Diamond ETFs Would Allow Investment in Precious Gems
August 28th 2012 at 4:47pm by Tom Lydon
Diamonds are widely used as decorative jewelry, but now, the exchange traded fund industry seeks to commoditize diamonds and allow more people to efficiently price the precious gems and invest in them.
Considering the rising popularity of commodity ETFs, like the SPDR Gold Trust (NYSEArca: GLD), which has $68.9 billion in assets under management, fund providers are toying with the idea of launching diamond-backed ETFs to satiate the growing demand for alternative investment assets.
Fund providers, like GemShares and IndexIQ, are planning physically-backed diamond ETFs to help fill the investment void. [Diamond ETF Moves One Step Closer to Launching]
GemShares seeks to create a benchmark basket of diamonds based on similar cut, color, clarity and carat size. The IndexIQ Physical Diamond Trust would create a “fungible” basket of one carat diamonds divided into different subcategories.
In comparing diamonds to gold as an investment asset, both have high aesthetic value, are easy to transport and are limited natural resources, reports Bob Pisani for CNBC.
However, unlike gold, diamonds are not homogenous – they come in color, clarity, cut and carat size have diminished value based on size and do not trade in a spot market.
If diamonds were commoditized, the market would make diamond pricing more transparent, and it would bring in more investors as the investment class provides another hedge against inflation.
Currently, people like Martin Rapaport of the Rapaport Price List have helped promote greater transparency in diamond pricing. Rapaport plans to create a type of diamond depositary receipt to help investors buy and sell diamonds as a security without taking physical delivery.
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.