Computer Driven Strategy for Commodities

A new exchange traded fund offers a new approach for adding exposure to commodities through ETFs.

Ian Salisbury reports that the U.S. Commodity Index Fund (USCI) selects 14 commodities from a roster of 27 options and assembles an equal-weight portfolio on a monthly basis.  The model selects commodities that are likely to outperform due to inventory levels or price momentum.

Using a back-dated simulation, the approach would have delivered a 20% annual return over the past 10 years.  That compares to 7% for the s&P GSCI benchmark.

According to Salisbury, USCI places less emphasis on energy and more weight on preciouse metals.  For example, the iPath S&P GSCI Total Return Index ETN (GSP) has about 70% of its value tied to energy commodities and about 3% tied to gold and silver.  USCI has about 14% in energy and 14% in gold and silver.

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