Sparkling: Diamonds could be the investors’ best friend
As gold loses its shine, this most precious of stones may become an attractive alternative
For centuries diamonds have been a symbol of wealth coveted by brides-to-be and collectors, but could these most precious of stones also prove the ordinary investor’s best friend?
Gold has traditional been the preferred commodity for many investors, but now that it is down from its peak, diamonds are an attractive prospect if you’re looking for an alternative. In the last five years, one to five-carat diamonds provided annual returns of 12 per cent and this year, global diamond prices are predicted to increase by around 10 per cent, while the price of the best gems could jump as much as 50 per cent, according to gem trading company Diamond Manufacturers. However, such claims coming from firms involved in the trade should be taken with a pinch of salt.
Prices have been driven up by demand from the emerging middle classes in India and China, the lack of major mining discoveries and, when it comes to the price of cut diamonds, the market is still tightly controlled by the likes of De Beers who have diamonds in store.
If you have a magpie’s weakness for shiny things, there are three ways to invest in diamonds: you can buy the gems and store them to sell at a later date; you can buy shares in diamond-mining companies; or you can gain exposure via diamond funds.
Holding the physical asset means you can set the diamonds into jewellery and make the most of its aesthetic quality until you’re ready to sell. Buy your gems through a reputable diamond trader rather than a jeweller who will add a retail mark-up of as much as 300 per cent compared to prices on the wholesale market. Vashi Dominguez, chief executive of Diamond Manufacturers, advises spending £5,000 on a quality stone and be prepared hold on to it for at least five years.
“Each diamond should have come with a certificate from a laboratory which confirms its grade – the GIA is the best known and one of the most-respected labs, the Dutch equivalent, HRD, also gets mentioned. Other certificates will be less trusted when reselling,” says Adam Laird, investment manager at independent financial advice firm Hargreaves Lansdown.
The most-important issue for investors is that the diamond trade is an unregulated market blighted by a lack of transparency. There is an index – the Rapaport Diamond Trade Index – but this only serves as a guideline as the vast majority of diamonds don’t actually trade at these prices.
The “four Cs” help to determine the value of any given diamond – the cut, colour, clarity and carat – but every diamond is unique, like a snowflake or fingerprint, which means they must be valued individually. A lot of work goes into an uncut diamond before it becomes the gem seen in fine jewellery and the cut is what gives a diamond its sparkle. Colourless diamonds (graded D, E or F) are rare and demand the top prices, but anything lower than grade H has become too yellow and is best avoided. Size is, in the diamond world at least, important – the price of five-carat diamonds increased by 170 per cent from 1999 to 2011, while three-carat diamonds increased by 145 per cent over the same period.
While all of this may add to the appeal, it also means that as an investment they are extremely tricky to value accurately and even seasoned experts disagree on qualities and values. It’s easy to imagine how easily dealers could take advantage of investors.
If you buy in the UK, diamonds are subject to VAT so you lose 20 per cent from the off and you also need to factor in the cost of storage and insurance (you can add diamonds as a specified item on your home and contents insurance)
To sell you can go to an auction house or ask a jewellery store to find a buyer for your diamonds (they’ll take a 10-15 per cent commission). If time is of the essence, the quickest way to sell is back to a diamond dealer, although you are unlikely to get the best price.
If you prefer to invest in a specialist diamond fund, UK investors are limited to Pink Iguana, an Enterprise Investment Scheme. However, you need a minimum £10,000 and this involves speculative investment in high-risk, unquoted companies.
One of the easiest and cheapest ways to invest in the diamond sector is to back the mining companies and manufacturers. An actively managed commodities fund is fairly accessible and diversifies some of the risk associated with fluctuating prices.
“We recommend getting access to diamonds through the JPM Natural Resources fund. This fund invests in gold and precious-metal mining companies, alongside energy and base metals. However, as there are very few viable diamond miners, these make up only 3.8 per cent of the overall fund,” says Patrick Connolly of independent financial adviser Chase de Vere.
You can also invest directly in diamond-mining company shares. Petra Diamonds and Gem Diamonds are among the few diamond-mining companies listed on the stock exchange, but one of the biggest diamond firms is De Beers, which has been in majority ownership of London-listed Anglo American since the end of 2011. Other notable names include Alrosa, a Russian mining company, and Canadian-based Dominion Diamond Corporation. Be warned, however, that shares in individual companies are high-risk and the price will not always move in tandem with the diamond price.
“With regards to investing, diamonds are a specialist area,” says Mr Laird. “I would recommend that any investor should only devote a small amount of their portfolio to it – maximum 5 per cent – but smaller investors may find it unfeasible given the costs. It is an area only for investors with a long time horizon.”
Sparkling statistics: The facts
1. More than 99 per cent of diamonds are now from conflict-free sources and traded under the UN-mandated Kimberley Process
2. There is thought to be less than 20 years of supply remaining in the major operating mines. Total reserves of the three largest undeveloped mines is less than one year of the current total global production
3. Gahcho Kue diamond project in Canada is the world’s largest new diamond mine, with an estimated reserve of 49 million carats. If it is approved, will take around five years to start producing (estimated to commence in 2018)
4. Gahcho Kue will operate for 11 years and produce 4.1 million carats per annum (just 3 three per cent of current global production)
- 1 Tidal launch: The most pretentious lines from Alicia Keys' valedictory speech
- 2 Trevor Noah: Jon Stewart's replacement faces online criticism over 'anti-Semitic' tweets
- 3 Martha Stewart accuses Snoop Dogg of 'smoking for four hours' during Justin Bieber Roast
- 4 Gamers confess the worst things they've done in The Sims
- 5 Syrian child photographed 'surrendering to camera because she thought it was a gun'
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
David Cameron calls Labour 'hopeless, sneering socialists' while announcing 7-day NHS plans
Revealed: Putin's army of pro-Kremlin bloggers
iJobs Money & Business
£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...
£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...
Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...
Day In a Page
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000