NGE Global X MSCI Nigeria ETF New

Even with surging stock prices and more optimism about the global economy, oil has been stuck in a relatively tight range. The commodity has had trouble breaking out to the $100/bbl. level as a strong dollar and general commodity aversion keep a lid on prices for this natural resource.

Yet the weakness hasn’t been limited to the commodity world as a number of oil producers have also seen sluggish trading. These firms have not participated in as much of the rally and look likely to underperform so long as commodities remain unloved.

Key oil producing countries can also be impacted by this trend too, as the commodity is an important driver of their overall economies. After all, oil revenues tend to make up a big chunk of either tax revenues or GDP growth opportunities (and sometimes both) in big oil producing countries, so when the outlook is uncertain they can face some serious trouble.

We have seen this phenomenon take place in a number of countries over the past few years, and with the advent of ETFs, these nations are easier to play than ever. In light of this, we highlight below three country ETFs that could face some more rough trading if oil prices fall, or fail to capture the $100/bbl. level (see Crude Oil ETF Investing 101).

This trio of nations could also be an interesting pick for investors who believe that oil will turn around here, and finally lead the commodity world higher. However, we think this is probably not the case in the near term, so consider avoiding the following ETFs, or pairing them with a less oil dependent play so long as oil remains in a slump:

Global X FTSE Norway 30 ETF (NORW)

Norway might not be the most famous oil producer, by the country is actually quite prolific when it comes to producing black gold. The nation is actually in the top ten for oil exports, and with its relatively small population oil is a vital part of the country’s economy.

The most popular way to play the country is with NORW, an ETF from Global X. The product tracks the FTSE Norway 30 Index, a benchmark of 30 companies that focus on Norway, charging investors 50 basis points a year in fees (read Nordic ETF Investing 101).  

The ETF is heavily concentrated in energy stocks, as these make up nearly 45% of the portfolio. In fact, Norwegian oil giant Statoil accounts for 16% of assets alone, suggesting a pretty heavy concentration.

In the YTD time frame, oil has been pretty much flat (as represented by the small gain for USO and the modest loss for BNO in the time frame), while NORW has added about 1.55% over the same time period. Longer term has been much better for NORW, but the ETF has pretty much stalled in the past few months.

Market Vectors Russia ETF (RSX)

Russia is fast becoming the world’s most important energy superpower, dominating natural gas and exporting the second most oil in the world. And with a lack of other big industries, the hydrocarbon market tends to dominate the risk/return profile of Russian ETF investing.

The top way to invest in Russia is with the Market Vectors Russia ETF, a product that has over $1.4 billion in assets, and sees more than four million shares of volume a day. The fund charges 62 basis points a year in fees, holding just under 50 stocks in its basket.

Once again, energy makes up a huge chunk of assets in this ETF, accounting for just over two-fifths of the total. In terms of individual securities, Lukoil and Gazprom take the top spot, combining to make up just over 16% of assets (see Are Russia ETFs Signaling More Trouble Ahead?).

So far in 2013, RSX has had a pretty bad start to the year, losing about 11% in the year-to-date time frame. The one year look is a little better—with a gain of about 6%-- though this still pales in comparison to other emerging markets in the time period.

Global X Nigeria Index ETF (NGE)

Nigeria is the most populous member of OPEC and one of the biggest exporters of crude oil in the world. The country is also in the top echelon for exports, while its production falls just outside the top 10 for nations.

The options to invest in Nigeria were slim, but Global X recently launched NGE to give a more targeted offering. This new product follows the Solactive Nigeria Index, giving exposure to about 30 companies and charging investors 68 basis points a year in fees.

Banks actually take the top spot in the ETF, making up about 45% of the holdings, although energy gets 20% as well. Still, it is important to remember that over 90% of the nation’s exports are due to petroleum and oil products, so clearly this is the main driver of the country’s economy (see Global X Launches 2 Emerging Market ETFs).

NGE doesn’t have a long history, as it was just released at the beginning of April. Since this time, the ETF has seen a flat performance, largely thanks to a solid run in the past two weeks. 

Bottom Line

Commodity-dependent countries can be very sluggish when natural resource prices are facing weakness. This is especially true when the dollar is surging and investors are broadly shunning commodities in nearly all forms.

Stock prices and the main export tend to be highly correlated from a performance perspective, so it is hard to have a bullish outlook on oil but not on the countries as well. Given this, investors should probably stay away from the aforementioned nations until a true breakout can be achieved in the ever-important oil market, which would definitely allow oil-dependent nations to surge higher.

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US BRENT OIL FD (BNO): ETF Research Reports
 
GLBL-X NIGERIA (NGE): ETF Research Reports
 
GLBL-X NORWAY (NORW): ETF Research Reports
 
MKT VEC-RUSSIA (RSX): ETF Research Reports
 
US-OIL FUND LP (USO): ETF Research Reports
 
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