Diamonds ETF in sight as UK approves gem pricing benchmark
The UK’s financial regulator added a small diamond pricing firm to its roster of companies managing market benchmarks, opening the way to making the precious stones a more investable asset.
The Financial Conduct Authority has authorised U2 Diamond Prices as a benchmark administrator, joining firms such as FTSE International and ICE Benchmark Administration. The move will allow financial institutions to offer products that reference its pricing.
While there have been many attempts to turn diamonds into an investable financial asset, few have succeeded with transparent pricing – often one of the biggest hurdles.
“It opens the door to creating diamond-linked financial products from which all other commodities have benefited for a long time,” said U2 CEO Geoffrey Wyatt.
There have been attempts create diamond investment vehicles stretching back to at least the 1980s, when Thomson McKinnon Securities introduced a product. The company folded after the 1987 stock market crash. Since then, multiple companies have launched various products, with few gaining traction. Diamond Circle Capital was the first listed fund to invest in the gemstones, but shuttered in 2012.
Many of these funds focused on high-end diamonds, often as large as 10 ct. While those stones have held their value better than smaller gems, they are often illiquid and hard to price. U2 has been providing diamond pricing for more than 15 years, using transactions from traders and manufacturers. It will provide indexes based on diamonds sized at 0.3 ct, 0.5 ct and 1 ct, as well as composite indices.
One hope for the industry is that creating a physically backed diamond product – or exchange-traded fund (ETF) – could spur new demand for polished diamonds and help reverse a slide in prices that has gone on for years.
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