Van Eck Indexing Unit Snags 1st Client
March 27, 2012
The Market Vectors Russia ETF (NYSEArca: RSX), as well as a bull-and-bear pair of triple-exposure Russia funds from Direxion, are now tied to a Market Vectors index, in what appears to be the first time an ETF outside of Van Eck’s Market Vectors family of funds is tied to one of its proprietary benchmarks.
The Market Vectors Russia Index has replaced the DAXGlobal Russia+ Index, which until earlier this month was benchmarking not only RSX, but the Direxion Daily Russia Bull 3x ETF (NYSEArca: RUSL) and its inverse counterpart, the Direxion Daily Russia Bear 3x ETF (NYSEArca: RUSS).
Many Market Vector ETFs are tied to an in-house index, and RSX now fits that bill. Of the company’s 15 international equities ETFs, 12 are based on proprietary indexes. That ratio is smaller when domestic and hard assets equities ETFs are included, coming to roughly six out of 10, and that’s primarily because about two-thirds of Market Vectors’ hard assets funds are tied to outside indexes.
New York-based Van Eck, which has been long known as a fund manager, has also been slowly expanding its Market Vectors index provider unit. Direxion’s use of this Russia index is a clear indication of where the company wants to go next—and that’s into the business of index licensing to ETF issuers, company officials said.
From Direxion’s point of view, the company only linked its bull-and-bear Russia strategies to the same index behind RSX to keep RUSS and RUSL closely linked to that Van Eck ETF, a Direxion executive told IndexUniverse.
“Although we officially track the index, we strive to track very closely—to plus or minus 3X—the ETF,” the executive said. “Among other reasons, this helps the market makers that may choose to use RSX to hedge their positions in RUSL/RUSS.”
Direxion’s other international equity bull-and-bear pairs of leveraged funds rely on a variety of indexes from such providers as MSCI, S&P, Indus and BNY Mellon.
New Index Brings Faster Access To New Securities
On the surface, the index change shouldn’t affect any of the funds’ performances or their portfolios, executives for the various companies involved said. Both indexes have yielded nearly identical results since last summer when the Market Vectors index went live.
Still, there are some differences worth noting. Among them, and perhaps most significantly, is that the Market Vectors Russia Index reconstitutes quarterly, whereas its predecessor did so semiannually. For investors, that means access to new eligible securities more quickly than before, Van Eck’s marketing director Ed Lopez told IndexUniverse.
Another key difference is that while the new index doesn’t necessarily expand on the coverage of the DAXGlobal index, it does go beyond locally listed securities to include offshore companies that derive at least half their revenues from doing business in Russia.
The new index also turns to American depositary receipts to ensure tradability and liquidity of its holdings, Lopez said. ADRs are often more liquid than local stocks, he mentioned.
Van Eck first announced it would be switching indexes on the five-year-old $2.16 billion RSX in January.
Direxion’s RUSL and RUSS, which are designed to serve up three times the daily performance of their index—or its inverse—first came to market in May 2011, and have gathered $22.7 million and $7.5 million in assets, respectively.