SDCI Methodology

SummerHaven Dynamic Commodity Indexsm (“SDCI”)

SDCI INDEX METHODOLOGY


SDCI – INDEX PHILOSOPHY

The SummerHaven Dynamic Commodity Index (“SDCI”) was developed by SummerHaven Index Management to provide an active commodity index benchmark for investors. The SDCI is based on the notion that commodities with low inventories will tend to outperform commodities with high inventories, and that priced-based measures, such as futures basis and price momentum, can be used to help assess the current state of commodity inventories1.


SDCI – INDEX CONSTRUCTION

The SDCI selects 14 commodity contracts with equal weighting from a universe of 27 eligible commodities each month through three steps:

STEP 1: Commodity Selection – Backwardation

Choose 7 commodities with the greatest backwardation (or least contango).
Backwardation is measured as the annualized % price difference between the futures price for the closest-to-expiration contract and the next closest-to-expiration contract for each commodity.

STEP 2: Commodity Selection – Momentum

From the remaining 20 commodities, choose 7 commodities with greatest 12-month price momentum, subject to a diversification requirement*. Momentum is measured as the % price difference between the futures price for the closest-to-expiration contract and the price of the closest-to-expiration contract 12-months ago for each commodity.

STEP 3: Contract Month Selection

For each of the 14 index commodities, SDCI selects the contract month with the greatest backwardation (or least contango), taking into account the allowed contracts and maximum tenor for each commodity market.

The maximum eligible tenor is measured as the number of months starting from the maturity of the closest-to-expiration contract. The previous not withstanding, the contract expiration is not changed for that month if a commodity remains in the index, as long as the contract does not enter expiry or enter its notice period in the subsequent month.

COMMODITY SYMBOLCOMMODITY NAMESECTORALLOWED CONTRACTSMAX. TENOR
NG Natural Gas Energy All 12 Calendar Months 12
CL Crude Oil Energy All 12 Calendar Months 12
XB RBOB Energy All 12 Calendar Months 12
HO Heating Oil Energy All 12 Calendar Months 12
CO Brent Crude Energy All 12 Calendar Months 12
QS Gas Oil Energy All 12 Calendar Months 12
LC Live Cattle Livestock Feb, Apr, Jun, Aug, Oct, Dec 5
LH Lean Hogs Livestock Feb, Apr, Jun, Jul, Aug, Oct, Dec 5
FC Feeder Cattle Livestock Jan, Mar, Apr, May, Aug, Sep, Oct, Nov 5
W Wheat Grains Mar, May, Jul, Sep, Dec 7
C Corn Grains Mar, May, Jul, Sep, Dec 12
S Soybeans Grains Jan, Mar, May, Jul, Aug, Sep, Nov 12
SM Soymeal Grains Jan, Mar, May, Jul, Aug, Sep, Oct, Dec 7
BO Bean Oil Grains Jan, Mar, May, Jul, Aug, Sep, Oct, Dec 7
LA Aluminum Industrial Metals All 12 Calendar Months 12
HG Copper Industrial Metals All 12 Calendar Months 12
LX Zinc Industrial Metals All 12 Calendar Months 7
LN Nickel Industrial Metals All 12 Calendar Months 7
LL Lead Industrial Metals All 12 Calendar Months 7
LT Tin Industrial Metals All 12 Calendar Months 7
GC Gold Precious Metals Feb, Apr, Jun, Aug, Oct, Dec 12
SI Silver Precious Metals Mar, May, Jul, Sep, Dec 5
PL Platinum Precious Metals Jan, Apr, Jul, Oct 5
SB Sugar Softs Mar, May, Jul, Oct 7
CT Cotton Softs Mar, May, Jul, Dec 7
KC Coffee Softs Mar, May, Jul, Sep, Dec 7
CC Cocoa Softs Mar, May, Jul, Sep, Dec 7


SDCI Rebalancing:

Price observations for the steps described above are taken on the fifth-to-last business day of each month. SDCI rebalancing takes place during the last four business days of the month. At the end of each of these days one fourth of the prior month portfolio positions are replaced by an equally-weighted position in the commodity contracts determined on the selection date. At the end of the rebalancing period, the SDCI targets an equal-weight position of approximately 7.14% in each of the selected commodity contracts.

REBALANCING STARTREBALANCING END
Thursday, January 25, 2018 Wednesday, January 31, 2018
Thursday, February 22, 2018 Wednesday, February 28, 2018
Friday, March 23, 2018 Thursday, March 29, 2018
Tuesday, April 24, 2018 Monday, April 30, 2018
Thursday, May 24, 2018 Thursday, May 31, 2018
Monday, June 25, 2018 Friday, June 29, 2018
Wednesday, July 25, 2018 Tuesday, July 31, 2018
Monday, August 27, 2018 Friday, August 31, 2018
Monday, September 24, 2018 Friday, September 28, 2018
Thursday, October 25, 2018 Wednesday, October 31, 2018
Monday, November 26, 2018 Friday, November 30, 2018
Monday, December 24, 2018 Monday, December 31, 2018


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1 Geert Rouwenhorst, SummerHaven partner and Yale professor, is a recognized leader for his academic research linking commodity futures returns to inventories:
See “The Fundamentals of Commodity Futures Returns” under Reference Materials.

* Diversification requirement: SDCI requires at least one component from each of the six commodity sectors: Precious Metals, Industrial Metals, Energy, Livestock, Softs, and Grains. If a sector isn’t represented after selecting the 7 momentum commodities, the commodity with the highest price change among the commodities of the omitted sector is substituted for the commodity with the lowest price change among the seven momentum commodities.