FTSE and DPT Capital launch CTA-style long-short commodity indices

Mar 19th, 2013 | By | Category: ETF and Index News

Global index provider FTSE Group and DPT Capital Management, a New Jersey-based investment firm, have announced the launch of the FTSE Target Exposure Commodity Index Series, a series of rules-based long-short commodity indices.

FTSE and DPT Capital launch CTA-style long-short commodity indices replicating commodity trading advisor strategies

Professor John M. Mulvey of Princeton University.

The indices are derived from the innovative work of Professor John M. Mulvey, a Princeton University academic and co-founder of DPT Capital, on risk management and portfolio allocation, an approach known as Dynamic Portfolio Tactics.

The primary purpose of the FTSE Target Exposure Commodity Index Series is to replicate the performance of tactics commonly employed by active commodity commodity trading advisors (CTAs). The indices incorporate six sub-strategies: long momentum; short momentum; long futures curve; short futures curve; breakout; and trend following.

The indices allocate dynamically across a broad basket of 18 commodity futures using a suite of rules-based quantitative investment tactics, designed to capture systemic sources of return embedded in global commodity markets, whilst avoiding over-concentration in certain commodity sectors.

As such, the indices have been designed to act as performance benchmarks for quantitative commodity managers, and as a liquid, tradable foundation for new index-tracking products such as exchange-traded funds (ETFs) and exchange-traded notes (ETNs).

Jonathan Horton, President of FTSE North America, said: “Professor Mulvey is one of the world’s leading authorities on portfolio optimisation. We are delighted to have had the opportunity to work with him to create an index series that will provide investors with new, intelligent means of gaining exposure to global commodity markets and assessing commodity portfolio performance.”

Professor Mulvey, Chairman of DPT Capital, said: “Many investors are turning to commodities to provide greater portfolio diversification as well as to protect themselves against a number of risks, including inflation, weather events and rapidly changing supply/demand dynamics. Long-only commodity indices have not provided a good solution since they have become highly correlated with equities and have experienced sharp drawdowns.”

Mulvey added: “The FTSE Target Exposure Commodity Indices take advantage of longstanding patterns in commodity prices and balances long and short positions. We believe the indices will prove to be a convenient and effective way for investors to participate in this growing segment of the marketplace.”

Investors looking for immediate access to a CTA strategy in ETF format have a number of funds to consider. The two products most easily accessible to UK and European investors are the UBS-ETF HFRX Macro CTA Index SF (UIQ5) and the RBS Market Access CTA Index ETF (M9S3), both listed on the Deutsche Börse. The UBS ETF is referenced to the HFRX Macro CTA Index and is registered for distribution in Germany and the UK only, while the RBS ETF is linked to the RBS CTA Index and is more widely available across Europe, registered in the UK, Germany, Luxembourg, Austria, Italy and the Netherlands.

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