The iShares Dow Jones-UBS Roll Select Commodity Index Trust (CMDT) is the firm’s first commodity-based fund launch since 2006 and may be suitable for investors who are seeking exposure in the materials sector as the recovery gathers steam. The firm is the world’s largest provider of ETFs with the total number of products approaching 300; a raft of new launches focused on corporate bonds and equity-factors in the second and third quarter.
CMDT is designed to provide exposure to a broad basket of commodity futures but looks to go beyond methodologies employed by some of the original funds in the commodity space. It seeks to diminish the negative effects of contango and amplify the benefits of backwardation while selecting commodities-futures contracts.
The fund is the first exchange traded product to track the Dow Jones-UBS Roll Select Commodity Index Total Return, a benchmark consisting of 22 commodity futures contracts that seeks to minimize the cost of rolling contracts. It covers all the six major groups in the commodities space; namely, industrial metals, precious metals, energy, softs, agriculture and livestock.
Commodities indexes replace futures contracts through a process known as rolling when they approach expiry. If the index replaces contracts with more expensive future-dated contracts, then the commodity is said to be in contango, which affects performance.
Alternatively, if the future-dated contracts are less expensive than the expiring ones, the commodity is said to be in backwardation, which tends to boost performance.
Energy futures occupy the top spot in the index with nearly 40 percent weighting, followed by grains, industrial metals, precious metals, softs and livestock. Within energy sector, natural gas gets the top billing with 13.2 percent of total allocation, followed by NYMEX crude oil at 10.8 percent. Rounding out the top five are gold, copper and IPE Brent Crude with 9.4 percent, 6.7 percent and 6 percent, respectively.
CMDT has an expense ratio of 0.75 percent.
All data are as on 8/8/2013, the fund’s inception date.
Disclosure: No holdings