3 Jul 2020

What Is Diamonds?

Diamonds is an informal term for an index-based exchange-traded fund (ETF) known as the SPDR Dow Jones Industrial Average ETF. The Diamonds ETF trades on the NYSE Arca exchange under the ticker symbol DIA. The ETF’s objective is to provide returns that mirror the price and yield performance of the Dow Jones Industrial Average (DJIA). Diamonds are also an extremely hard gemstone used mainly for jewelry, tools, and as an investment in precious stones.

Understanding Diamonds

Launched in 1998, the Dow Diamonds exchange-traded fund is managed by State Street Global Advisors. Since its launch, it has become popular among investors as a way of achieving approximately the same returns as owning the individual stocks in the underlying Dow Jones Industrial Average. Investors can buy and sell shares of the ETF, just like with common stocks. The fund’s holdings consist of the 30 stocks in the DJIA, in the same price-weighted proportion as they appear in the DJIA, as well as some cash holdings.

The Popularity of the Diamonds ETF

Diamonds are a popular and generally well-regarded fund. Owning shares of Diamonds allows investors to attain the diversity of the DJIA with relatively low transaction fees. The fund is highly regarded for its relatively low gross expense ratio, which was 0.17% as of the first quarter of 2016. Diamonds, like other ETFs, may offer some investors tax advantages over owning mutual funds. The fund’s large size provides ample share liquidity, and investors can buy or sell shares any time the exchange is open. The ETF’s high market capitalization and liquidity have spawned a variety of options chains from which traders can choose. The NYSE allows investors to trade Diamond shares using margin, as well as to short-sell Diamond shares.

Diamonds ETF Statistics

As of April 30, 2018, the fund had total net assets of more than $21.3 billion, with about 85 million shares outstanding. The fund’s weighted average market cap was about $238 billion, at a price-earnings ratio of about 23.64. Since its inception, the fund has yielded investors an annualized return of about 8.08%.

Diamond Gemstones as an Investment

Diamonds as gemstones are generally considered a poor investment vehicle, mainly due to the illiquidity of the market, a lack of price transparency, high transaction fees, and high risk related to quality assurance. Investors who want exposure to diamonds could reduce some of the risks by owning GEMS, an ETF that invests in the diamond and gemstone industry. Many wealthy individuals consider diamonds a good investment because they can buy high-priced stones with relatively low transaction costs, and they can enjoy the diamonds while their value grows, as with antiques or art.

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