3 Top Holdings of Russian ETFs

Benzinga asked last week whether the major Russian exchange traded funds were
signaling a potential crash
in the
stock market. The
Market Vectors Russia
was down more than 27 percent and the
iShares Russia Capped ETFERUS
was down more than 24 percent then. Both have dropped another 2 percent or so in the past week, as plunging commodity prices and geopolitical strife continue to deteriorate investor confidence. However, ETFs remain a popular way to play the emerging markets. The Market Vectors Russia ETF has seen additional $12.2 million net inflow just in the past week,
according to ETF.com
, despite the G-20 Summit ending with further threatened sanctions again Russia. It turns out that the two Russian ETFs mentioned above have three top holdings in common:
Gazprom OAO
. A closer look at these three may be instructive, regarding what fund managers see in them or whether there may be a contrarian play here.
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This Moscow-based company operates pipeline systems that supply natural gas to European countries, as well as being involved in oil production and refining activities and in energy generation. It is the largest extractor of natural gas in the world and one of the world's largest companies, with a market cap of more than $70 billion. Gazprom has a trailing price-to-earnings (P/E) ratio of just 2.1, as well as a price-to-book (P/B) ratio of 0.2. The operating margin is greater than that of competitor LUKOIL, and it has a return on equity of almost 11 percent. Ukraine recently agreed to pay Gazprom well more than the then spot price of gas through March of 2015, in an effort to keep some 45 million Ukrainians from freezing this winter. Much of the natural gas consumed in the European Union flows through Ukraine. But Gazprom also recently has made deals to supply more gas to China. Gazprom ADSs are down more than 30 percent year-to-date and closed Monday at $6.08. They hit a 52-week low of $6.02 last week, and the stock is well off its 52-week high of $9.25. Over the past six months, it has underperformed not only the S&P 500, but LUKOIL as well.


This Moscow-based company is Russia's second largest oil company, with a market cap of more than $33 billion. It owns refineries, gas processing and petrochemical plants, and a network of gas stations located in Russia, Eastern and Western Europe, as well as Africa. This past summer it even launched a diamond mining business. Its P/E ratio of 4.7 is much less than that of larger competitor BP, and it has a healthier operating margin too. The P/B ratio is 0.4, and it has a return on equity of almost 9 percent. In late December, the board will decide whether to pay an interim dividend and how much. The company held the first in a series of corporate social responsibility conferences in mid-October. It also recently began operations at its Imilorskoye Field in western Siberia. And it held its first sale of diamonds back in September. Although not a core business, LUKOIL considers itself
one of the world's major diamond miners
. LUKOIL ADSs are down more than 29 percent year-to-date and closed Monday at $44.47. They hit a 52-week low of $44.00 last week. The 52-week high is up at $64.70. This stock also has underperformed the S&P 500 over the past six months, as well as narrowly falling short of BP's performance.
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This holding company is engaged in the food retail industry, via a chain of convenience stores and hypermarkets throughout Russia, as well as its Magnit Family stores. With more than 9,000 locations, and a market cap around $24 billion, it is the nation's largest retailer and one of the largest in the world. Its trailing P/E ratio of 30.1 is greater than that of larger competitor Wal-Mart. Both revenue and net income have risen sequentially in the past three quarters, and the company raised its full-year forecasts with the most recent report. Magnit has a dividend yield near 2.3%. Shares trade in London as well. The company also said in its most recent quarterly report that it was not hurt by the Russian ban on food imports, retaliation against sanctions on Russia by Europe and the United States. "We managed to adapt to the changing conditions in as short a time as possible,"
said the company's founder
. Magnit is up more than 28 percent year to date, closing Monday down fractionally to 11,750 rubles. The stock has outperformed both the S&P 500 and Wal-Mart in the United States over the past six months. Magnit shares have traded in a range of 6,565.30 to 12,294.70 rubles in the past year.
At the time of this writing, the author had no position in the mentioned equities.
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Posted In: GazpromLukoilMagnitEmerging Market ETFsTrading IdeasETFs