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It has been another volatile year for Russian stocks and the corresponding ETFs. The Market Vectors Russia ETF (RSX +1.69%), the largest and oldest Russia-specific ETF, is up just 5% on the year, third among the four largest BRIC nations ETFs.

Amid falling oil prices and the negative impact from possibly another 12 years of Vladimir Putin's rule, the market looks cheap and some analysts and investors are taking notice.

In a recent blog post, iShares Global chief investment strategist Russ Koesterich said, "the most obvious attraction of this market is its low valuation."

As of September 30, RSX had a price-to-earnings ratio of 6.54 and a price-to-book ratio of 0.88, according to Market Vectors data. By comparison, the iShares MSCI Emerging Markets Index Fund (EEM +0.47%) had a price-to-earnings ratio of 17.3 a price-to-book ratio of three as of September 28

"While most emerging markets look inexpensive compared to their history, Russia is an extreme case," wrote Koesterich. "In the past, Russian stocks have normally traded at a discount of around 30% to other emerging markets. Today, stocks in Russia trade at a 53% discount. Looking at price-to-book, the story is the same. The MICEX is currently trading at a 20% discount to its book value, one of the cheapest valuations in the world."

As many investors know, there is no such thing as free lunch in the financial markets. That means Russia's attractive valuations come with a caveat -- volatility. On a year-to-date basis, RSX and the rival iShares MSCI Russia Capped Index Fund (ERUS +1.68%) have volatility rates of 29.2% and 28.5%, respectively. In the case of ERUS, that means the ETF has been 250 basis points more volatile than the next-most volatile major ETF tracking a BRIC nation, the WisdomTree India Earnings ETF (EPI -0.21%).

For its part, RSX has been 550 basis points more volatile than the iShares MSCI Brazil Index Fund (EWZ +0.07%).

A large reason for that volatility is Russia's heavy dependence on energy production as a drive of economic growth. That dependence is reflected in the sector weights of Russia ETFs. RSX had a 41.4% weight in energy names at the end of the second quarter. ERUS devotes 55% of its fund to the sector, while the SPDR S&P Russia ETF (RBL +1.66%) allocates over half its weight to energy names.

Despite the lack of diversity in the sector, there are reasons to support a bull case for Russia and the aforementioned ETFs, including the ability of Russian companies to generate profits.

"Companies on the MICEX exchange, have a return-on-equity (ROE) of over 18%," wrote Koesterich. "This is in line with both Russia's long-term average as well as the average for other emerging markets. In fact, when you compare valuations with market profitability, Russia appears to be one of the more under-valued markets globally."

Russian inflation is also benign, having been more than cut in half since 2011. Plus, the country's balance sheet is sturdier than many of its developed market peers. As Koesterich notes, Russia "runs both a current account and budget surplus and has little to no any external debt."

RSX and ERUS are likely to remain the first stopping for investors looking for Russian exposure via ETFs, but they shouldn't overlook small-caps. The Market Vectors Russia Small-Cap ETF (RSXJ +0.55%) features a diminutive-by-comparr03;ison 22.9% weight to the energy sector with its own compelling valuations. At the end of the second quarter, RSXJ had a price-to-earnings ratio of 3.66 with a price-to-book ratio of just 0.85, according to Market Vectors data.

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