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Dow Jones - AIG Commodity Index
Overview of Dow Jones - AIG Commodity Index
The Dow Jones - AIG Commodity Index (DJ-AIGCI)® is composed of futures
contracts on 19 physical commodities. Unlike equities, which entitle the holder
to a continuing stake in a corporation, commodity futures contracts specify a
delivery date for the underlying physical commodity. In order to avoid delivery
and maintain a long futures position, nearby contracts must be sold and
contracts that have not yet reached the delivery period must be purchased. This
process is known as "rolling" a futures position. The DJ-AIGCI is a "rolling
index."
The DJ-AIGCI is composed of commodities traded on U.S. exchanges, with the
exception of aluminum, nickel and zinc, which trade on the London Metal Exchange
(LME). Trading hours for the U.S. commodity exchanges are between 8:00 am and
3:00 pm ET. A daily settlement price for the index is published at approximately
5:00 pm ET.
Component Weightings of the Dow Jones - AIG Commodity Index
To determine its component weightings, the DJ-AIGCI relies primarily on
liquidity data, or the relative amount of trading activity of a particular
commodity. Liquidity is an important indicator of the value placed on a
commodity by financial and physical market participants. The index also relies
to a lesser extent on dollar-adjusted production data. The index thus relies on
data that is endogenous to the futures markets (liquidity) and exogenous to the
futures markets (production) in determining relative weightings. All data used
in both the liquidity and production calculations is averaged over a five-year
period.
The component weightings are also determined by several rules designed to insure
diversified commodity exposure. Disproportionate weighting of any particular
commodity or sector may increase volatility and negate the concept of a
broad-based commodity index, unduly subjecting the investor to micro-economic
shocks in one commodity or sector. To help insure diversified commodity
exposure, the DJ-AIGCI relies on several diversification rules. Among these
rules are the following:
* No related group of commodities (e.g., energy, precious metals, livestock and
grains) may constitute more than 33% of the index as of the annual reweightings
of the components.
* No single commodity may constitute less than 2% of the index.
An Oversight Committee meets annually to determine the composition of the index
in accordance with the rules established in the DJ-AIGCI Handbook. See
below for current Dow Jones AIG Commodity Index composition weightings.
Investing in the Dow Jones AIG Commodity Index
Investors may invest in the Dow Jones AIG Commodity Index buy purchasing
futures contracts traded on CBOT (Chicago Board of Trade). Alternatively,
they may also purchase Pimco
Commodity Real Return Fund, which mimics the returns of the Dow Jones AIG
Commodity Index.
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