Analyse: Source RDX ETF (USD)

Dieser ETF investiert in die größten russischen Unternehmen. Hohes Gewicht auf Energie- und Finanztitel.

Alastair Kellett 23.03.2012
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Rolle im Portfolio

The Source RDX ETF provides exposure to some of the largest publicly traded companies in Russia. It is best used as a tactical tool rather than a core building block, considering that Russia is an emerging economy still highly reliant on the resource sector, and the index is dominated by a handful of large firms. Historically, the performance of Russian equities has been wildly erratic; the MSCI Russia has exhibited annualised volatility of more than 50% since 1995. That kind of risk profile makes this a very speculative exposure, suitable only for the most strong-stomached of investors, ideally with very long time horizons. Its correlations to other equity exposures does suggest some benefit as a diversifier. Over the entire period since 1995 it has shown correlation to the local-currency returns of the MSCI Europe Index and the MSCI World of 50% and 52%. Some of that benefit, however, has shrunk in recent years. The trailing five-year correlations are 71% and 75%, respectively.

Fundamentale Analyse

The key driver of growth for the Russian economy is energy. This sector of the economy accounts for more than 60% of the value of the MSCI Russia Index, and three-quarters of Russian exports. The country’s wealth of natural resources has made it a substantial beneficiary of the past decade’s trend towards higher commodity prices. A big part of that trend has been the rapid growth of China, with its seemingly insatiable appetite for raw materials, as well as Malthusian concerns about the world running out of non-renewable resources. The concern right now is that with China slowing down and other parts of the world in recession, the demand for raw materials could fall considerably. China’s growth fell to an annualised rate of 8.9% in the fourth quarter of 2011, and the Chinese government recently targeted a 7.5% figure for 2012. Causing further concern is the increasingly shaky political situation in Russia. Vladimir Putin was recently elected president, having effectively circumvented term limits on his power through a switcheroo with Dmitry Medvedev. But there is a growing perception that the election results were rigged, and public displays of disapproval for Putin seem to have increased meaningfully. Russia’s population growth has been in decline for the last 15 years, accompanied by a rise in the median age. The long-term implications of this demographic situation aren’t entirely clear. It could contribute to a labour shortage, which could reduce unemployment but also hamper the economy’s potential output. Long-term performance on Russian equities, as measured by the MSCI Russia Index, has been very strong. Since 1995 it has produced an annualised return of 15.5%, versus 6.3% for the MSCI World. The caveat is that the results for the Russian index have been extremely volatile. In 1998, when the Russian government defaulted on its debt obligations, the index suffered a drawdown of 91.7%. In more recent memory, its drawdown during the financial crisis was more than 75%, suffered between June 2008 and February 2009. After bottoming out at 3.57 in January 2009, the price-to-earnings ratio for the MSCI Russia has rebounded to 6.98 at the end of February 2012. That still puts it well below its average level of 8.65 since the start of 2007. The RDX Source ETF is very top-heavy, dominated by the fortunes of top holdings Gazprom, LUKOIL Oil Company, Sberbank of Russia, and a handful of others.


The Russian Depositary Index is a free float market capitalisation-weighted portfolio currently consisting of 15 stocks. The constituents are Russian companies trading on the London Stock Exchange through depository receipts, which are proxies designed to mirror the ownership of a company’s domestic stock listing. It is a price index, meaning that it does not take into account any dividends paid by the constituents. The index is reviewed quarterly, with a rebalancing done on a semi-annual basis. There is a lot of idiosyncratic risk in this index, as its top constituents account for a very large portion of the total. The top five stocks make up 68.9%, and the top three 53.4%. The weight for any individual security is capped at 20%. At the end of December the sector weights were also quite concentrated. Energy stocks accounted for 59.7% of the index, while Financials were 19.9% and Materials were 13.3%.


Although Source labels the replication method as “physical with swap overlay,” it is, as the rest of the market defines the term, synthetic. The ETF uses an unfunded swap to achieve the total return of the index, meaning that it owns the basket of securities that acts as collateral in the swap. Source offers complete transparency on that collateral basket; currently it is made up almost entirely of publicly-listed European equities from a diverse set of industries. Source is owned by Goldman Sachs, Bank of America Merrill Lynch, JP Morgan, Morgan Stanley, and Nomura, and it uses all of these entities as counterparties to the swaps in its ETFs. The use of multiple counterparties can diversify and thus mitigate counterparty risk for synthetic products. Source’s policy is to reset to zero the fund’s exposure to any counterparty when it reaches 0.2% of the fund’s net asset value at the end of any day, and if necessary to cap overall exposure to all counterparties at 4.5%. Under the terms of the swap, the counterparty agrees to provide the fund with exposure to the total return of the underlying index, net of any costs or fees associated with providing the exposure. The fund has the U.S. dollar as its base currency, is domiciled in Ireland, and has U.K. reporting status. It pays out dividends from the underlying companies on a quarterly basis. According to Source, it does not engage in any securities lending activity.


The fund’s total expense ratio (TER) is 0.65%, which is in line with other ETFs providing similar exposure. Other costs potentially borne by the unitholder but not included in the total expense ratio include swap fees, bid-ask spreads on the ETF, transaction costs on the infrequent occasions when the underlying index holdings change, and brokerage fees when buy and sell orders are placed for ETF shares.


For exposure to Russian equities there are a number of choices. These include ComStage ETF MSCI Russia 30% Capped, RBS Market Access DAXglobal Russia, CS ETF (IE) on MSCI Russia, Lyxor ETF Russia, db x-trackers MSCI Russia Capped Index, iShares MSCI Russia Capped Swap, EasyETF DJ Russia Titans 10, and HSBC MSCI Russia Capped ETF. Of these, the Lyxor fund is the largest, with assets of roughly €900 million. The funds with the lowest TERs are the ComStage and HSBC products, at 0.60% each.

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Über den Autor

Alastair Kellett  Al Kellett is an ETF analyst with Morningstar Europe.