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Dow Jones-AIG Commodity Index to underlie exchange-traded fund

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The Dow Jones-AIG Commodity Index has been licensed to German investment manager Indexchange Investment to serve as the underlying basis for an exchange-traded fund, the Dow Jones-AIG Comm

The Dow Jones-AIG Commodity Index has been licensed to German investment manager Indexchange Investment to serve as the underlying basis for an exchange-traded fund, the Dow Jones-AIG Commodity SwapEX, which has been launched on the XTF segment of Deutsche Börse.

‘We have seen continued interest in our commodity indexes from market participants globally,’ says Dow Jones Indexes president Michael A. Petronella. ‘The benefit of the Dow Jones-AIG Commodity Index is its superior methodology, diversification and commodity weighting.

Growing numbers of investors are taking a closer look at commodities indexes because returns have historically been negatively correlated with stock and bond returns and positively correlated with inflation measures. Licensing the Dow Jones-AIG Commodity Index as the basis of an ETF allows market participants to add 19 commodity futures to their portfolios through one single measure.

Investors also have access to the aggregate Dow Jones-AIG Commodity Index, 10 baskets of commodities and the 19 individual commodities that make up the index through the exchange-traded commodities offered by ETF Securities, which were listed on the London Stock Exchange last September and are now also traded on the Frankfurt, Paris, Amsterdam and Milan exchanges.

Introduced in 1998, the index is a diversified and highly liquid benchmark for the commodities markets, composed of futures contracts on physical commodities. The 19 commodities currently in the Dow Jones-AIG Commodity Index are aluminum, cattle, coffee, copper, corn, cotton, crude oil, gold, heating oil, hogs, natural gas, nickel, silver, soybeans, soybean oil, sugar, unleaded gas, wheat and zinc.

The index is designed to minimise concentration in any one commodity or sector. No one commodity can comprise less than 2 per cent or more than 15 per cent of the index, and no sector can represent more than 33 per cent of the index as of the annual reweightings of the index.

The weightings for each commodity included in the index are calculated in accordance with rules that ensure that the relative proportion of each underlying individual commodity reflects its global economic significance and market liquidity. Annual rebalancing and reweighting ensure that diversity is maintained over time.

The Dow Jones-AIG Commodity index family includes nine sector sub-indices, multiple forward month indices, indices for each individual commodity in the original index, versions of the index denominated in euros, yen, sterling and Swiss francs, and the Dow Jones-AIG Commodity Spot Index, as well as total return versions of each of the excess return indices and sub-indices.

An estimated USD38bn is invested in financial products worldwide that track the Dow Jones-AIG Commodity Index. The index had a cumulative return of 139.69 per cent from its introduction on July 14, 1998 to August 17 this year.

Dow Jones Indexes develops, maintains and licenses indices for use as benchmarks and as the basis of investment products. Best known for the Dow Jones Industrial Average, Dow Jones Indexes also is co-owner of the Dow Jones Stoxx pan-European indexes and together with Wilshire Associates provides the Dow Jones Wilshire Global Index family, which covers more than 12,000 securities in 59 markets. Dow Jones Indexes also maintains other alternative indices, including measures of the hedge fund market.

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