GemShares Files for Physically Backed Diamond ETF

ETF Trends

Stoking hopes of a potential diamond exchange traded fund, GemShares has filed with the Securities and Exchange Commission to bring to market a physically backed diamond fund.

According to an SEC filing, the GemShares Physical Diamond Trust will try to reflect the performance of the wholesale price of GemShares GIGS Diamond Baskets. The Trust would hold physical diamonds and issue Share Baskets in exchange for deposits of diamonds.

Each basket will be comprised of diamonds divided into three separate weight classes.

“The Sponsor believes that, for many investors, the Shares will represent a cost-effective investment similar to an outright investment in commonly produced, inventoried, consumed and readily available physical diamonds,” the filing stated.

The filing also said that Authorized Participants will be able to redeem shares for diamonds – each share of the ETF would represent a fractional ownership of physical diamonds, similar to how physically backed precious metals ETFs are structured.

The ETF vehicle would allow investors to easily price and gain exposure to diamond assets.

“The Sponsor believes that investors will be able to more effectively implement strategic and tactical asset allocation strategies that use diamonds by using the Shares instead of using the traditional means of purchasing, trading, holding and storing diamonds and, for many investors, transaction costs related to the Shares will be lower than those associated with the purchase, storage and insurance of physical diamonds,” according to the filing.

IndexIQ also filed with the SEC to launch a physically backed commodities fund that holds diamonds early last year.

Some argue that a physical diamond ETF would be impossible to pull off since it is hard to accurately quantify the cut, color, clarity and carat size of various diamonds. [Diamond ETFs Would Allow Investment in Precious Gems]

Nevertheless, accessing the diamond market through a liquid ETF vehicle could prove lucrative. For instance, Sotheby’s recently sold a 74.79 carat white diamond for $14.2 million, whereas estimates put the diamond at $9 million to $12 million, reports Robert Frank for CNBC.

“I generally think of top-quality diamonds not in terms of wealth creation, but instead as wealth retention, tangible assets that have global appeal and global value,” Lisa Hubbard, chairman of Sotheby’s North and South American International Jewelry division, said in the CNBC article.

For more information on diamonds, visit our diamond 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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