Diamond ETF: Great Way To Play The Hard Asset Sector

Geopolitical concerns and their influence on other regions have also infused some fresh blood into diamond investing. All this has set a bullish tone for investing in the Diamond Mining ETF which should see a pickup on the higher demand for precious stones.

Diamond ETF in Focus

PureFunds ISE Diamond/Gemstone ETF (NYSEARCA:GEMS) tracks the gemstone industry including exploration, production or sales of precious stones. This is done by following the ISE Diamond/Gemstone Index, a benchmark that holds about 24 holdings in total.

In terms of a national breakdown, the U.K. takes the top spot at 34%, followed by the Hong Kong (27%), Canada (20%) and the U.S. (10%). Japan and Israel account for single-digit allocation.
The product is also somewhat concentrated in its top holdings with Chow Tai Fook Jewelry taking the top spot with 8.9% of assets, followed by Anglo American and Petra Diamonds both of which account for more than 7.5% of assets.

However, the fund has an inclination towards small-caps with more than 60% of the allocation. While this might lead to a certain amount of volatility, greater exposure to blend style (more than 80%) provides some cushion to the volatility.

Most of the companies in this fund focus on the jewelry industry as well as broad miners that deal within the gemstone space (also read IndexIQ Files for Industry First Diamond ETF). However, the product is a bit pricey in the commodity producers equity space charging 69 bps in year.

Bottom Line

Despite the solid performance for GEMS and its unique exposure profile, the fund remains unloved by investors. Volume and assets under management are both very light, so make sure to use limit orders if you are thinking about this product.

Still, if you are able to get by the low volume, GEMS could offer up an interesting choice in the mining/hard asset space. Diamonds and gemstones are overlooked by many other ETF products, and given the solid performance of the space lately, this could be one segment that may be worth a closer look heading into the end of the year.

This article is brought to you courtesy of Eric Dutram.

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