DEFINITION of 'Diamonds'
Diamonds are an extremely hard gemstone used mainly for jewelry, tools and as an investment in precious stones. Diamonds is also an informal term for an index-based exchange-traded fund (ETF) known as the SPDR Dow Jones Industrial Average ETF, which trades on the NYSEARCA 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).
BREAKING DOWN 'Diamonds'
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 wanting exposure to diamonds could reduce some of the risk by owning GEMS, an ETF that invests in the diamond and gemstone industry. As of 2014, global diamond demand was increasing, due in large part to growing demand in emerging markets and in the United States. Many wealthy individuals consider diamonds a good investment because they are able to buy high-priced stones with relatively low transactions costs, and to enjoy the diamonds while they're value grows, as with antiques or art.
Launched in 1998, the Dow Diamonds exchange traded fund is managed by State Street Global Advisors. Since then, it has become popular among investors as a way of achieving approximately the same returns as owning the individual stocks underlying the Dow Jones Industrial Average (DJIA.) Investors can buy and sell shares of the ETF, the same as 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 is 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 anytime the exchange is open. The ETF's high market capitalization and liquidity has 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 2016, the fund had total net assets of about $12.3 billion, with about 68 million shares outstanding at a price per share of about $180. The fund's weighted average market cap was about $172 billion, at a price earnings ratio of about 18.7. Since its inception, the fund has yielded investors an annualized return of about 6.92%, as of the quarter ending March 2016.