Benefits and Risks of a Russian ETF

Russian ETFs have been on the rise in recent years, thanks in no small part to the country's strong metal, mining and telecommunications sectors. Even in the wake of the global recession, they fared better than stocks and many other investment options. But they are not investments that anyone should enter into lightly and are typically more expensive than other ETFs. Investors should keep in mind that they do carry serious risks that can cause significant losses if anything goes wrong. This is why anyone who wishes to invest in Russian exchange-traded funds will need to carefully consider whether or not the benefits outweigh the risks.

Russian ETF Basics

ETF is an acronym for Exchange-Traded Funds, investment vehicles traded in stock exchanges in the manner similar to stocks. The funds are made up a similarly themed stocks and bonds. They are traded at the net asset value of its underlying assets. While they have many stock-like features, they are cheaper and more tax-efficient than stocks.

Benefits of Russian ETFs

Russia is the largest country in the world that contains a significant amount of oil and metal deposits. Since the early 2000s, the Russian government has been eager to benefit from the country's mineral and fossil fuel deposits. The Russian governmental efforts have proven to be remarkably successful, stimulating Russian economy and inspiring significant development, particularly in major cities. Even today, Russia remains one of the world's largest oil suppliers, and mining continues to generate significant profits.

Much of Russia's Asian territories still haven't been adequately explored, but geological studies suggest that there are many untapped oil and mineral deposits waiting to be unearthed which ensures that Russian ETFs will remain profitable in the near future. Similarly, the Russian telecommunication industry has seen a robust growth.

Although mobile phone technology entered the country in the 1990s, it wasn't until 2000s that it became widespread. Foreign and domestic cell phone networks continue to grow and thrive. So far, much of that growth has been confined to major cities and their immediate suburbs, but the enormity of Russia ensures that there is still be plenty of room to grow for many decades.

Risks of Russian ETFs

Just like any other investment, Russian ETFs carry many risks as well. In spite of a series of recent government reforms, the nation is still suffering from pervasive corruption. Independent researchers estimate that Russian citizens and corporate entities spend millions on bribes every year. The corruption continues to affect Russia's justice system and law enforcement in general. It makes it harder for investors to protect themselves from fraud, and companies those stocks make up the ETFs are more vulnerable to failure than their Western counterparts.

The government's relationship with Russian companies, particularly the ones involved in the energy sector, continue to cause concern. Over the past few years, the government has demonstrated its willingness to take over successful companies. The circumstances behind these mergers remain controversial. Many long-time investors in Russian assets continue to worry about the long-term viability of their investments. 

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