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 (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 (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 (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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(GEMS): ETF Research Reports
(MSXX): ETF Research Reports
(SILJ): ETF Research Reports
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