A commodity price index is a fixed-weight index or (weighted) average of selected commodity prices, which may be based on spot or futures prices . It is designed to be representative of the broad commodity asset class or a specific subset of commodities, such as energy or metals. It is an index that tracks a basket of commodities to measure their performance. They are similar to stock market indices but track the price of a basket of specific commodities. These indexes are often traded on exchanges, allowing investors to gain easier access to commodities without having to enter the futures market. The value of these indexes fluctuates based on their underlying commodities, and this value can be traded on an exchange in much the same way as stock index futures.
7-556: The Bloomberg Commodity Index ( BCOM ) is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited . The index was originally launched in 1998 as the Dow Jones-AIG Commodity Index ( DJ-AIGCI ) and renamed to Dow Jones-UBS Commodity Index ( DJ-UBSCI ) in 2009, when UBS acquired the index from AIG . On July 1, 2014, the index was rebranded under its current name. The BCOM tracks prices of futures contracts on physical commodities on
14-445: A commodity index fund . The advantages of a passive commodity index exposure include negative correlation with other asset classes such as equities and bonds, as well as protection against inflation . The disadvantages include a negative roll yield due to contango in certain commodities, although this can be reduced by active management techniques, such as reducing the weights of certain constituents (e.g. precious and base metals) in
21-400: A 2:1 ratio, which ensures that the relative proportion of each of the underlying individual commodities reflects its global economic significance and market liquidity. Annual rebalancing and reweighting ensure that diversity is maintained over time. Commodity price index Investors can choose to obtain a passive exposure to these commodity price indices through a total return swap or
28-588: The commodity markets . The index is designed to minimize concentration in any one commodity or sector. It currently has 23 commodity futures in six sectors. No one commodity can compose more than 15% of the index, no one commodity and its derived commodities can compose more than 25% of the index, and no sector can represent more than 33% of the index (as of the annual weightings of the components). The weightings for each commodity included in BCOM are calculated in accordance with rules account for liquidity and production data in
35-694: The "GSCI". The next was the Dow Jones AIG Commodity Index. It differed from the GSCI primarily in the weights allocated to each commodity. The DJ AIG had mechanisms to periodically limit the weight of any one commodity and to remove commodities whose weights became too small. After AIG's financial problems in 2008 the Index rights were sold to UBS and then to Bloomberg and it is now known as the Bloomberg Commodity Index. Other commodity indices include
42-511: The Reuters / CRB index (which is the old CRB Index re-structured in 2005) and the Rogers Index. In 2005 Gary Gorton (then of Wharton) and Geert Rounwehorst (of Yale) published "Facts and Fantasies About Commodities Futures", which pointed out relationships between a commodities index and the stock market, and inflation. They were both employed as consultants to AIG Financial Products (AIG-FP), which
49-616: The index. The first index to track commodity futures prices was the Dow Jones futures index which started being listed in 1933 (backfilled to 1924). The next such index was the CRB ("Commodity Research Bureau") Index , which began in 1958. Due to its construction both of these were not useful as an investment index. A later practically investable commodity futures index was the Goldman Sachs Commodity Index , created in 1991 and known as
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