“Diamonds” photo by Mario Sarto licensed under Gnu Free Documentation License (GFDL)
What’s the problem with investing in Diamonds? For one thing, they are hard to value (without the help of a diamond appraiser). And they are illiquid (that is, they cannot be converted to cash quickly without a pawn shop).
If you expect diamond prices to rise but aren’t sure how to invest in the glassy substance, you can now invest in the diamond fund established by Harry Winston Diamond Corporation (NYSE: HWD), the diamond mining and retail firm. The fund is being set up as a limited partnership with Diamond Asset Advisors with up to $250 million in assets and “offering institutional investors direct exposure to the wholesale market price of polished diamonds.” (thestreet.com May 19)
According to CNBC,
"I think that over the long term there will be a strong appreciation of diamond prices based on increasing luxury demand from India, China and the Pacific Rim," said industry expert Rapaport, adding that a weak dollar would also increase diamonds' appeal as a safe haven for investors.
Broader demand and a consequent improvement in liquidity should support diamond prices over the longer term, making such funds attractive, although the horizon is cloudy in the near term, some market watchers said.
Investing in diamonds is not without its pitfalls. Others have tried and failed over the years. Still, if you want to invest in diamonds and aren’t knowledgeable enough to invest directly in the precious gem, perhaps a diamond fund is something to consider.
1. According to the CNBC article, the fund is being launched as a “private placement.” What is a private placement and who can invest in it?
2. How have previous diamond funds fared in the past?
3. Why might investors choose to invest in this diamond fund? Why might they choose not to?