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How investors are leveraging ETFs to trade the Russian-Ukrainian conflict


Exchange-traded funds are becoming a vehicle of choice for investors as they navigate the market amid Russia’s war on Ukraine.

VanEck’s Russian ETF (RSX), the largest Russia-based ETF on the market, is having its worst week on record, down more than 53%. February was the worst month in its history, with the fund losing almost 55% in value.

These losses, while significant, represent an important feature unique to ETFs: the ability to trade even when the underlying assets are impeded, Van Eck Associates CEO Jan van Eck told ETF Edge on Monday. from CNBC.

About 75% of RSX’s holdings are ADRs – US certificates of deposit, essentially proxies for foreign companies listed in the US – or GDRs, global certificates of deposit, proxies for listed names across international,” van Eck said.

Only around 11% of the ETF’s assets are invested in local Russian stocks, followed by 7% in US-listed stocks and 7% in London-listed stocks, he said.

This dispersion allows the ETF to serve as a pricing mechanism while the Russian market remains inaccessible to global investors, the CEO said.

“The real dividing line is the financial companies. Some banks have been hit with sanctions,” van Eck said.

“But the energy companies are still doing business. And frankly, Europe needs Russian gas, and if they want to use it, they have to pay for it,” he said. “As long as this continues, these ETFs should for the most part perform successfully in the market.”

RSX’s closest competitor is the iShares MSCI Russia ETF (ERUS), which is down nearly 57% so far this week.

Even so, RSX is trading at higher volume than ever before, CFRA Research’s Todd Rosenbluth said in the same interview.

Overall, ETF volumes nearly doubled their historical 20-day average when Russia first invaded Ukraine on Feb. 24, according to State Street Global Advisors.

“We’ve seen time and time again that when the market goes wild, investors turn to ETFs as the vehicle of choice,” said Rosenbluth, senior director of ETF and mutual fund research at his firm.

“You can get out when you want, you can get in when you want, unlike other markets or other vehicles, which is why we continue to see record entries into the ETF market,” he said. declared.

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