It could be the new gold diamond?
Behind the scenes to turn the gem into a commodity that will be available to investors in the way it has been traded gold funds through the stock exchanges.
Limited trade in diamonds in the United States retail market for engagement rings and other jewelry, and back-room bargaining among merchants in places such as diamond district in Manhattan at 47 West Street.
But the players in the financial industry in New York, London, Switzerland and Israel say that there is an opportunity to provide access reliable public increasingly of the universe of investors who were willing to sink money into funds backed by exotic assets such as palladium and silver. These players have turned gold-backed fund, and shares of gold SPDR, in one of the largest exchange-traded fund in the world, with a market value of about $ 70 billion.
The Securities and Exchange Commission and a review of the proposal to create the first diamond-backed exchange-traded fund, which will be available to anyone with an online trading account. It buy one carat diamond and stored in a vault in Antwerp, Belgium, providing daily values with the cursor, but at the same Unnamed. The fund is supported by the New York company, IndexIQ, which brought 14 other exchange-traded funds to the market in the past five years.
In addition, Martin Rapaport, who founded a popular gauge of diamond pricing, said recently that he was preparing to release “some” products this year that will be available to retail investors. He declined to describe them.
In perhaps the most sophisticated plan, and operate the largest diamond company publicly traded, Harry Winston, with the Swiss asset manager to create a fund worth $ 250 million that was set to start buying half-carat diamond six carats this year with money from institutional investors such as hedge funds and pensions. That owning a diamond fund bought and sold in Harry Winston stores and sell shares to private investors.
“Diamond is a commodity last uncommoditized, and so it’s drawing in many organizations,” said Edahn Golan, and editor in chief of IDEX Online, which is the diamond industry data provider. “I suppose that by the end of this year there will be a bunch of them out.”
Investment experts say that individual investors should be very careful, given the difficulty of setting fixed prices for the diamonds of various cuts on a large scale and quality, the traditional secrecy of the industry. As the diamond market has been tarnished by accounts of stones mined in war zones of Africa torn, in spite of all of IndexIQ fund and the Harry Winston fund committed to avoid, such as the so-called blood diamonds.
“There will be a big learning curve for me to be something comfortable like this trade,” said Matt Zeman, a trader in commodity financial Kingsview.
The diamond industry can only dream of replicating the success of gold companies. Gold investments, instead of jewelry, has become the main engine of growth in the industry, according to the World Gold Council, and the payment of annual production to about $ 100 billion, and analysts say Citigroup. The City By comparison, the annual production of polished diamonds of about $ 18 billion.
Allure of diamonds is that, like gold, is easily authenticate it and long lasting. But unlike gold, and oil, they were not to have a lot of diamond price fluctuations, in part because it has not been touched by large flows of speculative funds, although that may change if the new efforts succeed.
“It makes sense that investors have an interest in the funds backed by the diamond,” said Park Jong, a commodities analyst at Morningstar.
This is not the first peak of the diamond
to bring Wall Street. When inflation and a rise in the late 1970s, Find stable stores of value led to a small number of legitimate, many illegal, operations that lured individuals in the diamond investors. Sold one, he began by Thomson Financial McKinnon Corporation, the private sector shares, and was wound down when interest rates fell, with the value of the diamond with them.
Repulsed term market many investment experts because of its market share of 80 percent to 90 percent of production held by De Beers, the global diamond giant. Which began to recede when De Beers loosened its grip on the supply channels in 2000, and later sold in some of its mines and stock, reducing its market share to 40 percent today, according to the City.
“Before De Beers gave up its monopoly, the case was very difficult to invest,” said Peter Laib, head of the Swiss company’s diamond assets Consulting, which works with the Harry Winston diamond in the Fund. “Why start box where prices are controlled by a single company?”
The end of the monopoly still left Perhaps the biggest obstacle to investment: the lack of uniform standards for the pricing of diamonds. Unlike gold, which is sold for in basically the same price in financial markets worldwide, has been selling diamonds mostly through bazaarlike areas such as Manhattan and the Antwerp diamond exchange, which declares that “binding handshake reforms price, delivery and conditions. ”
“The diamond industry is suffering from an image which is, unfortunately, rather than merit, and hiding behind the smoke and mirrors,” said Charles Wyndham, founder of the London-based prices of polished, a diamond pricing company.
Many market participants argue that the diamond is not a commodity but unique items that need to be evaluated individually. But Windham, and Rappaport IDEX competing to prove that the error by creating a unified pricing. IDEX contains an index updated every hour of asking prices from its database via the Internet, likely the most popular with 15 varieties.
IDEX index is not the best measure, Mr. Windham argue, because it depends on asking prices rather than actual transaction prices, as do the stock exchanges. He has built polished price index, which is available on Bloomberg terminals, and uses selling prices and receive company of 20 wholesalers. He said he was working with “major European financial institution,” which is seeking regulatory approval in Europe for the Diamond Fund after another can be available to the public.
Price polished conference hosted in 2007, with dozens of finance industry professionals who saw how the diamond-making investment regulations. The partner said Mr. Windham, and Richard Platt, said he believed then that the product will be available soon.
“It was difficult, but we are quite a long way on the path to get there,” Mr. Platt said.
Mr. Windham Mr. Rappaport criticize the only fund that is available for ordinary investors, and the fund Diamond Capital Circle, which were included in the London Stock Exchange in 2008. It collected nearly $ 50 million
from investors and use it to buy stones, each worth at least a million dollars . Mr. Windham said fund managers did not work outside the system for pricing and sale of their holdings at the end. The stock fell to less than $ 4.20 this week from about $ 10 in 2008.
Said Andrew Dawson, the fund manager, it recently underwent a management change and now has the best strategy with new managers. Working with Harry Winston Fund developed a new method to deal with the problem of pricing. The director will be in Switzerland to pay for the stock in Harry Winston stores. The value of a diamond will be determined after a customer buys a piece of jewelry that contains the stones and stone parts are bought by Harry Winston of the supply chain. The fees for the fund to be similar to those of hedge funds, with a management fee of 1.5 percent and 20 percent of any increase in value.
He said the Fund to the United States based advisers IndexIQ not listed fees have planned in the application it submitted to the SEC in March. To exchange traded funds other fees of about 1 percent per year and trade on the exchange Arca New York Stock Exchange. Fund replicates its largest hedge fund strategies and attracted $ 200 million in assets. And S.E.C. Does not comment on pending applications.
All new providers make the same argument to make diamond attractive for investors: While not expected to increase the supply of new diamond, is expected to increase steadily demand from India and China. Said Brian Chen, a mining analyst at Citigroup, “the fundamentals look very good in terms of supply and demand.”
Polished Price Index declined 2.2 percent this year, but rose 5.6 percent over the past year, and 56 percent since its inception in 2003.
But Ron Rowland, and mutual funds and exchange-traded fund adviser, and founder of Capital Cities Asset Management Company, said that even if the money did not start, retail investors should approach with extreme caution.
“, Stay away until you know exactly how it works, and can be sure it is acting like you think it would be,” he said. “It will be difficult to create a market.”