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Mar 07

Are Diamond ETF’s a Girl’s Best Friend?

Only if they give a Diamond Dividend every 6 months. 

Today, I got a little surprise jolt of happiness. It happens occasionally when some of my favourite things are combined – like coffee, Bailey’s and ice-cream; or suncream, salt water and sand.

My happy combo today was diamonds, ETF’s and Tadas Viskanta. :)

Mr. Viskanta kindly shared this link on Stocktwits that outlines IndexIQ’s plans to release a diamond-backed ETF.

Now before you get all excited, after some heavy research I have discovered that sadly, you do not actually get a diamond -backed ETF.  I’m thinking we might be able to get them for false advertising.

The prettiest ETF, ever.

What you can, in fact get is an ETF that is backed by actual diamonds which sounds very pretty but in reality would be pretty stupid.

In fact, I reckon it is only mildly better than an ETF backed by cars.

This is from the Index Universe website –

The “S-1” registration statement…said the fund will hold “one carat, gem quality, diamonds of readily available, industry-standard diamonds in common use among diamond dealers.”

Let’s break it down.

1 carat is decent size, but not “Holy Moly, will you look at her rock?!” kind of big.  It’s nice.  But nothing outrageous.

Gem quality, well that’s not saying much really, is it? I have diamonds of my own that vary from crap and flawed to reasonably nice, but they are all gem-quality.  Even the crap ones.

And they’re going to be readily available diamonds, that are in common use. Awesome. We’ll be investing in common, run-of-the-mill stock standard, average diamonds that diamond dealers are accustomed to handling.

Now, I don’t know about you, but if I’m going to be investing in anything, I don’t want it to be common, or readily available, or just a step up from dirt.

I want it to be rare. I want it to be enormous, and champagne coloured.  I want it to be flawless.

Those are the diamonds that will have a hope of actually appreciating, because they are worth something, and they aren’t found in your local pawn shop.

A Gold Alternative?

The website suggests that due to global uncertainty, people are keen to invest in things like gold so it makes sense that they will be just as keen to invest in precious stones.

“The idea of a diamond ETF is also emblematic of the underlying nervousness that remains among investors as the global economy continues to heal following the mortgage-related market meltdown in 2008-2009.”

Unfortunately, to me there seems to be too many variables with stones as there is no “standard stone”.  Each stone is different.  You can’t melt a diamond down to remove its flaws, or process them in some way to create some sort of equality like you can with gold, which means each gem would have to be priced, or graded, individually.

Either that, or a whole lot of varying grade stones would be lumped into a broad-grade basket that holds an average of say, AAA grade diamonds.

And then each basket of AAA grade diamonds could be reshuffled, forming a different baskets of AAA diamonds, only the sub-prime diamonds are all in one basket now, and – Oh!

Investing in diamonds to save us from the sub-prime mortgage disaster could see an explosion in gold as people rush to a real safe-haven, when they realise that by attempting to get pretty with their investments they’ve actually embroiled themselves in a sub-prime diamond disaster.

Gosh, give me equities any day.

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  • http://twitter.com/Akuma99 Adam Jowett (@Akuma99)

    Nice analysis there Jess, not my cup of tea ETF’s but you make some good points. One thing though:

    “1 carat is decent size, but not “Holy Moly, will you look at her rock?!” kind of big. It’s nice. But nothing outrageous.”

    After buying my wife her 10 year diamond (who the hell made that up? I suspect her ;) ) …. 1 carat, and the price tag on the bloody thing definitely is outrageous!

    • http://roguetraderette.wordpress.com Rogue Traderette

      Ah, yes – you don’t want to pay retail for a diamond!! LOL
      And I certainly wouldn’t knock back 1 carat (take note everyone ;)) but we are talking investment here, not present-for-your-favourite-blogger.