GemShares, the new fund sponsor that's looking to bring to market a diamond ETF, is working to produce a diamond index with Nasdaq OMX to create an investable benchmark for exchange-traded products, including no doubt the vey diamond ETF GemShares itself put into registration in April.
The firm said it aims to develop a transparent, rules-based index that will provide a standardized pricing mechanism for valuing a diamond basket comprising stones of various sizes and values. The GemShares Global Investment Grade Standard Diamond Basket Index is looking to go live in the fourth quarter of 2014, according to Dan Gramza, a top executive of Gemshares LLC.
Advisors taking measure of GemShares’ plans to bring a diamond ETF to market have told IndexUniverse that the plan reflects the hope that some investors who already hold gold might also use diamonds as a portfolio diversifier. They also said a diamond ETF might also serve as a hedging tool against commodities risk.
For this product to be successful, retail and institutional investors will almost sure need to be educated on the concept behind the index and also on the diamonds themselves. That educational barrier, it may end up to be a tough row to hoe—not just because the concept is new, but because it may have some inherent challenges that may way well constitute a bridge too far.
IndexUniverse research associate Stacey Brorup wrote in a blog that diamonds don’t have the financial history of gold and that the “idea of a fund based on keeping a physical hoard of gem-quality diamonds sounds more like a dragon’s hoard than a growing pile of assets.”
Rather, she proposes that issuers such as GemShares and IndexIQ, which has also filed to launch a physically backed diamond ETF, employ synthetic diamonds as an investment because they “can be customized for specific purposes, and are preferred since their creation in a controlled lab leaves them relatively free of impurities” and are readily available in infinite amounts, which helps stabilize prices.
“Our patent covers a variety of gem stones, and our current plan is not to stop with the first index. This is the first index, and others will follow,” Gramza said.