New York-based asset manager Van Eck Global has launched a new index-based, open-end mutual fund, the Van Eck CM Commodity Index Fund.
The Fund, a “second-generation” commodity product, is designed to reduce the potential negative effects of contango that can significantly reduce the performance of commodity investments over time.
The passively managed Van Eck CM Commodity Index Fund seeks to track, before fees and expenses, the performance of UBS Bloomberg Constant Maturity Commodity Total Return Index (CMCI). The Index was designed to minimize investment exposure to the front end of the futures curve and diversifies exposure across maturities. By diversifying exposure across multiple maturities, the Index seeks to mitigate the impact of contango.
“Many traditional indices, and thus the funds that track them, suffer from negative roll yield during periods of contango," says Kristen Capuano, Marketing Director at Van Eck. "Van Eck has sought to minimize this problem in the construction of our new fund by using a benchmark that places less emphasis on the front end of the futures curve."
Contango occurs when the price of a futures contract exceeds the expected spot price at contract expiration. In contango, when futures prices are falling, the seller benefits. Conversely, backwardation occurs when the price of a futures contract is below the expected spot price at contract expiration. In this scenario, when futures prices are rising, the buyer benefits. Roll yield is the amount of return generated during periods of backwardation, while negative roll yield refers to the amount of return lost during periods of contango.
The CMCI is diversified across 26 commodities and five maturities, and is rebalanced monthly to reduce the risk of over-concentration in any one commodity. Unlike traditional indices, the CMCI is diversified along the entire curve and uses a continuous roll.
“We are pleased to be adding this innovative product to our family of fund offerings, and are excited to be teaming up with UBS, one of the most respected names in commodity indexing,” says Jan van Eck, Principal of Van Eck Global. “This Fund is a logical extension of our already robust commodity offerings, and helps satisfy an important need of investors and financial professionals.”
This new offering will complement Van Eck’s existing family of actively managed commodity mutual funds, including the Van Eck Global Hard Assets Fund (GHAAX) and the Van Eck International Investors Gold Fund (INIVX), as well as Van Eck’s Market Vectors hard assets exchange-traded funds (ETFs), which includes ETFs focused on agribusiness (MOO), alternative energy (GEX), coal (KOL), gold mining (GDX and GDXJ), hard assets producers (HAP), nuclear energy (NLR) and steel (SLX). Van Eck is the sixth largest provider of ETFs in the United States in terms of assets under management as of November 30, 2010.
