13 Jul

Pink diamonds a bright spot as markets hit turning point!

No matter which way you look at it, the last financial year represents a major turning point for investors, in particular from the volatility seen in the last six months.

We touch on this in the below market update, taking a look at the returns delivered by a range of asset classes across the last 12 months.

We also share three charts which demonstrate clearly that the ‘easy money’ era in traditional assets is over, and why hard assets, including pink diamonds, have been, and will likely continue to be one of the few sources of return for investors going forward.

We also touch on the relative scarcity in the diamond world, and why news that the Ellendale mine will be going back into production only reinforces the bullish outlook for pink diamond prices in the new financial year.

The year that everything changed

They say a picture tells a thousand words.

In this spirit, we wanted to share three charts that we came across this week, which show the returns delivered by various markets over the long-term, and how 2022 is shaping up so far.

Collectively, they highlight the fact that;

1. The S&P 500 is on track for its worst year in real terms since 1872 (i.e. accounting for inflation), as per the chart below.

S&P 500 real total return (annual)

Chart of S&P 500 real total return (annual)

Source: BofA Global Investment Strategy, Bloomberg Global Financial Data. *2022 YTD Annualised.

2. Government bonds are on track for their worst year since 1865, as per the chart below.

World Govt Bond GDP-weighted Return Index (YoY%)

Chart of World Govt Bond GDP-weighted Return Index (YoY%)

Source: BofA Global Investment Strategy, Bloomberg Global Financial Data. *2022 YTD Annualised.

3. Commodities are on track for their best year since 1946, as per the chart below.

CRB Commodity Index Total Return (YoY%)

Chart of CRB Commodity Index Total Return (YoY%)

Source: BofA Global Investment Strategy, Bloomberg Global Financial Data. *2022 YTD Annualised.

These charts make it clear that in financial markets, and for investors managing their portfolios, everything has changed.

Given the above, many investors will be happy to forget the financial year just past, especially those concentrated in traditional assets and without exposure to assets like pink diamonds.

For as the charts above attest, many asset classes suffered notable falls, with most of the declines taking place in the period between December 2021 and June 2022.

Equities, bonds, real estate, cryptocurrencies – nothing was spared. This can be seen in the table below, which shows the preliminary performance of a range of asset classes over the six months to end June, and across the full financial year.

2021/2022 financial year performance

Table of 2021/2022 financial year performance

Source: ASX, Standard and Poors, RBA, Coinmarketcap, Bloomberg. Note that equity returns are price only.

The table also makes it clear that commodities were the only asset class that delivered positive returns, which in part helps explain why the demand and prices for pink diamonds have been so strong in the last financial year.

Pink diamonds of course also have the advantage over a broader set of commodities in that unlike the latter, which are notoriously volatile, pink diamond prices are largely immune to the daily gyrations of financial markets, offering a much smoother path of returns for investors.

This is something we will highlight in more detail when we publish the full 2021/22 financial year results for our Australian Diamond Portfolio Pink Diamond Index (ADPPDI), with the ADPPDI, and a full report on the outlook for broader investment markets set to be released by early August at the latest.

This report, and its conclusions, are not to be missed.

For make no mistake, the years of double-digit price growth across traditional asset classes like shares and property, combined with low consumer price inflation are now in the rear-view mirror.

Instead, it’s time for alternative assets, like pink diamonds, to shine.

There won’t be another Argyle Diamond Mine

Extreme scarcity is one of the important factors that make us so bullish on the investment case for pink diamonds.

Put simply, there aren’t that many of them, with the vast majority (approximately 90%), coming from the Argyle Mine in WA, which, after 37 years of operation, was finally shuttered in late 2020.

Earlier this month, we saw an announcement that the Ellendale mine, also located in Australia, was set to recommence production, after a 7-year hiatus.

Crucially, the diamonds found at Ellendale are typically yellow diamonds, with recent news suggesting yellow diamonds as large as 0.663 carats (average size 0.41 carats) have been found.

While these can often make for nice jewellery pieces, they have not historically offered anywhere near the price appreciation that pink diamonds are famous for, which is why yellow diamonds are not so highly sought after as an investment.

The fact that yellow diamond supply will increase as a mine like Ellendale goes back into production also demonstrates that from a relative perspective, pink diamonds will only grow scarcer.

This should be of great comfort to those astute investors looking to add a pink diamond to their portfolio today.     

As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and we look forward to any questions or comments you may have.


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