[TRANSCRIPT]
How does a commodity index track liquid futures while seeking to address inflation and volatility in global markets? Meet the Dow Jones Commodity Index 3 Month Forward – Quarterly Reweight. A dynamic index that measures the commodity futures market, consisting of contracts expiring three months from the present date.
The index is derived from the industry-renowned Dow Jones Commodity Index (DJCI)—a broad-based commodity index that measures liquid commodity futures markets. The DJCI 3 Month Forward – Quarterly Reweight emphasizes diversification and liquidity through a straightforward, rules-based approach consisting of four distinct elements.
First, liquidity weighting. Rather than focusing on production, the DJCI framework emphasizes liquidity, reflecting market activity concentration across commodity futures and responding quickly to shifts in supply and demand.
Second, diversified sector constituents. The index is equally weighted between three traditional commodity sectors:
- Agriculture & livestock
- Industrial & precious metals
- Energy
This approach aims to avoid unintended overweighting towards individual commodity sectors and reduces the potential impact of volatility from highly correlated commodity markets.
Third, quarterly reweighting, which is also unique compared to many other commodity indices that may only rebalance once a year, with no reweight throughout the year. In addition to rebalancing in January, the DJCI 3 Month Forward – Quarterly Reweight—as the name implies—reweights quarterly in April, July and October. This quarterly approach seeks to avoid overconcentration in a single commodity as prices fluctuate and accounts for the seasonal volatility and mean reversion typical in the asset class, historically.
Fourth, the use of 3-month futures contracts. Instead of including the nearest expiring futures contracts that are most exposed to spot price volatility, the DJCI 3 Month Forward – Quarterly Reweight measures futures contracts expiring three months from the present date.
Back-tested data demonstrated this methodology has helped the index:
- Reduce volatility
- Optimize roll yield
- Maintain liquidity
Together, these features create a unique and useful way for market participants to track broad-based commodity futures by taking into consideration the asset class’s unique dynamics.
To learn more about the Dow Jones Commodity Index 3 Month Forward – Quarterly Reweight and to get the latest data, visit spglobal.com/spdji.
