Russia ETFs attract meme-like trading frenzy

A trader works on the trading floor on the last day of trading before Christmas at the New York Stock Exchange (NYSE) in Manhattan, New York City, US, December 23, 2021. REUTERS/Andrew Kelly

NEW YORK, March 2 (Reuters) – Shares traded in the Van Eck Russia ETF (RSX.Z) A flurry of traders’ attention has drawn comparisons to the so-called stock meme frenzy of last year, as investors look for ways to take advantage of market volatility caused by the Ukraine crisis.

Designed to track the performance of Russia’s MVIS index (.MVRSXTR)the ETF has plunged nearly 70% in the past two weeks as Russia’s invasion of Ukraine and Western sanctions triggered massive fluctuations in the country’s related assets.

Van Eyck said in the SEC filing on Wednesday that the ETF would temporarily suspend creation of new shares until further notice, citing “significant declines” in the value of Russian securities and the ruble. Read more

The faltering ETF has been a boon to bearish investors. RSX shorts have increased $299 million in annual profit to date, according to financial analytics firm S3 Partners.

Meanwhile, the recent volatility has intensified trading in ETF stocks and options, most of which are driven by retail investors, analysts said.

With the ETF’s price swinging wildly — down as much as 15% before recovering to trade up 6% on the day — volume in ETF shares jumped to 27 million by 2:30 p.m. (1930 GMT), or about twice the average Daily amount, according to trade alert data. The ETF closed down about 13% on Wednesday.

Options in the ETF were even busier, with 211,000 contracts traded, or four times the expected volume.

Some volume seemed to be driven by traders trying to take advantage of the stock’s very high volatility, said Jarrett de Simon, Head of Quantum at OptionMetrics.

“These high levels of volatility are unusual, causing the VanEck Russia ETF to behave similarly to meme stocks,” he said.

“It looks as if retail is definitely making its mark on RSX options trading today,” DeSimone said.

Sentiment was mixed, with some traders betting on a quick recovery while others were hopeful for a continued decline in stocks, based on the choice of options contracts traded.

According to S3 data, the short interest in RSX was just under 18% of the flotation and totaled $137.8 million. The company said that short-sold shares have increased 14% in the past 30 days.

“Long-term RSX shareholders may be looking for a long-term appreciation for Russian stocks that have fallen from 60% to 90% recently, and short sellers are getting instant gratification from their trades,” S3’s Ihor Dusaniwsky said in comments via email to Reuters.

The Russian market closing for the third day in a row posed another challenge to properly value the ETF, causing the trading price to drift away from its net asset value (NAV) — or the value of each share in the ETF based on its share of the fund. Analysts said the underlying assets.

On Monday, ETF shares ended the day at a premium of 178% to NAV, according to VanEck data.

“This makes stock trading more speculative,” said Todd Rosenbluth, head of ETF and mutual fund research at CFRA Research.

(Narrated by Saqib Iqbal Ahmad). Additional reporting by Louis Kruscoff. Editing by Ira Yosbashvili, Jonathan Otis and Sam Holmes

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