S&P launches index tracking commodity and financial futures contracts
Standard & Poor’s has launched an index designed to reflect the price momentum that physical commodities, interest rates and currencies tend to exhibit over the long-term due to their cyclicality.
The S&P Dynamic Futures Index offers rules-based exposure - both long and short - across a portfolio of 24 liquid global commodity and financial futures contracts grouped into 14 sectors.
“With the ability to go long or short sectors, the S&P DFI is designed to capture the economic benefit over long time periods derived from both rising and declining trends within a cross-section of the futures markets,” says Michael McGlone, senior director of commodity indices for S&P Indices. “The index is also designed to be tradable and readily accessible to market participants.”
The S&P DFI is comprised of 24 components grouped into 14 sectors - eight financials and six commodity - equally divided by weight. The financials include eight global financials futures contracts, while the commodities include 16 traditional physical commodity components grouped into six sectors. Long or short positions are determined by measuring the current sector price relative to an exponential moving average.
Index constituent target weights are updated annually in order to ensure that their weights in the S&P DFI reflect current economic and production realities. For physical commodities, the target weights are updated to reflect the world production weights of the same commodities in the S&P GSCI Light Energy Index.
In a similar fashion, the target weights in the financial futures contracts are updated each year based on the relative size of the GDP - an indicator of economic significance - of the country represented by the contract.
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