BlackRock licenses global commodity index

BlackRock Asset Management Canada has licensed the Morningstar Global Long/Flat Commodity Index, says Morningstar.

The index will serve as the new benchmark for the iShares Broad Commodity Index ETF. This fund trades on the Toronto Stock Exchange under the symbol “CBR,” and began tracking the Morningstar index on Nov. 30, 2012.

Read: An in-depth look at commodities ETFs

The new index is a fully collateralized commodity futures index that uses a momentum rule to determine if each commodity is held long or the assets are moved to cash.

“There are two potential sources of return when investing in commodities futures—price change and roll yield,” says Jeff Logan, head of iShares product at BlackRock Canada.

He adds, “We selected the Morningstar Global Long/Flat Commodity Index as the benchmark for our Broad Commodity Index Fund because its methodology aims to maximize both the changes in commodity prices and the potential returns generated by rolling the future contracts.”

For each commodity in the index, Morningstar calculates a linked price series that incorporates both price changes and roll yield; this is the loss or gain that results from replacing an expiring contract with one that matures further in the future.

At each monthly rebalancing, it then evaluates whether changes should be made to the direction of the individual commodities in the index. The decision to change direction is based on whether the linked price is above or below its 12-month daily moving average.

“We have seen a tremendous increase in investor appetite for commodities in recent years given their low correlation to traditional asset classes and potential hedge against inflation,” says Sanjay Arya, senior vice president of Morningstar Indexes.

Read: Rising commodities benefit Canada: Carney

The global commodity index tracks the performance of the most liquid exchange-listed commodities futures contracts. Individual commodities are weighted according to the dollar value of their open interest.

The index is calculated once a day, rebalanced monthly, and reconstituted annually.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.