Three New Pure Play ETFs From FactorShares PureFunds

FactorShares, the sponsor that introduced spread trading in an ETF wrapper back in early 2011, launched a new line of ETFs under a new PureFunds brand.  According to the firm’s literature, PureFunds was designed to provide the market with easy access to niche sectors through Pure-Play ETFs.  PureFunds aims to launch tactical ETFs that the market desires but do not currently exist.  The three new ETFs began trading November 29, have expense ratios of 0.69%, share a common prospectus (pdf), and will be assigned to the Materials Sector category of the ETF Field Guide.

PureFunds ISE Diamond/Gemstone ETF (GEMS) seeks to track global companies actively engaged in the gemstone industry including exploration, production, or sales.  The underlying index has 23 holdings including Signet Jewelers Ltd 9.0%, Chow Tai Fook Jewellery Group Ltd 8.7%, BHP Billiton Ltd 8.3%, Harry Winston Diamond Corp 8.1%, and Luk Fook Holdings International Ltd 7.1%.  Country allocations are Hong Kong 28%, UK 20%, Canada 19%, US 18%, Australia 12%, and Japan 3%.  Additional information is located in the GEMS overviewand GEMS fact sheet (pdf).

Analysis/Opinion:  This is not a physically backed diamond ETF.  The prospect of a diamond ETF has been the focus of much media speculation the past year.  I’m on record with my opinion that implementing such a fund could be tricky due to the qualitative nature of valuing gems and lack of futures contracts or other trading vehicles.  GEMS is a unique offering, but it should probably have “producers” or “industry” in its name to avoid being mistaken for a physically backed fund.

PureFunds ISE Mining Service ETF (MSXX) seeks to track the performance of the largest and most liquid companies involved in facilitating the operations of the mining services industry as a whole, from companies that manufacture, lease, sell, and provide equipment to companies providing consulting and other related services.  The underlying index has 30 holdings including Atlas Copco AB A 9.6%, China Coal Energy Co Ltd H Shares 9.1%, Joy Global Inc 8.1%, Monadelphous Group Ltd 7.5%, and Mineral Resources 7.4%.  Countries with current weightings of 10% or greater include Australia 48%, US 17%, Canada 11%, Hong Kong 10%, and Sweden 10%.  Additional information is located in the MSXX overview and MSXX fact sheet (pdf).

Analysis/Opinion:  The energy sector has long had funds targeting the energy services subsector.  Now for the first time, MSXX brings the “services” niche to the materials and mining sector.  Unfortunately, I could not locate any information on how such an approach would have performed historically.

PureFunds ISE Junior Silver ETF (SILJ) seeks to track publicly traded small-cap companies active in silver mining exploration and production.  The underlying index has 26 holdings including Endeavour Silver Corp 11.7%, Fortuna Silver Mines Inc. 9.7%, McEwen Mining Inc 9.6%, Bear Creek Mining Corp 8.6%, and Mag Silver Corp 7.6%.  Country weightings are Canada 79%, US 16%, Australia 4%, and UK 1%.  Additional information is located in the SILJ overview and SILJ fact sheet (pdf).

Analysis/Opinion:  Like GEMS and MSXX, SILJ is a first of its kind fund.  Additionally, like its brothers, the sponsor did not provide any information regarding performance or risk expectations.  If we were to use Market Vectors Junior Gold Miners ETF (GDXJ) versus Market Vectors Gold Miners ETF (GDX) as a guide, then we would expect SILJ to have 1.3x the volatility and drawdown of Global X Silver Miners ETF (SIL).

Ron Rowland
Invest With An Edge

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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