Russia ETF Climbs: Risky Energy Play

NEW YORK (TheStreet) -- The rise of Market Vectors Russia ETF (RSX Quote) has been swift, but the move is likely unsustainable, as this ETF is tied heavily to oil prices. As Exxon Mobil (XOM Quote) and Chevron(CVX Quote) advance in the U.S., Russia-based Lukoil (LKOD.LI Quote) and OAO Gazprom (GAZP.RM Quote) have helped to advance RSX more than 140% year to date.

RSX tracks 38 firms domiciled in Russia that have an average daily trading volume of at least $1 million and market cap of at least $150 million. The majority of components, more than 88%, are considered "large cap," helping to contribute to the underlying liquidity of the fund. The expense ratio, 0.62%, is reasonable for a fund of this scope.

The driving force behind RSX' performance has been the fund's concentration in commodities. The top-weighted sector in the fund, comprising nearly 42% of assets, is oil. The second-largest sector represented is iron/steel, with 18.5%. Other top sectors include telecommunications, finance and energy, with 14%, 10.4% and 5.5% allocations, respectively.

A fall in global demand for oil and gas during the worst of the global economic recession caused Russia to dip more than expected. In 2008, the fund dropped more than 73% as oil prices fell. Aggressive rate cuts and surging oil demand have helped Russia recover in 2009, and RSX is up 98% for the one-year period ending Oct. 15.

RSX, like other cap-weighted emerging markets ETFs, reflects political and economic pressures inherent in these markets. More than 50% of iShares MSCI Brazil (EWZ Quote) and 34% of WisdomTree India Earnings (EPI Quote) are allocated toward energy and materials. When compiling a portfolio of liquid, emerging market companies, investors will often see energy and materials rise to the top.