DIAMONDS offer index alternative

Money Digest, May, 1998

Dow DIAMONDS are to the U.S. stock market what TIPS are to the Canadian market

If they want to invest in 35 of Canada's largest companies, investors can simply buy TIPs or Toronto Index Participation Units,, (TSE: TIP; Recent price $41) which operate like a closed-end fund. Now you can invest in the 30 blue chip stocks that make up the Dow Jones industrial average (DJIA) by investing in a similar instrument known as DIAMONDS (AMEX; DIA; Recent price: US$90).

When you purchase DIAMONDS you invest in the stocks that make up the DJIA, roughly in the same proportion as they are represented in the index.

The price of DIAMONDS is quoted at 1/100 the value of the DJIA. You will be entitled to monthly cash distributions representing the dividends paid out by these 30 companies.

One way of looking at DIAMONDS is to consider them as mutual funds that invest in 30 blue chip companies. The management fees are among the lowest of any fund. It currently runs at 0.18%.

Given that very few money managers really beat the indices on a consistent basis, passive investing (investing in indices) may be the best strategy for many investors.

However, before investing, you may want to consider whether you want to enter the U.S. market at the current levels, which some investors consider to be too high.