ETF Spotlight: United States Commodity Index Fund

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ETF Spotlight on the United States Commodity Index Fund (NYSEArca: USCI), part of a weekly series.

Assets: $120.8 million

Objective: USCI tracks the SummerHaven Dynamic Commodity Index Total Return

Holdings: The fund holds 14 futures contracts that are selected from a list of 27 possible futures contracts.

What You Should Know

• USCI gives exposure to six commodity sectors: energy, precious metals, industrial metals, grains, softs and livestock.
• The fund’s goal is to own a diversified basket of the commodities that are the most important to the global economy.
• USCI came out of a research paper titled Facts and Fantasies About Commodity Futures, by K. Geert Rouwenhorst and Gary Gorton, both professors at Yale. In that paper, they concluded that a basket of commodity futures could deliver low volatility and equity-like returns.
• USCI’s strategy aims to mitigate contango, which can have a corrosive effect on returns over time. Each month, 27 commodities are ranked in order of most backwardated to most contangoed. From there, seven commodities most in backwardation are selected; the other seven are selected based on price increases in the last year.

The Latest News

• Simply put, commodities across the board are on fire.
• Copper and aluminum prices are rising.
• The United Nations has warned of a looming “food price shock.”
• Cold weather has natural gas hopping.
• Gas is getting more expensive.
• Emerging market demand, upticks in industrial production and investor demand are conspiring to keep prices elevated for now.
• If you’re struggling to pick and choose which commodities may do best, consider a basket like this one for its diversified exposure and contango management strategy.

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