“Weighing In:” will be a series of posts comparing and contrasting the impact of different weighting schemes within commodity indices. The series will be the first to feature our two headline indices, the equally weighted Dow Jones Commodity Index (DJCI) and the world production weighted S&P GSCI. The purpose of the series is to help you reach your portfolio goals by understanding the effect of weighting inside commodity indices. We will kick off with a description of the difference between the two major weighting schemes, and in subsequent discussions will analyze the historical behaviors of each of the indices.
Both the DJCI and S&P GSCI have the same methodologies with the exception of the weighting schemes and the rebalance periods back to their respective target weights. The resulting index compositions differ dramatically. See below for a comparative snapshot of weights as of July 9, 2014:
Notice the significant difference in the weights, especially in energy where the DJCI has 33.8% and the S&P GSCI has an energy weight of 72.1%. Also notice the relatively low weight in the S&P GSCI of metals at 9.6% versus 35.5% in the DJCI, and lower agriculture and livestock weight 18.2% in the S&P GSCI versus 30.7% weight in the DJCI.
Why is this?