PureFunds Debuts Innovative Mining ETFs (GEMS, MSXX, SILJ)
Eric Dutram: While there have certainly been a large number of ETF closures in 2012, product innovation hasn’t slowed down either. More than 150 new products have hit the market so far this year, resulting in a net increase of over 60 funds for the broad ETF industry.
Although product duplication and competition has been a huge trend, with issuers fighting over expense ratios and slight differentiation among the various funds, there have also been a host of novel ETFs from brand new issuers as well.
In this vein, investors have seen Huntington Strategy Shares and Pyxis debut funds of their own, while a new entrant has looked to shake up the mining ETF world as well. This new fund issuer, PureFunds, has just released three targeted mining ETFs which look to further slice up the heavily trafficked industry into a few interesting segments (read Could This Be The Year For These Mining ETFs?).
All three offer up one-of-a-kind exposure and charge investors 69 basis points a year in fees, suggesting that while they might be at the high end of the cost spectrum, they are by no means excessively expensive.
Furthermore, there is really no other way to target these industries in ETF form meaning that there definitely could be some inflows from investors seeking a new way to play the mining world in exchange-traded form.
Either way, it looks to be an interesting start for PureFunds as new issuers can have some trouble accumulating assets, but the firm’s funds are relatively unique so this could help in their quest for AUM. This could be particularly helpful if investors continue to demand hard-asset type investments in droves as PureFunds’ trio all target this slice of the equity world (read A New Breed of Gold ETFs on the Horizon?).
The new fund offerings—which are all available for trading– include the following three mining ETFs:
PureFunds ISE Diamond/Gemstone ETF (NYSEARCA:GEMS)
Arguably the most unique of the three is GEMS, a product that tracks the gemstone industry including exploration, production or sales of precious stones. This is done by following the ISE Diamond/Gemstone Index, a benchmark hat holds about 23 holdings in total.
In terms of a national breakdown, Hong Kong takes the top spot at 28%, followed by the UK at 20%. Canada, the U.S. and Australia all receive double digit allocations as well, while Japan accounts for the remaining 3% of the fund.
The product is also somewhat concentrated in its top holdings, as Signet Jewelers takes the top spot at 9% of assets, followed by Chow Tai Fook Jewelry Group and BHP Billiton which both account for more than 8% of assets.
With this type of focus, the fund has exposure to both small and mid caps that are targeting in on the jewelry industry as well as more broad miners that do not focus on, but deal with, the gemstone space (also read IndexIQ Files for Industry First Diamond ETF).
This product could be appropriate for those seeking a new ‘hard asset’ play that goes beyond the typical investments of gold or oil. Potentially, it could also offer up some exposure to solid trends as new diamond mine production has been pretty much non-existent over the past few years while diamonds are also becoming more popular in Asia, suggesting it could be another way to play rising emerging market demand as well.
PureFunds ISE Mining Service ETF (NYSEARCA:MSXX)
While there are several mining ETFs out there in the market, MSXX will mark the first time that investors can play the mining service space, following the ISE Mining Service Index. This benchmark tracks about 30 companies in total and focuses on firms that manufacture, lease, sell, and provide equipment or those that consult or provide consulting or other services to the industry.
Australia dominates from a country perspective as it makes up nearly 50% of total assets. Beyond this, Canada, the U.S., Sweden, and Hong Kong all make up over 10% of assets as well.
Individual holdings are also somewhat concentrated as Atlas Copco AB A takes the top spot at 9.6% of assets, while China Coal Energy Co is in second with just over 9.0%. Joy Global takes the third position at 8.1% of assets, helping to put over 40% of assets in the top five holdings alone.
This could be appropriate for investors seeking a play that is dependent on expectations for future prices as opposed to current mineral prices. That is because service firms derive much of their revenue from miners desiring to ramp up production and increase investment in the future—thanks to the long lead times necessary in order to execute new plans—as opposed to current conditions in the mining world.
Investors should probably think of the oil service industry as a good example of how this can work for portfolios. In the oil market, these service companies have different drivers on their risk reward picture when compared to the drilling and refining segments, meaning that they can move somewhat independently of their extracting peers, but also be more focused on lower volatility securities (see Time to Buy Oil and Gas Services ETFs?).
PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ)
Although silver isn’t quite as popular as gold among investors, the product can be capable of bigger moves, making it a favorite among traders. For those looking for an even more volatile play on this space, SILJ could be an interesting choice, tracking the ISE Junior Silver Index.
This benchmark tracks just over two dozen stocks that are engaged in some aspect of the silver industry with a focus on small caps. This includes both companies that are in the exploration and production segments, giving it broad exposure across the small cap silver stock space.
Canada takes the lion’s share of assets at just under 80%, followed by American firms at 16%. Only two other nations even make their way into the ETF with Australia and the UK comprising just 5% of the portfolio (read Time to Buy Junior Gold Mining ETFs?).
The biggest holding for SILJ is Endeavour Silver at 11.7% of assets, while Fortuna Silver Miners (9.65%) and McEwen Mining (9.6%) round out the top three. While this is a little more concentrated in the top holdings than others on the list, it does a decent job of spreading assets around beyond these top three as the rest of the top ten has at least 4% of assets in each stock.
This ETF could be a top play for investors seeking a higher volatility bet on the precious metal market. Silver is usually more volatile than gold and small caps are more rocky than their large cap counterparts, so for precious metal bulls, this ETF could be the top ticket on the market today.
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