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 overview and 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 (NYSEARCA: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 PureFunds ISE Mining Service (NYSEARCA:MSXX) overview and MSXX fact sheet (pdf).