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 SYMBOL||COMMODITY NAME||SECTOR||ALLOWED CONTRACTS||MAX. 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|
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 START||REBALANCING 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|
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.