Frenzy In Russia ETF Trading Similar To Meme Stock Fever
As investors seek strategies to profit from wild market swings triggered by the Ukraine crisis, the battered shares of Van Eck’s Russia ETF have seen a rush of trading interest and evoked similarities to last year’s so-called meme stock craze.
The ETF, which was created to mirror the performance of the MVIS Russia Index, has fallen about 70% in the previous two weeks since Russia invaded Ukraine, and Western sanctions have caused enormous fluctuations in assets tied to the nation.
According to VAN ECK, the ETF will temporarily cease the formation of new shares until further notice, citing “severe decreases” in the value of Russian stocks and the rouble in an SEC filing on Wednesday.
The ETF’s decline has benefited bearish investors. The financial analytics firm S3 Partners said that RSX shorts had made $299 million in year-to-date mark-to-market profits.
Meanwhile, recent volatility has boosted trading in the ETF’s shares and options, with individual investors accounting for a large portion of the volume, according to experts.
According to Trade Alert data, trading volume in the ETF shares rose to 27 million at 2:30 p.m. (1930 GMT), or roughly double the typical daily amount, due to the ETF’s price swings — it plunged as much as 15% before recovering to trade up as high as 6% on the day. On Wednesday, the ETF lost over 13% of its value.
Options on the ETF were even hotter as 211,000 contracts were traded, which was four times higher than the anticipated trade volumes.
According to Garrett DeSimone, chief quant at OptionMetrics, some of the activity appeared to be driven by traders looking to benefit from the stock’s extraordinarily 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 has its fingerprints on RSX options trades today,” DeSimone said.
Based on the options contracts sold, the sentiment was split, with some traders relying on a speedy comeback and others hoping for a further drop in the stock market.
According to S3 data, short interest in RSX was a little under 18% of the float and was $137.8 million. According to the company, the number of shares shorted has climbed by 14% in the previous 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.
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 share of the ETF based on its share of the fund’s underlying assets, according to analysts.
According to VanEck statistics, the ETF’s shares completed the day at a 178 percent premium over their NAV on Monday.
“That makes the trading in the shares that much more speculative,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.