Russian investment bank Troika Dialog is to launch a new ETF tracking the RTS Standard index on 1 August. The fund is named “Troika Dialog – Index RTS Standard”.
The RTS Standard is a capitalisation-weighted index of 15 Russian common and preferred shares, subject to a cap on an individual issuer’s weighting at 20% of the index. The Standard index was launched in 2009 and is a narrower, rouble-denominated version of the dollar-denominated RTS index, which dates back to 1995. Energy giants Gazprom (18.43%) and Lukoil (17.19%) and Russian savings bank Sberbank (16.56%) are currently the Standard index’s largest constituents.
The base currency of the ETF will be roubles, although trading and settlement will also be possible in US dollars and euros. The fund is registered under Russian law as an open-ended investment fund and non-resident investors will need to open an account in Russia in order to trade it, a facility offered both by domestic brokers and several international investment banks.
Troika Dialog was founded in 1991, shortly after the end of the Soviet Union. According to Wealth Briefing, Troika Dialog’s chairman, Ruben Vardanyan, owns 36.47% of the bank, while South Africa’s Standard Bank owns another 36%. The remaining shares are owned predominantly by the bank’s employees. Vardanyan announced two days ago that he will sell his stake in the next 3-5 years by offering it to the firm’s management.
Troika Dialog’s chief business officer, Jacques Der Megreditchian, is also chairman of the RTS stock exchange, in which Troika is itself a shareholder.
Troika Dialog Investment Company will be the ETF’s initial market maker, although the bank says it expects other market makers to join it after the launch. Troika Dialog says that it will target a bid-offer spread of 5-10 basis points and aim to keep annual tracking error below 0.5%. That’s before fees, though: the fund’s annual total expense ratio is estimated at around 1.5%.
Existing Russian equity ETFs for foreign investors are largely based on depositary receipts, a form of share traded in offshore markets. For example, Europe’s largest Russia tracker, Lyxor’s DJ RusIndex Titans 10, which has over €600 million under management, follows an index consisting of the largest and most liquid Russian depositary receipts traded on the London Stock Exchange.
Depositary receipts can trade at a significant premium or discount to the domestic listing of the shares. For example, according to research published by iShares, the global depositary receipt (GDR) of Sberbank, one of the RTS Standard index’s major constituents, traded at a 130% premium to the Russia-listed version of the bank’s shares early in 2009. The premium fell to zero by the end of the year.
“None of the foreign ETFs offered by the global banks reflect the structure of the local RTS and MICEX indexes. This is one more reason why Troika Dialog AM’s new fund will elicit demand and succeed in meeting the needs of myriad investors,” said Anton Rakhmanov, managing director at Troika Dialog Asset Management.
According to a person familiar with the matter, Troika Dialog was working on a joint project with Lyxor two years ago to launch an ETF in Russia, based on the dollar-denominated RTS index. The project was shelved partly as a result of the 2008 market collapse, in which the main RTS index fell by 80%, the source said. Currently stood at 1499, the index has recovered 204% from its January 2009 low. However, it is still some way short of its record high of 2488, reached in May 2008.
MICEX, a rival Moscow-based exchange on which trading takes place predominantly in roubles, has also been investigating the possibility of launching ETFs, according to Vladimir Gritsuk, the exchange’s director of client services. MICEX is 30% owned by the country’s central bank and is generally considered the larger of the two main Russian equity exchanges.