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ETF News And Commentary

The political impasse between Russia and Ukraine is showing no signs of abating and is weighing heavily on investors’ sentiments. The conflict, now into its sixth month, took a new menacing turn on Friday after a Russian humanitarian aid convoy of more than 130 trucks entered into the Ukraine territory after being held up at the border for a week.  

Moscow sent a big aid convoy without the consent of the Kiev government or the participation of the International Committee of the Red Cross (ICRC). Ukraine called this move a "direct invasion" into its territory, and the U.S. and NATO condemned the move (read: Safe Haven ETFs to Evade Geopolitical Tensions).

According to NATO officials, Russia has been transferring a large number of weapons for use against Ukrainian forces under cover of the aid convoy. NATO sees an “alarming build-up” of Russian forces near Ukraine. It has also asked Russia to stop destabilizing Ukraine. This move and NATO reports suggest more doubts over Russia’s attempt to stop the conflict in Ukraine. The Ukrainian president is expected to meet the Russian president and European Union officials on Tuesday.

Market Reaction

Amid the worsening Ukraine crisis, the S&P 500 pulled back from its record high reached on Thursday and fell modestly about 0.4% during Friday’s trading session on low volumes. However, it marks the slowest trading day so far this year because of the winding down of the summer season.

Meanwhile,(SPY - ETF report) is down 0.16% and saw volume of more than 76 million shares on the day, well below the roughly 85 million shares average (see: all Large Cap ETFs here).

The ongoing turmoil has put many stocks and products in focus for the coming days. Below, we have highlighted three ETFs, which were especially volatile in the wake of escalating Russia-Ukraine tensions:

Market Vectors Russia ETF ((RSX - ETF report))

This product targeting the Russian equity market has been the major loser from the rising violence. It is a popular and liquid ETF with AUM of $1.7 billion and average daily volume of around 7.7 million shares. The product charges 63 bps in fees per year from investors. The fund tracks the Market Vectors Index Solutions and holds 49 securities in its basket. It is heavily concentrated on the top 10 holdings with 60.79% of total assets.

In terms of sectors, energy dominates with two-fifths of the total portfolio while materials, telecommunication services and financials round off to the next three spots with double-digit allocation. The ETF lost over 2% in Friday session and 13.7% in the year-to-date time frame. The fund has a Zacks ETF Rank of 4 or ‘Sell’ rating with High risk outlook (read: Guide to Russia ETF Investing).

SPDR Gold Trust ETF ((GLD - ETF report))

Gold is often viewed as a store of value and a hedge against market turmoil. The product which tracks bullion could be an interesting pick to play in the market turbulence. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA.

It is the ultra-popular gold ETF with AUM of over $32.8 billion and heavy volume of more than 6.6 million shares a day. Expense ratio came in at 0.40%. The ETF gained about 0.25% on the day and about 6% so far this year. The product has a Zacks ETF Rank of 3 or ‘Hold’ rating with Medium risk outlook.

iPath S&P 500 VIX Short-Term Futures ETN ((VXX - ETF report))

This product is extremely popular during times of turmoil or uncertainty. Though VXX fell 0.40% on the day and is down nearly 35% in the year-to-date time frame, it could rebound in the days ahead if Russia does not stop invading Ukraine. This is because volatility products tend to rise when markets are sliding or investor panic is starting to set in (read: Leveraged Volatility ETFs in Focus).

VXX follows the S&P 500 VIX Short-Term Futures Index, which reflects implied volatility of the S&P 500 Index at various points along the volatility forward curve. It provides investors with exposure to a daily rolling long position in the first and second month VIX futures contracts. The note has amassed nearly $1.1 billion in AUM and charges 89 bps in annual fees and expenses. The product sees a truly impressive volume level of about 33 million shares a day.

Bottom Line

It seems that the political unrest in Ukraine might turn into a cold war if Russia does not stay away from military escalation. This would continue to roil global markets, making the above-mentioned ETFs solid ways to play the trend.

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