MERCHANDISER
Dow Jones Indexes & UBS Launch Roll Select Commodity Index
Dow Jones Indexes, a leading global index provider, and UBS Investment Bank have launched the Dow Jones-UBS Roll Select Commodity Index, a gauge that aims to mitigate the negative effects of contango on index returns. For each commodity, the new index – a version of the
Dow Jones-UBS Commodity Index series – rolls from the expiring futures contract into the contract showing the least contango (or greatest backwardation), selecting from those specified contracts with nine months or fewer until expiration. By contrast, the Dow Jones-UBS Commodity Index rolls on a predetermined schedule into specified futures contracts, typically the ones with ‘nearby’ expirations. When the prices for exchange-traded futures contracts are higher in the distant delivery months than in the nearer delivery months, the market is said to be in ‘contango’. For example, the sale of a January contract would take place at a price that is lower than the purchase price of a March contract. Holding other factors constant, contango generally has a negative impact on index returns, as the higher longer-term future prices move lower over time to the shorter-term prices. This potential convergence over time is often
referred to as a negative ‘roll yield’. Except for the above-described determination of
the roll contracts, the Dow Jones-UBS Roll Select Commodity Index is calculated according to the methodology described in the Dow Jones-UBS Commodity Index Handbook. With commodities becoming an increasingly popular component in investor portfolios, the DJ-UBS Commodity Index family has grown into one of the most popular commodity benchmarks with more than US$80 billion in assets under management tracking the indexes. The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities. It currently includes 19 commodity futures in seven sectors with the relative proportion of each of the underlying individual commodities reflecting its global economic significance and market liquidity. No single commodity can comprise less than 2% or more than 15% of the index, and no sector can represent more than 33% of the index. The Dow Jones-UBS Commodity Index is re-weighted and rebalanced annually on a price-percentage basis.
www.djindexes.com
NYSE Euronext Single Commodity Indices NYSE Euronext has extended its range of indices into
the commodity asset class with the launch of four single commodity indices based on its NYSE Liffe Milling Wheat Futures Contract and Cocoa Futures Contract respectively. These new single commodity indices measure the
performance of a strategy which consists of investing in the most active delivery month of the relevant futures contract, measured by level of open interest. When the expiry date of this delivery month approaches, the investment is rolled into the next most active delivery month. The indices offer investors an easy way to track the NYSE Liffe commodity markets, and will be calculated both on an excess return basis and a total return basis. “The launch of these indices extends NYSE Euronext’s
index range to include the commodity asset class and facilitates new opportunities for market participants to track and offer products on NYSE LIFFE’s specific commodity futures,” says George Patterson, Head of NYSE Euronext’s Global Index Group. The launch of these new indices comes at a very exciting
time in the history of the underlying contracts, with NYSE Liffe’s commodity portfolio continuing to experience record growth in both volume and open interest during 2011. “These indices allow the development of new products giving investors the opportunity to gain exposure to these important benchmark contracts,” added Ian Dudden, NYSE Liffe’s Director of Commodity Derivatives.
www.nyse.com/indices
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