The following is a brief summary of several long-only commodity index products that are available to investors seeking broad exposure to the commodity markets.
Commodities Research Bureau (CRB) Index: The CRB Index began trading on New York Futures exchange in 1986 and is the oldest of the indices. While futures on the index began trading in 1986, it was first calculated by the CRB in 1957 and has data going back to 1958. The index includes 17 individual components, which are equally weighted. This is one of the key drawbacks to the index because a product like corn or wheat will have the same weighting in the index as crude oil, when oil has significantly more economic impact than corn.
Goldman Sachs Commodity Index (GSCI): The GSCI index was created in 1992 and is available in the form of a single futures contract on the Chicago Mercantile Exchange. While it was launched in 1992, the GSCI has back-tested data going back to 1970. The index consists of 24 individual components and weights are assigned based on a five-year moving average of world production values. The result is that the index has a heavier weighting in commodities with more economic importance and higher liquidity. Consequently, the GSCI has a weighting of nearly 70% in energy related commodities making its performance highly sensitive to the energy markets and fluctuations in energy prices. The GSCI is rebalanced annually, and utilizes an arithmetic average in constructing returns for the index. Given its liquidity and longer performance data, the GSCI is often used as a proxy to analyze commodity returns.
Rogers International Commodity Index (RICI): Jim Rogers, a private investor and former hedge fund manager, created the RICI in 1998. Its weightings are based on world consumption patterns of raw materials and their relative importance in international commerce according to the research of Jim Rogers. The RICI is the broadest and most comprehensive index, consisting of 35 different commodities. Some of these components are less liquid and include obscure commodities such as flaxseed, azuki beans, canola oil, and raw silk. Weights for the individual components are fixed and the index is rebalanced monthly. The RICI is only available through a limited partnership and while it offers the broadest exposure of the major commodity indices, there could be some risk related to the liquidity of some of the index components.
Dow Jones AIG (DJ-AIG) Index: The DJ-AIG was established in 1999 and relies primarily on liquidity data and, to a lesser extent, dollar-adjusted production data in determining the relative weights of commodities in the index. All data used in both the liquidity and production calculations are averaged over a five-year period to determine component weights.11 The index holds 20 components and limits any related group of commodities to 33% in order to ensure diversified exposure to commodities. Like the GSCI, the DJ-AIG index is rebalanced annually. The reason for using liquidity data rather than production data is that liquidity is an important indicator of the value placed on a commodity by financial and physical market participants. Production data alone can underestimate the investment value that financial market participants place on certain commodities.
Commodities Research Bureau (CRB) Index: The CRB Index began trading on New York Futures exchange in 1986 and is the oldest of the indices. While futures on the index began trading in 1986, it was first calculated by the CRB in 1957 and has data going back to 1958. The index includes 17 individual components, which are equally weighted. This is one of the key drawbacks to the index because a product like corn or wheat will have the same weighting in the index as crude oil, when oil has significantly more economic impact than corn.
Goldman Sachs Commodity Index (GSCI): The GSCI index was created in 1992 and is available in the form of a single futures contract on the Chicago Mercantile Exchange. While it was launched in 1992, the GSCI has back-tested data going back to 1970. The index consists of 24 individual components and weights are assigned based on a five-year moving average of world production values. The result is that the index has a heavier weighting in commodities with more economic importance and higher liquidity. Consequently, the GSCI has a weighting of nearly 70% in energy related commodities making its performance highly sensitive to the energy markets and fluctuations in energy prices. The GSCI is rebalanced annually, and utilizes an arithmetic average in constructing returns for the index. Given its liquidity and longer performance data, the GSCI is often used as a proxy to analyze commodity returns.
Rogers International Commodity Index (RICI): Jim Rogers, a private investor and former hedge fund manager, created the RICI in 1998. Its weightings are based on world consumption patterns of raw materials and their relative importance in international commerce according to the research of Jim Rogers. The RICI is the broadest and most comprehensive index, consisting of 35 different commodities. Some of these components are less liquid and include obscure commodities such as flaxseed, azuki beans, canola oil, and raw silk. Weights for the individual components are fixed and the index is rebalanced monthly. The RICI is only available through a limited partnership and while it offers the broadest exposure of the major commodity indices, there could be some risk related to the liquidity of some of the index components.
Dow Jones AIG (DJ-AIG) Index: The DJ-AIG was established in 1999 and relies primarily on liquidity data and, to a lesser extent, dollar-adjusted production data in determining the relative weights of commodities in the index. All data used in both the liquidity and production calculations are averaged over a five-year period to determine component weights.11 The index holds 20 components and limits any related group of commodities to 33% in order to ensure diversified exposure to commodities. Like the GSCI, the DJ-AIG index is rebalanced annually. The reason for using liquidity data rather than production data is that liquidity is an important indicator of the value placed on a commodity by financial and physical market participants. Production data alone can underestimate the investment value that financial market participants place on certain commodities.
1 comment:
The Rogers Index has 36 componenbts -- not 35. It does not have raw silk and faxseed. To say things lile azuki beans and canola oil are obscure is absurd in that hundreds of millions use them every day. The index can be bought as listed ETFs,listed ETNs, listed TRAKRs, etc. around the world as can products based on the Rogers sub indexes. It is enormously liquid and has far, far outperformed all the other indexes.
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