S&P Dow Jones Indices today introduced the Dow Jones Commodity Index. The new index will serve as a complement to the S&P GSCI.
“With today’s announcement of the Dow Jones Commodity Index, market participants will have the advantage of using an index based upon a simple design that can serve as both a balanced, diversified, and liquid benchmark and as an underlying for potential investment products,” says Jodie Gunzberg, Head of Commodities at S&P Dow Jones Indices, in a statement. “In speaking with market participants, it became apparent that there is a clear need for a commodity index that is highly liquid, avoids large sector weights, is transparent in its methodology, and is independently governed. The Dow Jones Commodity Index meets each of these criteria and fills an important gap in the marketplace.”
The new index includes 23 major commodities and employs an equal-weight methodology for the three major commodities sectors – energy, metals and agriculture and livestock. The index is rebalanced on a quarterly basis. [Equal-Weight Energy ETF Pays Off]
“According to the methodology, only one commodity component within a sector can reach a maximum weight of 35%. If there is any component above 35%, it is capped at 32% and any excess weight is distributed proportionately among the remaining components. No remaining component’s weight can exceed 20%. If any remaining component’s weight is above 20%, it is capped at 17% and the excess weight is distributed proportionately among the remaining components,” said S&P Dow Jones Indices in the statement.
The GreenHaven Continuous Commodity Index Fund (NYSEArca: GCC) uses an equal-weight methodology for the 17 commodities, including corn, gold, silver and oil, held by the fund. That ETF is up nearly 9% this year.
Although GCC has performed well this year, critics are often eager to point out the ETF is not reflective of the true commodities universe. For example, oil and gold, two of the most heavily traded commodities, receive essentially the same allocations in the ETF as more thinly traded corn, coffee and cocoa. [One-Stop Shop for Commodities Investors]
“Because of the equal weighting, GCC offers significant exposure to grains, livestock, and soft commodities and a lower energy weighting than many of its peers. In addition, GCC is rebalanced every day in order to maintain each commodity’s weight as close to 1/17th of the total as possible,” according to Greenhaven.
S&P Dow Jones Indices did not say in its statement if the new Dow Jones Commodity Index will immediately used in conjunction with an exchange traded product.
ETF Trends editorial team contributed to this post.