Russia Rally Reveals Love For Leverage

The Market Vectors Russia ETF RSX, the oldest and largest Russia exchange traded fund listed in New York, deserves some credit. Not only has RSX been the best-performing member of the quartet comprised of the largest single-country BRIC ETFs this year, but the fund has surged 8.2 percent since Nov. 12.

Making that move all the more impressive is the fact that the United States Brent Oil Fund BNO has traded slightly lower over that period. That is relevant to the energy-heavy RSX because Russia is the largest oil producer in the world that is not a member of the Organization of Petroleum Exporting Countries (OPEC) and it prices its crude in Brent terms.

Actually, RSX, an ETF that allocates nearly 43 percent of its weight to energy stocks, has defied Brent's slump and the worst post-Soviet era recession through much of this year. Year-to-date, RSX is up a stellar 21.6 percent while BNO has tumbled more than 34 percent. RSX has also rewarded investors for taking on the risk of volatile Russian stocks. RSX's three-year standard deviation of almost 27 percent is nearly double that of the MSCI Emerging Markets Index, but the emerging markets benchmark is down 10.6 percent this year. 

And for all the talk about investors rushing to pull assets from emerging markets ETFs, RSX has not been bitten by the outflows bug. Year-to-date, investors have poured $220.6 million into the ETF. Said another way, more than 10 percent of RSX's $2 billion in assets under management have come into the fund just this year. 

Renewed enthusiasm for RSX has led to a taste of the same for leveraged Russia ETFs – both the bullish and bearish varieties. Of course, these instruments are not for the faint of heart. Since Nov. 12, the Direxion Daily Russia Bear 3x Shares RUSS is down 29.1 percent while the Direxion Daily Russia Bull 3x Shares RUSL is higher by 32.4 percent.

There might be something to further examination of RUSL. On Thursday, Street One Financial Vice President Paul Weisbruch highlighted unusual call buying in RSX's January $19 calls. Trading just under $18, RSX is not far from bring those options into the money and a big rally by the ETF over the next 60 days would exponentially increase the value of those calls.

As RUSL's 32.4 percent six-day gain confirms, the ETF can do big work in short order. Volume has recently been on the rise in both RUSL and RUSS. For the five-day period ended Nov. 19, volume in RUSS was 52.4 percent above the trailing 20-day average, according to Direxion data. Only two other leveraged Direxion ETFs saw larger volume upticks. RUSL's turnover the past five days was 40.3 percent above the trailing 20-day average, a number surpassed by just five other Direxion ETFs, including RUSS.