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.