USCI invests in 14 equal-weighted commodities. The fund first picks the seven commodities that exhibit the highest backwardation or the lowest contango. Then USCI picks seven more commodities that have exhibited the highest price momentum, while making sure to have one commodity within all the major segments of the commodities world.
|
DBC |
USCI |
UCI |
|
|
Agriculture |
20.81 |
42.72 |
29.00% |
|
Energy |
61.82 |
29.06 |
34.00% |
|
Industrial Metals |
7.27 |
6.57 |
27.00% |
|
Livestock |
0 |
7.63 |
4.00% |
|
Precious Metals |
10.11 |
6.82 |
6.00% |
DBC is heavily concentrated in the energy segment (over 61 percent). Is the outperformance due to energy outperformance or is their strategy better? We can actually use DBC’s current weights versus targeted weights as a proxy.
The fund rebalances the portfolio annually each November. Although the rebalancing took place seven months ago, the general direction of the changes in its holdings shows the segments that have outperformed. Specifically, it’s energy that has had higher returns than all the other segments.
|
Base Weights |
Actual |
|
|
Agriculture |
22.52 |
20.81 |
|
Energy |
55.02 |
61.82 |
|
Industrial Metals |
12.51 |
7.27 |
|
Livestock |
0 |
0 |
|
Precious Metals |
10 |
10.11 |
The GSCI Energy Total Return Index has gained 9.6 percent in the past six months compared to the S&P GSCI Agriculture & Livestock Index, which earned 2.35 percent. How much of DBC’s returns are attributed to energy is difficult to know, but the fund has clearly benefited from being overweight that sector.
USCI has only been around since August, which isn’t nearly enough time to reach a verdict on its relative performance. The fund is not heavily concentrated like DBC, and will likely outperform DBC if oil underperforms other commodities.
It seems a fair bet we’ll see more funds coming to market that try to minimize the deleterious effects of contango, never mind that survey saying advisors aren’t interested. If anything, studies like that—suggesting the status quo is just fine—betray an unsettling and costly lack of knowledge.
