Why Isn’t There an ETF for Diamonds?

February 17th at 7:00am by Tom Lydon

Exchange traded funds allow the average retail investor to gain direct exposure to price movements in commodities, such as agricultural products, industrial metals and precious metals. However, ETF investors are still unable to invest in precious gems, at least for now.

Unlike most commodities, there is no futures market for diamonds. Up-to-date diamond pricing is very inefficient, and those seeking to receive a more accurate market price on diamonds will have to subscribe to reputable sources, reports Bryan Harris for CNBC.

In part, the greatest challenge in “commodifying” diamonds is efficiently coming to a standardized price as diamonds categories come in a combination of the four C’s – cut, clarity, color and carats.

“A ‘normal’ investor will generally not be able to purchase a large enough pool of diamond assets with diverse characteristics in order to create a diversified portfolio effect,” Saul Singer, a partner in Fusion Alternatives, said in the article. “On the sell-side, the ‘normal’ investor will be limited in his or her ability to liquidate the diamond assets at fair market value.”

Nevertheless, the fund industry may be taking a look. Since there are no diamond futures being trading on the commodities exchange, a diamond ETF would most likely be backed by physical holdings, similar to the most prominent precious metals ETFs.

DeBeers, the world’s largest diamond supplier, has received requests to back an ETF vehicle, but nothing has come of it, yet. [Diamond ETF: Coming Soon to a Broker Near You?]

“The emotional content of (diamond jewelry) is most critical,” Stephen Lussier, CEO of Forevermark, a De Beers company, said in the CNBC article. “We prefer consumers buy diamond jewelry to keep, not to trade.”

For more information on commodities, visit our commodity ETFs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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