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In this current state of market volatility, millions of investors—many of whom entered the markets during the overly-stimulated pandemic economy of the last two years—are becoming reacquainted with a key concept that seemed to have gone on hiatus until recently: ‘Fundamental Value.’
Cratering crypto valuations and struggling hedge funds paint a clear picture: Speculation is out. Assets with clear and defensible bases of lasting value are in. Just as we would expect during periods of economic uncertainty and rising inflation, commodities funds and ETFs have seen huge inflows of investor capital so far this year.
This time around, however, investors have a new tool within the broader commodities sector to protect their portfolios and access compelling possibilities for capital appreciation, even as equity markets and cryptocurrencies swoon: diamond commodities.
These instruments are based on a precious asset that has demonstrated significant and sustained value over the course of centuries – and which faces severe supply constraints that could create positive dynamics for investors as institutions begin building larger positions in these new assets.
Investors’ Flight to Commodities
In recent months, US investors’ new search for fundamental value – and for protection from broader market headwinds – has resulted in some of the strongest inflows to commodities in decades, according to analysts. Commodities-based ETFs saw $8.5 billion of net inflows through May of this year, compared to $1.3 billion dollars of net flows for U.S. fixed income ETFs, according to the Center for Financial Research and Analysis.
The story for gold- and silver-backed ETFs has been more of a rollercoaster. These vehicles saw increases in March due to geopolitical anxieties over the war in Ukraine, followed by a difficult month in April. As of May 13, gold and silver prices were down 1.2% and 7.9%, respectively, for the year. (During the same timeframe, the value of the Diamond Standard Coin climbed 6.8%.)
A Brilliant New Tool for Investors
Focusing solely on gold and silver in the current environment could be costly for investors for other reasons, as well. Put simply, with the creation of Diamond Standard Coins and Bars, the efficient frontier for commodities investors has changed, creating new options for diversification and capital appreciation.
As the first-ever regulator-approved diamond commodities, the Diamond Standard Coin and Bar (and now the Diamond Standard Fund) enable investors to cost-effectively tap into market dynamics and stores of fundamental value that could make the difference between a relatively mild impact to their portfolios in the coming years and a potentially devastating loss of value.
To see why, investors should note that demand for diamond jewelry has proven durable over the years and is only growing, according to Fortune Business Insights, as more Millennial and younger consumers with a high spending capacity show interest in these assets. Bain & Co.’s Global Diamond Industry Report found demand for diamond jewelry increasing globally, with sales of diamond jewelry in China increasing by 19%, exceeding pre-level Covid-19 levels. Demand in India grew by 16% in 2021, and rose by 38% in the U.S. during the same period.
The result for investors? Since the Diamond Standard Commodities were approved in August 2020, diamonds have returned 45%.
Back to Basics
In one of the most succinct explanations of fundamental value on record, noted value investor Tony Soprano once said to his son, “Buy land, AJ. ‘Cause God ain’t making any more of it.” He could just as well have been referring to diamonds.
Many investors are aware that diamonds are a highly supply-constrained resource, with no new mines discovered in the last 20 years. As we have discussed in previous blogs, these constraints have become more severe in recent months thanks to sanctions on Russia-owned Alrosa.
What has been less widely covered, however, is the fact that demand dynamics for diamonds are on the verge of a significant shift. Making these assets available as fungible commodities that are fully tradable via shares in the Diamond Standard Fund creates an entirely new channel of demand for this highly valuable and limited resource.
Additionally, when we consider that large numbers of investors are currently searching for new ways to deploy capital in the commodities sector and diversify their holdings, it becomes clear that diamonds are poised to step up for investors as more traditional markets continue to struggle.
An Innovative Approach to Fundamental Value
Many investors who had become accustomed to seeing markets go nowhere but up are now receiving an education on the importance of fundamental value and are searching for ways to strengthen their portfolios as traditional markets collapse. Fortunately, by combining blockchain technology with a sophisticated and innovative approach to forcing price discovery, diamond commodities offer an ideal solution during this challenging time.
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