Today marks the first day of trading for the Market Vectors Russia Small-Cap ETF (RSXJ ), the first exchange-traded product offering U.S. investors exposure to small cap Russian stocks. The new fund from Van Eck will seek to replicate the performance of the Market Vectors Russia Small-Cap Index, a benchmark that includes about 35 small cap Russian stocks. The underlying components are unlikely to be familiar to many U.S. investors; the largest individual weightings are afforded to Pharmstandar, (8%), LSR Group (7.9%), and OKey Group ( 6.8%).

Small Cap Difference

RSXJ joins three existing Russia ETFs. the most popular of which is a Market Vectors fund (RSX ) with nearly $4 billion in AUM. The Market Vectors Russia ETF offers exposure primarily to large cap firms; about 95% of the underlying index is firms with a market capitalization in excess of $5 billion, with the remainder attributable to firms between $1 billion and $5 billion. The other existing Russia ETFs offer similar exposure; both the SPDR S&P Russia ETF (RBL ) and iShares MSCI Russia Capped Index Fund (ERUS ) are dominated by large cap companies. “We are strong believers in Russia and many other emerging markets and think that large-cap exposure definitely has its place, said Ed Kuczma, Emerging Markets Analyst with Van Eck Global. However, we also believe the best way to gain pure-play exposure to a country’s domestic economy is through smaller companies that derive their revenue primarily from doing business locally.” [Compare any two funds with our Free ETF Comparison Tool .]

International ETFs linked to capitalization weighted benchmarks are subject to certain biases, including a tilt towards the energy and financial sectors (oil companies and banks tend to be the largest companies in any economy, and as such tend to account for significant portions of the underlying portfolios). This tilt is extreme in the case of the Russia ETFs; energy stocks account for close to 40% of RSXs assets, and the sector receives even larger weightings in RBL and ERUS (energy stocks make up more than half of the iShares Russia ETF).

The sector allocation maintained by RSXJ is drastically different from those of its large cap counterparts. Utilities, materials, and energy receive the largest sector allocations, each making up about 18% of assets. RSXJ also includes material weightings to industrials (15%) and consumer staples (10%):