S&P Dow Jones Indices has launched the S&P GSCI Roll Weight Select, which aims to reduce the negative impact of contango by modifying the weights of the commodities according to the relative change in the realised roll yield for each commodity in the index.
The index is designed to maintain maximum liquidity by including only the most liquid front month contracts and only the 14 most liquid commodities representing each sector, according to the rules of the S&P GSCI Equal Weight Select.
The change in realised roll yield is a new index measure that is used to weight the commodities in the S&P GSCI Roll Weight Select. For each commodity, the measure itself is the difference of monthly returns (between the excess return and price return) of the current month single commodity index subtracted from the difference of monthly returns (between the excess return and price return) of the one month forward for each single commodity index.
“The S&P GSCI Roll Weight Select is designed to preserve beta while maintaining liquidity,” says Jodie Gunzberg, vice president at S&P Dow Jones Indices. “The index uses an innovative technique to measure the gradient of a single commodity index in order to weight the commodities to reflect the shape of a curve.”