Smarter Index Design Aids in Peer Outperformance | ETF Trends

Roland Morris
Portfolio Manager and Strategist, Commodities

Macro Outlook: Commodities Hold on to Late 2022 Gains

Commodities pulled back during February as U.S. interest rates rose and the U.S. dollar followed interest rates higher. The U.S. economy has surprised economists with stronger-than-expected growth and stubbornly high inflation. Investors are now expecting higher interest rates for longer periods of time. Considering the shifting interest rate expectations and the stronger U.S. dollar, commodities are still holding onto their late 2022 gains. Most importantly, the UBS Constant Maturity Commodity Index (CMCI) is performing very well versus its peer, the Bloomberg Commodity Index (BCOM). We have always highlighted CMCI’s smarter index construction and roll methodology and this year those differences have driven some strong relative performances so far.

We highlight the importance of the year-to-date estimated roll yield to the overall performance of CMCI. The forward curve in crude oil shifted back to upward sloping or contango in the first three months. The rest of the forward curve remained downward sloping or in backwardation. BCOM recently rolled its crude oil position, losing $0.50. CMCI is positioned on the curve from 3 months to 3 years and continued to generate positive roll yield. Additionally, since BCOM has a defined roll period, the market contango steepened during the roll period by $0.20. CMCI rolls its curve position every day to maintain a constant maturity or forward curve positioning. The smarter index design has allowed CMCI to collect a small amount of positive roll yield every day this year. Year-to-date, CMCI has generated an estimated positive 1.3% roll yield in the energy sector. By contrast, BCOM lost an estimated 2.2% roll yield in the energy sector. We believe that CMCI is a little smarter in design.

Roll Yield Estimates YTD – February 2023

Roll Yield Estimates YTD - February 2023

Source: Bloomberg. Data as of February 2023.

Another relative year-to-date performance driver has been U.S. natural gas. The warmer than normal winter, especially in the North East, caused a large decline in prices. CMCI by index design has a much smaller exposure to U.S. natural gas, which is rebalanced monthly to a target weighting of 3.5%. BCOM previously held 8.0% U.S. natural gas weighting but fell to 6.0% in February. Adversely, had the winter months been colder than expected, CMCI’s relative performance could have suffered. Of utmost importance is the monthly reweighting back to the target weights, which helps relative performance over the longer term. This is evident in a volatile mean-reverting commodity like U.S. natural gas.

Sector Review: Small Gains in the Livestock Sector

For the month of February, CMCI lost 3.7% while BCOM lost 4.7%. The livestock sector provided a very small amount of positive performance as both live cattle and hog prices rose slightly. And while the energy, industrial metals and precious metals sectors all declined during February, CMCI’s exposure to cocoa helped to reduce the overall decline in the agriculture sector. BCOM had no exposure to cocoa.

Most of CMCI’s relative outperformance for the month came from lower exposure to the precious metals sector. Gold fell 5% and silver fell 12% during February.

CMCI Outperformed BCOM in the Energy and Industrial Metals Sectors

Performance by Sector Components

CMCI Outperformed BCOM in the Energy and Industrial Metals Sectors

Source: Bloomberg. Data as of February 2023.

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

To receive more Natural Resources insights, sign up in our subscription center.

Originally published 08 March 2023. 

For more news, information, and analysis, visit the Beyond Basic Beta Channel


This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its employees.

All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Past performance is no guarantee of future results.

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.

UBS and Bloomberg own or exclusively license, solely or jointly as agreed between them, all proprietary rights with respect to the Index. In no way do UBS or Bloomberg sponsor or endorse, nor are they otherwise involved in the issuance and offering of the Fund, nor do either of them make any representation or warranty, express or implied, to the holders of the Fund or any member of the public regarding the advisability of investing in the Fund or commodities generally or in futures particularly, or as to results to be obtained from the use of the Index or from the Fund.

Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.

You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. Commodities are assets that have tangible properties, such as oil, metals, and agriculture. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity, such as weather, disease, embargoes or political or regulatory developments. The value of a commodity-linked derivative is generally based on price movements of a commodity, a commodity futures contract, a commodity index or other economic variables based on the commodity markets. Derivatives use leverage, which may exaggerate a loss. The Fund is subject to the risks associated with its investments in credit, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, counterparty, debt securities, derivatives, index tracking and data, industry concentration, money market funds, management, market, operational, regulatory, repurchase and reverse repurchase agreements, subsidiary risks and U.S. government securities. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. At any time, the risk of loss of any individual security held by the Fund could be significantly higher than 50% of the security’s value. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit Please read the prospectus and summary prospectus carefully before investing.

© 2023 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Securities Corporation.