Index Design Limits Losses in Q1 | ETF Trends

By Roland Morris
Portfolio Manager and Strategist, Commodities

The first quarter of 2023 highlighted CMCI’s index design advantages.

Macro Outlook: Index Design Mitigated the Potential for Greater Losses

The UBS Constant Maturity Commodity Index (CMCI) was down slightly in the first quarter of 2023, declining by 1.15%. On a relative basis, CMCI had a good quarter compared to the Bloomberg Commodity Index (BCOM). BCOM declined by 5.36% in the quarter as well.

U.S. natural gas prices fell sharply due to warmer-than-normal winter weather, especially in the Northeast. Most of CMCI’s outperformance vs. BCOM came from the different exposures to natural gas. CMCI holds a target weighting of 3.5% in natural gas while BCOM holds 8.5%. Additionally, by design, CMCI is positioned further out the forward curve and rolls its exposure daily. Both of these factors benefited CMCI over BCOM. CMCI’s natural gas position lost 32.8% while BCOM’s natural gas position lost around 50.4% during the quarter. This important difference was due to curve positioning. BCOM’s front-month exposure declined sharply while CMCI’s longer duration positioning fell by less.

Another factor that benefited CMCI vs. BCOM during the quarter was curve positioning and roll methodology in WTI Crude oil and Brent Crude oil. Again, this is a result of index design. BCOM holds front-month exposures and the first three months on the forward curve shifted into contango (upward sloping) in the quarter. This resulted in roll losses for BCOM. CMCI is positioned further out the curve, remaining in backwardation (downward sloping). This generated an estimated 1.8% positive roll yield for CMCI while BCOM lost an estimated 1.9% during the quarter in the energy sector.

These factors do not always generate relative outperformance for CMCI. Various market conditions could work in BCOM’s favor; however, over the longer term, CMCI has outperformed. Overall, the first quarter of 2023 highlighted CMCI’s index design advantages.

Roll Yield Estimates YTD – March 2023

Roll Yield Estimates YTD - March 2023

Source: Bloomberg. Data as of March 2023. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. It is not possible to invest in an index.

Sector Review: Agriculture and Precious Metals Gains Minimized Overall Index Losses

The energy sector fell by 7.7% in the quarter. This was partially due to the warmer weather as previously mentioned, as well as disappointing global demand which triggered the decline.

The livestock sector fell by 5.1% due entirely to a sharp decline in live hog prices. Live cattle prices rose slightly during the quarter and remained near historic all-time highs.

Precious metals prices rose during the quarter, led by gold, which advanced by 8.1%, while silver ended the quarter unchanged at 0.9%.

The agriculture sector gained 2.0%. Strong gains in sugar (21%) and cocoa (13%) offset modest declines in grains.

The industrial metals sector was up 1.6% led by solid gains in copper prices but nickel declined by 20% during Q1.

CMCI Outperformed BCOM in the Agriculture Sector

Performance by Sector Components

CMCI Outperformed BCOM in the Agriculture Sector

Source: Bloomberg. Data as of March 2023. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. It is not possible to invest in an index.

Learn more about the VanEck CM Commodity Index Fund, which seeks to track, before fees and expenses, the CMCI.

Originally published by VanEck on April 12, 2023. 

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The UBS Bloomberg Constant Maturity Commodity Index (CMCI) is a Total Return rules-based composite benchmark index diversified across 27 commodity components from within five sectors, specifically energy, precious metals, industrial metals, agricultural and livestock.

Bloomberg Commodity Index (BCOM) provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.

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