FactorShares, an ETF provider that was recently acquired by GenCap Ventures, has debuted the first ever ETF to focus on diamonds and gemstones. The PureFunds ISE Diamond/Gemstone ETF (GEMS) invests in a handful of firms that produce and sell diamonds/gemstones, making this fund one of a kind. The GEMS fund has been in the works for some time now, as several issuers were jockeying to release the first Diamond fund, but FactorShares beat everyone to the punch [for more diamond news and analysis subscribe to our free newsletter].
Next comes the question of whether or not to invest. For the average retail investor, the cost will certainly be an enticing factor. Normally, diamonds come with at a hefty expense, allowing for only those with large capital bases to make a significant investment. But just as GLD broke down the barrier to entry in the gold market, so too may GEMS for diamonds. The only issue that some may take with the fund is that it does not invest in physical diamonds themselves, but rather in the producers. FactorShares also rolled out ETFs that focus on mining services and the first junior silver miner fund.
More To Come?
This product may have been first, but there is still room for someone to create a fund that offers exposure to the stones themselves. Earlier in the year, it was announced that GemShares, a Chicago-based firm, was in the process of securing a patent to create an index for diamond pricing, which could then be applied to futures contracts and ETFs. The biggest issue with this index is the fact the actual pricing of the stones. Unlike gold or silver, each diamond is unique and therefore there is no way to easily put a value on each stone [see also The Ten Commandments of Commodity Investing].
But that could all change with the new index, “in which diamonds are arranged in 10 layers of comparable quality and value from cheapest at the bottom to most expensive at the top,” writes Jason Zweig. GemShares even has a plan to displace conspiracy theories that often plague GLD and SLV (along with other precious metals ETFs); they are contemplating picturing each diamond on their home website for all of the world to see. GemShares hopes to create as many tradeable units as the market can handle.
Disclosure: No positions at time of writing.