Diamonds have been chiefly bought for weddings, festive occasions and gifting but seldom for purposes of investment. Unlike other precious stones and metals like Gold, Diamonds were never seriously considered as an investment avenue. This stemmed from the fact that there were hardly any diamond options for investors (unlike Gold sector where Gold ETFs and other instruments are prolific) apart from other roadblocks including diamond prices being not so transparent.
The investment landscape for diamonds is however set to advance. Novel Asset Management (NAM), member of Novel Collection – world’s largest manufacturers and traders of colored diamonds, has launched their second fund for investment in diamonds.
In an interview, Alan Landau – CEO of NAM emphasized that the markets are very “inefficient” and the alternative asset management company plans to “take advantage” of the situation. Instead of making long-term investments in diamonds, NAM will concentrate on trading, by buying diamonds at wholesale prices and selling them at retail prices, which are much higher.
[Image Courtesy: Novel Asset Management]
Given the transparency in the market, an individual has the limited option of going to the ‘Auction’ market but for a $100 price, there is another $25 buyer’s commission. Besides, the seller also needs to pay a $15 seller’s commission on a $100 transaction, which leaves a wide spread of 40 points between the Bid and Ask rates. Alan is of the opinion that this situation will take at least 5 years to recover.
NAM will be transacting only in polished colored stones and investors can invest on a monthly basis in the new fund. NAM’s first diamond fund generated a 38% return over a 2-year period and it is relying on its past success, market scenario and its ability to leverage its parent – Novel Collection, for successful diamond investments in the new fund too.
NAM indeed shows a promising advancement for diamond investments, but many more investment options are needed for individuals to start making investment in diamonds.