As exchange traded fund providers ramp up efforts to market the first physically backed diamond fund, some advisors believe the commodity’s unique characteristics will create pricing inefficiencies.
Portfolio managers contend that diamonds will be more difficult to package and price into the ETF structure, compared to other types of successful products based on precious metals, reports Murray Coleman for MarketWatch.
“Unlike gold, diamonds trade in a very fractured private marketplace that is highly opaque and ripe with opportunities for pricing markups,” Greg Peterson, investment research director at Ballentine Partners, said in the article.
Andrew Ahrens, an adviser who’s firm manages $900 million in assets, noted that his clients were also concerned with the pricing aspect of diamonds and a diamond ETF.
“Their experiences were so negative, I just don’t know how many people will trust an outside manager at this point to create a fairly priced and representative basket of diamonds,” Ahrens said.
Moreover, Peterson even argues that fund providers are pushing out a physically backed diamond ETF in hopes that it will generate the kind of attention gold ETFs have garnered.