IndexIQ filed a preliminary prospectus with the U.S. Securities and Exchange Commission proposing its IQ Physical Diamond Trust, an exchange-traded fund (ETF) backed by diamonds. The trust would only carry diamonds of "industry standard," one-caraters and create parcels, based upon characteristic variations, according to the proposal. The sponsors also proposed to use only diamonds that were certified by the Gemological Institute of America (GIA) no earlier than January 1, 2006.
According to the filing, (read the prospectus) the trust will not trade in derivative instruments tracking the price of diamonds nor the performance of the diamond industry on any futures exchange or over the counter. The trust will take delivery of diamonds that meet the ETF's required delivery standards, which are being proposed. Investors in the trust will not receive the regulatory protections afforded to investors in regulated commodity pools, nor may any futures exchange enforce its rules with respect to the trust’s activities.
The investment objective for the IQ Physical Diamond Trust is for shares to reflect the performance of the consumer wholesale price of the diamond parcels it holds, less expenses. "The sponsor believes that, for many investors, the shares will represent a cost-effective investment relative to traditional means of investing in physical diamonds," according to the filing.
Diamonds will be held in Antwerp and a custodian will physically segregate the trust’s diamonds from any other diamonds which it owns, and will verify the diamond identities through GIA certificates.
IndexIQ was founded in 2006 in Rye Brook, New York and offers hedge fund replication ETFs using its own "Rules-Based Alpha Investment" strategy, which seeks to combine the benefits of traditional passive index-based investing with the alpha potential sought by the best actively managed funds.