2017 was a great year for equities, with broad U.S., global and even emerging market benchmarks up quite substantially at 19.1%, 21.6% and 31.1%, respectively. Commodities had a different tune with some winners and some losers, but the Nasdaq Commodity Index (NQCI) was up a respectable 5.6% for the year. Looking at sector performance, the best performing was industrial metals with a strong +28.3% return, while the worst performing (and only negative performing sector for 2017) was agriculture with a -11.7% return.
In the first five index trading days in 2018, as occurs each year, the Nasdaq Commodity Index (NQCI) had its annual rebalance. Data used in determining the target index weights for the rebalance is always from November 1 of two years prior (this rebalance: November 2016) through October 31 of the prior year (October 2017) to effectiveness on the first trading days of the current year (January 2018).
While the benchmark Nasdaq Commodity Index had no changes to its composition as a result of the 2018 annual rebalance, the tradable index had a number of changes. The difference between the benchmark and tradable indexes is the minimum thresholds for inclusion to the tradable index are much higher than that of the benchmark index. From the 2018 rebalance, the number of commodities in each is 32 and the lesser 19, respectively. As part of this year’s review, four new commodities became eligible for the tradable index: HG Copper, Zinc, Wheat and Coffee. No commodities became ineligible for the tradable index that were in the index in the prior year. This resulted in the number of commodities in the tradable index increasing from 15 from the year prior to 19 for 2018.
As a result of the annual rebalance, the largest weight increases were in Crude Oil, Natural Gas and HG Copper having increases of 1.6%, 0.8% and 0.8%, respectively. The largest weight decreases were in Gold, Soybeans and Corn at -1.7%, -1.2%, and -0.7%, respectively. Highlighted in Figure 1 are sector changes over the last year’s target weights, in addition to the number of commodities eligible per sector.
Figure 1
In looking at two of the competing commodity indexes and their offerings, it is quite apparent how much larger the Nasdaq basket is in terms of showing a better picture of the full commodity markets and further into its added built-in diversification capability across each sector. The Nasdaq Commodity Index has 32 commodities while the S&P GSCI has 24 and Bloomberg has 22. Bloomberg has sector weights that are closer to being equal weight than NQCI or S&P GSCI, as shown in Figure 2; the number of commodities in the Bloomberg overall index in addition to its different weighting scheme has caused this disparity.
Some of the largest differences between NQCI, S&P GSCI, and Bloomberg are in Crude Oil with NQCI and S&P GSCI each having 10% and 17% higher weights and in Brent Crude at 10% and 9%, respectively. For a complete weight breakdown of each commodity in NQCI, S&P GSCI, and Bloomberg see Figure 3.
Figure 2
Figure 3
Nasdaq® is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed asinvestment advice either on behalf of a particular security or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Statements regarding Nasdaq-listed companies or Nasdaq proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
© 2018. Nasdaq, Inc. All Rights Reserved.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
