Looking To Capitalize On Trump-Russian Relations? Look No Further Than These Leveraged ETFs
With the inauguration of President-elect Trump right around the corner, many on Wall Street are hunting for specific ways to take advantage of the new administration’s potential policies. And while it’s been well-documented that he favors infrastructure and military spending, there’s another way to trade Trump for short-term traders: Russian ETFs.
Specifically, the Direxion Daily Russia Bull 3X Shares (NYSE: RUSL) and its bearish counterpart, the Direxion Daily Russia Bear 3X Shares (NYSE: RUSS).
Getting Exposure to Russia and Oil
These leveraged ETFs offer short-term exposure to Russia, in large part via the global oil markets. The index that RUSL and RUSS track is the MVIS Russia Index, which allocates over 38 percent of its weight to energy stocks. Over a quarter of the index is represented by Russian energy giants Gazprom PAO (ADR) (OTC: OGZPY), NK Lukoil PAO (ADR) (OTC: LUKOY), Sberbank Rossii PAO - ADR (OTC: SBRCY) and Tatneft' PAO (ADR) (OTC: OAOFY).
To be eligible for the MVIS Russia Index, a stock must have a market cap of at least $150 million on a rebalancing date, according to Direxion. The index does not consider stocks with market caps below $75 million, and a stock must have a three-month average daily trading volume value of at least $1 million.
Other sectors with a double digit weighting in the portfolio are materials, financials, and consumer staples.
Tracking MVIS
RUSL gives you exposure to the index on the long side by seeking to return 300 percent of the MVIS. On the short side, RUSS seeks to return -300 percent. The key thing to remember is that this is a short term trade - these returns won’t happen over a long time horizon.
“Direxion leveraged and inverse ETFs are for active traders who seek magnified exposure to specific market indexes,” notes Direxion. “They seek daily goals and should not be expected to track the underlying index over periods longer than one day.”
When looking ETFs like these, volatility and volume are incredibly important. RUSS, for example, saw over 17 million shares traded in December (RUSL had just over 4 million).
How They Have Behaved
As oil prices have tumbled in recent years Russia ETFs languished, a scenario that benefited RUSS. Of course much of the rebound in Russian stocks is attributed to rebounding oil prices, because Russia is the largest oil producer in the world that is not a member of the Organization of Petroleum Exporting Countries.
Put another way, it’s not surprising that RUSL was up nearly 120 percent in 2016. But its penchant for volatility should serve as a strong signal to traders that RUSL and RUSS are not long-term holds.
Month-to-date, RUSL is one of Direxion's best-performing bull funds with a gain of over 26 percent. Some traders are bracing for a pullback though, as highlighted by average daily inflows of over $441,000 into RUSS over the past month.
If you’re a short term trader, and looking to take advantage potential US foreign relations with Russia under the new administration, both these ETFs can make for interesting plays.
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