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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.