The damaged shares of Van Eck’s Russia ETF have experienced a surge of trading activity as investors seek techniques to benefit from market wild swings induced by the Ukraine conflict, evoking comparisons to last year’s so-called meme stock frenzy.
Since Russia’s invasion of Ukraine and Western sanctions have produced massive changes in assets related to the country, the ETF, which was established to match the performance of the MVIS Russia Index, has plunged approximately 70% in the last two weeks.
According to Van Eck, the ETF will temporarily halt new share creation until further notice, citing “severe reductions” in the value of Russian companies and the rouble in an SEC filing on Wednesday.
Bearish investors have profited from the ETF’s drop. RSX shorts have generated $299 million in year-to-date mark-to-market gains, according to financial analytics firm S3 Partners.
Meanwhile, according to analysts, recent volatility has raised trading in the ETF’s shares and options, with individual investors accounting for a major amount of the activity.
Due to the ETF’s price movements — it dropped as much as 15% before recovering to trade up as high as 6 per cent on the day, according to Trade Alert data, trading volume in the ETF shares soared to 27 million at 2:30 p.m. (1930 GMT), or almost double the average daily amount. The ETF lost more than 13 per cent of its value on Wednesday.
The ETF’s options were even hotter, with 211,000 contracts exchanged, which was four times the expected amount of trading.
According to Garrett DeSimone, chief quant at OptionMetrics, some of the activity looked to be driven by traders attempting to profit from the stock’s extremely high volatility.
“These high levels of volatility are extraordinary, causing the VanEck Russia ETF to behave similarly to a meme stock,” he said.
“It looks as though retail definitely has its fingerprints on RSX options trades today,” DeSimone said.
Sentiment was split based on the number of options contracts traded, with some traders betting on a quick recovery and others hoping for a further collapse in the stock market.
According to S3 statistics, short interest in RSX was $137.8 million, or little under 18 per cent of the float. According to the firm, the number of shares shorted has increased by 14% in the last 30 days.
“Long RSX shareholders may be looking for long-term appreciation of Russian stocks that are down from 60% to 90% recently, short sellers are getting immediate gratification from their trades,” said S3’s Ihor Dusaniwsky in emailed comments to Reuters.
According to analysts, the fact that Russian markets were closed for the third day in a row added to the difficulty of correctly valuing the ETF, causing the trading price to deviate significantly from its net asset value (NAV), which is the value of each ETF share based on its share of the fund’s underlying assets.
The ETF’s shares finished the day at a 178 percent premium to their NAV on Monday, according to VanEck figures.
“That makes the trading in the shares that much more speculative,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.
(Adapted from EconomicTimes.com)