CONFERENCE CALL: Listen to NASDAQ OMX’s Head of Index Research, David Krein, as he hosts a conference call discussing “The Role of the Roll in Commodity Indexes.” This event was sponsored by Boost ETP.
GemShares, LLC, a pioneer in the delivery of physically-backed diamond investment products to regulated exchanges around the globe, and The NASDAQ OMX Group, Inc. today announced an agreement to develop the GemShares Global Investment Grade Standard (GIGS™) Diamond Basket Index. This transparent, rules-based index will provide a standardized pricing mechanism for valuing a diamond basket that could be used for the development of financial products.
The NASDAQ OMX Group and GemShares will develop the GemShares GIGS Diamond Basket Index to track the prices of diamonds that have met the patented standards for investment-grade certification developed by GemShares. Through this index, diamonds that have met the GIGS gemological, proportional, optical and light-behavior guidelines can be securitized for the creation of financial products to be listed and traded on regulated exchanges globally.
"The establishment of the GemShares GIGS Diamond Basket Index will lead to the securitization of diamonds by bringing a new and enhanced level of confidence through the addition of transparency and liquidity to the process of pricing these assets for investment purposes," said Dan Gramza, GemShares Partner. "This partnership is the first step toward creating a significant bridge between the financial and diamond industries that brings the benefits of investing in diamonds to investors around the globe. By opening new channels of distribution, GemShares will enable the diamond industry to reach a broader range of customers and increase revenue."
GemShares was founded in 2007 with the goal of creating a fungible global investment standard for diamonds and gemstones. GemShares was awarded a patent for the GIGS pricing mechanism in August 2012.
"NASDAQ OMX's collaboration with GemShares represents two innovators who are committed to enhancing transparency and providing investment solutions to investors," said John L. Jacobs, Executive Vice President of Global Information Services for NASDAQ OMX. "The introduction of the GIGS™ Diamond Basket Index is another indication we continuously strive to meet demand for a wide variety of investment opportunities through the design of relevant, objective indexes."
By: Michael Fabian, NASDAQ OMX Global Indexes Contributor
The volatility in interest rates this year has been particularly troublesome for fixed-income investors. Much of the jump in long-term Treasury bond yields has been due to the quicker than expected improvement in the labor market, thereby putting pressure on the Federal Reserve to begin tapering its asset purchase programs in 2013. The unrelenting rise in stock prices combined with investors pouring assets into equity-oriented funds at a breakneck pace has also put downward pressure on the fixed-income sentiment. This has been a wakeup call for investors to begin paying closer attention to their fixed income holdings, and examine them for potential weaknesses. Investors that own traditional “core” fixed income funds now face a unique set of challenges: continue to hang on as rates creep higher and indexes ultimately rotate to higher yielding bonds, or sell and forego the cash-flow benefit of fixed income altogether?
Investors that have a portfolio made up of individual bond issues have a very different set of concerns than holders of traditional bond funds. This is primarily due to the fact that a fund will continue its duration into perpetuity, as there is no fixed maturity date. It will simply roll short maturity holdings forward based on the investment objectives of the fund. Naturally the advantage to owning a fund is the ease of use and diversification you get for holding just one security within your portfolio. Conversely, the obvious advantages to owning individual bonds is the ability to latter a basket of credits, and then allow them to mature at par. This enables the investor to participate in the income component, yet not get wrapped up in the pricing anomalies in relation to treasury bonds. Furthermore, after maturity, you have the option of either rolling proceeds over to higher yielding bonds if a rising rate environment persists, or just sit in cash to wait out better opportunities.
Several years ago an innovative index-based ETF product was brought to market to satisfy the needs of both individual issue and bond fund investors. The Bulletshares concept is based on a “target-date” fund philosophy, but it utilizes a unique index methodology whereby bonds are grouped together based on their maturity date. As an example, the Guggenheim Bulletshare 2016 Corporate Bond ETF (BSCG) has a constituency of investment grade bonds that will all mature in 2016; when the fund is set to be liquidated at year end. As the bonds mature within the fund, the proceeds will be placed in cash until it finally liquidates and makes a full distribution to its shareholders. The index is inherently designed to represent a “held to maturity” basket of bonds with all the benefits of diversification offered by a fund.
A list of the Bulletshare family of ETFs includes options for both investment grade and high yield:
Practical uses within a portfolio can vary, and include the basic buy-and-hold to maturity approach, or even a more sophisticated yield curve positioning strategy. Other uses can even include opportunistically shortening or lengthening duration, while staying in the same fund family to take advantage of prevailing interest rate fluctuations.
When the need arises for even large institutional portfolio managers to target a specific duration and/or credit quality within their portfolios, Bulletshares ETFs offer the convenience of not having to curate an entire bond latter from scratch. This concept opens up the use of Bulletshares to small or medium sized pension funds or defined benefit plans to cut the cost of research and implementation.
With the future of interest rates largely being called into question, investors need to leverage every tool they can to protect capital while still generating income. Reaching outside the bounds of your typical core fixed income fund can have many benefits. However, understanding the risks associated with market price fluctuation, while still having the defined maturity to fall back on is something many investors should take heed to.
Note: As of this writing, the author did not own any securities listed in this article.
To get more investor insights from Fabian Capital, visit their blog here or click here to download their latest special report, The Opportunistic Approach to Growth Investing.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
NASDAQ® and NASDAQ OMX® are registered trademarks of The NASDAQ OMX Group, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither The NASDAQ OMX Group, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding NASDAQ-listed companies or NASDAQ proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. © 2013. The NASDAQ OMX Group, Inc. All Rights Reserved.
We have extended the offer for all Factset clients to receive free access to the NASDAQ Global Index Family. Factset clients now have through September 30, 2013, to browse and utilize the information at no cost.
The NASDAQ Global Index Family covers 98% of the investible equity marketplace in large-, mid-, and small-cap stocks across Developed and Emerging markets.
“FactSet is pleased to add the NASDAQ Global Index family to our Global Indexing and Benchmark offering,” says Patrick Locke, Vice President, Database Development, FactSet. “This release combines NASDAQ OMX’s Global sector, benchmark and tradable indexes with FactSet’s analytical tools to let clients benchmark and track a broad representation of the global investable marketplace.” Contact us for more information.
Nasdaq® and Nasdaq® are registered trademarks of The Nasdaq Group, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. Neither The Nasdaq Group, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
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