8.299 0.48 8.158
DIG ProShares Ultra Oil & Gas 341532000 28.64 -16.724 0.95 -0.051
XES SPDR S&P Oil & Gas Equipment & Services ETF 264627000 26.73 -5.867 0.35 11.927
UCO ProShares Ultra DJ-UBS Crude Oil 275672100 9.33 -25.473 0.95 -24.521
DUG ProShares UltraShort Oil & Gas 132083500 63.8148 0.235 0.95 -23.624
And main natural gas ETF’s
Ticker Name Market Cap Price Return YTD Fees 1Y Return
UNG United States Natural Gas Fund LP $2,577,495,000.00 $7.22 (28.27) 0.6 -42.619
FCG First Trust ISE-Revere Natural Gas Index Fund $358,800,000.00 $15.60 (11.19) 0.6 6.928
DIG ProShares Ultra Oil & Gas $341,532,000.00 $28.59 (16.72) 0.95 -0.051
IEO iShares Dow Jones US Oil & Gas Exploration & Production Index Fund $337,705,000.00 $49.30 (8.30) 0.48 8.158
XES SPDR S&P Oil & Gas Equipment & Services ETF $264,627,000.00 $26.70 (5.87) 0.35 11.927
GAZ iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN $147,067,700.00 $9.74 (31.86) 0.75 -34.301
PXJ PowerShares Dynamic Oil & Gas Services Portfolio $134,594,000.00 $15.54 (8.26) 0.63 4.147
DUG ProShares UltraShort Oil & Gas $132,083,500.00 $63.91 0.24 0.95 -23.624
UGA United States Gasoline Fund LP $60,458,950.00 $31.82 (12.14) 0.6 -8.093
So what do you expect from the Russian economy and how would you play it?