SDMI Methodology

SummerHaven Dynamic Metals Indexsm (“SDMI”)

SDMI INDEX METHODOLOGY


SDMI – INDEX PHILOSOPHY

The SummerHaven Dynamic Metals Index (“SDMI”) was developed by SummerHaven Index Management to provide an active metals index benchmark for commodity investors. The SDMI 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.


SDMI – INDEX CONSTRUCTION

The SDMI consists of 10 metals contracts – six industrial metals and four precious metals – that are included in the index each month. Five metals are selected each month through the steps outlined below, which are designed to identify metals in a low inventory state. The metals selected will be weighted more heavily than their respective base weights, and the remaining five metals not selected will be weighted less heavily than their respective base weights during any given month.

STEP 1: Commodity Selection – Backwardation

Choose 3 metals 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 7 metals, choose 2 commodities with greatest 12-month price momentum. 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.

The 5 metals selected will have their weighting for the following month increased by 3%. The 5 metals not selected will have their weighting for the following month decreased by 3%. Base weights for each of the 10 eligible metals is detailed in the table below:

ELIGIBLE METALSBASE WEIGHTING
Aluminum 15.00%
Copper 19.00%
Lead 4.00%
Nickel 10.00%
Tin 4.00%
Zinc 10.00%
Gold 15.00%
Silver 15.00%
Platinum 4.00%
Palladium 4.00%


STEP 3: Contract Month Selection

For each of the 10 index commodities, SDMI 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 NAMEALLOWED CONTRACTSMAX. TENOR
LA Aluminum All 12 calendar months 12
HG Copper All 12 calendar months 12
LL Lead All 12 calendar months 7
LN Nickel All 12 calendar months 7
LT Tin All 12 calendar months 7
LX Zinc All 12 calendar months 7
GC Gold Feb, April, June, Aug, Oct, Dec 12
SI Silver Mar, May, Jul, Sep, Dec 5
PL Platinum Jan, Apr, Jul, Oct 5
PA Palladium Mar, Jun, Sep, Dec 5


SDCI Rebalancing:

Price observations for the steps described above are taken on the fifth-to-last business day of each month. SDMI rebalancing takes place during the last four business days of the month (the “Selection Date”). At the end of each of these days one fourth of the prior month portfolio positions are replaced by the new over-weighted or under-weightedposition in the commodity contracts determined on the Selection Date.

REBALANCING STARTREBALANCING END
Thursday, January 26, 2017 Tuesday, January 31, 2017
Thursday, February 23, 2017 Tuesday, February 28, 2017
Tuesday, March 28, 2017 Friday, March 31, 2017
Tuesday, April 25, 2017 Friday, April 28, 2017
Thursday, May 25, 2017 Wednesday, May 31, 2017
Tuesday, June 27, 2017 Friday, June 30, 2017
Wednesday, July 26, 2017 Monday, July 31, 2017
Monday, August 28, 2017 Thursday, August 31, 2017
Tuesday, September 26, 2017 Friday, September 29, 2017
Thursday, October 26, 2017 Tuesday, October 31, 2017
Monday, November 27, 2017 Thursday, November 30, 2017
Tuesday, December 26, 2017 Friday, December 29, 2017


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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.