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NEW YORK (TheStreet) -- ETF provider FactorShares came onto the scene a little over a year ago with funds that capture the spread of returns between different asset classes like the FactorShares 2X Gold Bull S&P 500 Bear Fund( FSG).

On Thursday, the company expanded its range by launching the

PureFunds ISE Mining Service ETF


, the

PureFunds ISE Junior Silver ETF

(SILJ) - Get ETFMG Prime Junior Silver Miners ETF Report

and, the most unique and specialized fund in the suite, the

PureFunds ISE Diamond/Gemstone ETF



The big idea for the fund is one that the market should be familiar with; low correlation to equities and a steady demand for gemstones. The actual gemstones might have a low correlation to equities but the companies that sell them may not.

For example

Harry Winston Diamond Corporation

( HWD) fell 94% as the

S&P 500

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fell 55%. Since that low HWD has wildly outperformed the broad market.

Not surprisingly the fund only has 23 holdings with several holdings having very large weightings.

Signet Jewelers

(SIG) - Get Signet Jewelers Limited Report


Chow Tai Fook Jewellry Group



BHP Billiton

(BHP) - Get BHP Group Ltd. Report

and HWD each comprise 8% or more of the fund.

BHP's inclusion is a bit surprising, as is that of

Anglo American PLC


at 5.8% of the fund because both are huge diversified mining companies and both are constituent holdings in most materials sector funds.

The inclusion of these stocks and their large weightings may serve to offset some of the low correlation effect being sought because large mining companies tend to be very cyclical.

At the country level Hong Kong is the largest at 28% followed by the UK at 20%, Canada 19%, the U.S. at 18% and Australia at 12%. Hong Kong's weighting speaks to the extent to which demand is growing in China. Several high end goods companies have recently listed their shares in Hong Kong with



being one recent company to do so.

The exposure that GEMS seeks to provide is unique but the idea of very specialized exposure to a niche segment is not. The expectation should be that the fund will be more volatile than a more traditional sector fund like the

Materials Sector SPDR

(XLB) - Get Materials Select Sector SPDR Fund Report

which is supported by the above-mentioned staggering decline in HWD vs. a 56% bear market decline for XLB.

The near-term prospects for the fund depend on prospects for the global economy. To the extent that the stocks owned are a mix of mining companies and sellers of luxury or discretionary goods, the next recession will hit GEMS very hard. Anyone believing the so-called fiscal cliff will lead to an immediate recession would want to wait before buying this fund.

At the time of publication, the author held no positions in any of the funds or stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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