S&P Dow Jones introduces alpha-seeking market neutral commodity index

Nov 24th, 2012 | By | Category: ETF and Index News

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S&P Dow Jones Indices, the world’s largest provider of financial market indices, has announced the launch of the S&P GSCI Dynamic Roll Alpha Light Energy Index, a market neutral index offering exposure to the alpha periodically accessible in commodity futures curves.

S&P Dow Jones introduces alpha-seeking market neutral commodity index

Jodie Gunzberg, Head of Commodity Indices at S&P Dow Jones

The new index could potentially act both as a benchmark for certain commodity-based hedge funds and as an underlying for exchange-traded products (ETPs) and other investable products.

The index aims to measure the alpha generated by the flexible rolling strategy of the S&P GSCI Dynamic Roll Light Energy index above the return provided by the traditional, front-month rolling strategy of the S&P GSCI Light Energy index, which measures the return on a basket of futures contracts covering energy, agriculture, industrial metals, livestock and precious metals.

The index achieves this by simultaneously calculating a long position in the S&P GSCI Dynamic Roll Light Energy index and a short position in the S&P GSCI Light Energy index while adjusting to maintain commodity market neutrality.

Commenting on the launch, Jodie Gunzberg, Head of Commodity Indices at S&P Dow Jones Indices, said: “The S&P GSCI Dynamic Roll Alpha Light Energy index will act as a market neutral index for investors looking to capture the alpha of the roll spread generated by the S&P GSCI Dynamic Roll Light Energy index but without commodities beta exposure.”

She added: “The advantage of using the S&P GSCI Light Energy index as beta is that its exposure to energy is smaller than indices that are purely production weighted, potentially lowering volatility in case of a move against the index.”

The index is part of the S&P GSCI family, which is widely recognised as one of the leading measures of commodity price movements and inflation in the world economy. The other leading commodity index family is the Dow Jones-UBS Commodity Index (DJ-UBSCI) suite.

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