Investment

Index components

Contract eligibility

• Economical significance
  Contract are on a physical commodity, to guarantee correlation between the index and general price movements in the commodities markets. Annual production and trading volumes in USD terms of the commodity underlying the contract must be of the magnitude of several billions. The contract must be liquid and actively traded to guarantee reliable, competitive prices.

• Term structure
  Contract must have a specified expiration schedule and be tradable several months before its expiry.

• Daily release of reliable data
  Reference contract prices must be available daily and reliable sources should exist for the production volume data. To safeguard continuity, only proven contract, existing for a couple of years are considered.

• Market transparency
  Contract must be traded on a facility accepting bids and offers from a broad range of participants and making price quotations generally available to all participants.

Economic weight

Relative weight of each contract in the index basket is based on its economical relevance in terms of both production and trade volume (liquidity). Exact calculus is specific to each index, but entails following steps:

• Over a specified observation period (usually the most recent 5 years for which data have been released), worldwide production quantity is compiled from reliable sources for each commodity and each year. Those production figures are then expressed in the quantity unit of the designated contract of each underlying commodity and sometimes resized (however without affecting relative percentages).
• Those production figures are then expressed in USD terms, by multiplying production data for each commodity with the reference (settlement) price of the corresponding designated contract. Which settlement prices are taken and how they are averaged along the observation period is specific to each index.
• Further adjustments may happen, such as:
  • Balancing between production data for each underlying commodity and trading volumes data for the corresponding designated contracts.
  • Promote diversification by capping the overall weight of individual commodities or a group of related commodities (asset).
  • At each step, verify eligibility criteria and if required, eliminate thin tails, excluding commodities which contribution falls below certain designated tresholds.

The outcome of this calculus is the Economic Weight (EW) or the relative percentage weight of each contract in the index. As stated, it is based primarily on production and liquidity data, further adjusted by the index composition rules. It translates the relative economic importance of each commodity into the percentage of the corresponding designated contract in the index composition. All weights should sum up to 100%. Those figures are reviewed on a regular basis (usually anually) and published well in advance of taking effect.