COMMODITY INDEX COMPARISON
(Excerpted from Benchmarking Commodity Investments by Resourceinvestor.com)
One of the oldest is the Reuters-CRB Futures Index. The components of this
index, until recently, were equally weighted. This resulted, for better or
worse, in orange juice having the same weight as crude oil.
The index got a makeover in late June that included a new brand
(Reuters/Jefferies CRB Index) and the monthly rebalancing of its components. For
example, the petroleum sector was assigned a fixed weighting of 33%, represented
by the crude oil, unleaded gasoline and heating oil contracts traded on the
NYMEX. Precious metals were assigned a 7% weighting.
Another widely followed index, the Dow-Jones-AIG Commodity Index,
only includes futures denominated in U.S. dollars and traded in an OECD country.
As a result, only 12% of the index futures that comprise the index are listed
outside the United States, with none based in Asia. This means it does not
include rice, a staple of a large percentage of the world’s population. The
index also does not include cocoa, an important crop for many West African
The Goldman Sachs Commodity
Index weights various commodities based on a five-year moving average of
world production values. This means the index automatically allocates more
weight to commodities that have risen in price. As a result, almost
three-quarters of the index is currently weighted towards energy.
International Raw Materials Index (RICI) was created by famed hedge fund
manager Jim Rogers. It contains 35 different commodities weighted according to
their importance in international commerce.
The top-performing index over the past seven years was the RICI, though it
should be noted that the illustrated time frame was limited to the start date of
this index (July 31, 1998). In a 19 April 2002 report titled “The Inflation
Cycle of 2002 to 2015,” Barry Bannister at Legg Mason wrote that U.S. stocks and
commodities have alternated relative and absolute price leadership in regular
cycles averaging 18 years in duration for more than a century.
All four indexes outperformed the Producer Price Index (PPI) all Commodities
Index. Though it had the lowest return over this timeframe, the Reuters-CRB
Futures Index was the least volatile as measured by standard deviation
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