21 Oct 2020

What Is the Diamonds ETF?

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).

KEY TAKEAWAYS

  • The SPDR Dow Jones Industrial Average ETF is colloquially called the Diamond ETF, also known as the Dow Jones Diamond Index.
  • Since its launch in 1998, the Diamond ETF 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.
  • Owning shares of Diamonds allows investors to attain the diversity of the DJIA with relatively low transaction fees.

Understanding Diamonds

Launched in 1998, the Dow Jones Diamonds Index 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 blue-chip 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 of 0.16%. 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 Sept. 10, 2020, the fund had total net assets of more than $22.65 billion, with nearly 81 million shares outstanding. The fund’s weighted average market cap was about $326.8 billion, at a price-earnings ratio of about 22.25. The fund has a 10-year net asset value of 13.60%.

Investing in Diamond Gemstones

Diamonds as gemstones–not the ETF–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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