Arrow Funds’ latest addition to its growing lineup of alternative investment mutual funds is the the Arrow Commodity Strategy Fund, which is benchmarked to the Longview Extended Commodity Index (LEX) and is designed to appeal to long-term investors who seek broad-based commodities exposure, but with less of the asset class’s characteristic volatility and turnover.
"As more investors are drawn to commodities for their potential diversification benefits, they may wish to mitigate some of the asset class’s potential drawbacks — such as short-term volatility swings and the unintended effects of frequent contract rolls," says Joseph Barrato, CEO of Arrow Funds. "With the launch of the Arrow Commodity Strategy Fund, we are pleased to offer investors a purer form of commodity exposure based on an index that was designed to address these issues."
The new Arrow fund targets the performance of the Longview Extended Commodities Index (LEX), a commodity index created by Longview Strategic Research (www.Longview-SR.com), calculated and published daily by Dow Jones Indexes. As a benchmark, the LEX is differentiated by its long-term view of the commodities markets and its use of far-dated futures contracts. Unlike other commodity indices, which tend to use monthly rolls of futures contracts one to three months out, the LEX follows an annual roll cycle of futures contracts that are 12 to 15 months away from expiration. As a result, the LEX results in longer-term holding periods with lower turnover.
"We think our index is a logical fit for a mutual fund and are happy to be working with the team at Arrow Funds," says William Albright, CEO of Longview. "Historically, our research shows the LEX’s methodology has improved performance by reducing short-term volatility and the effects of contango and backwardation. In essence, the LEX was designed to align with the philosophy of commodity investors, not short-term traders."
The LEX methodology offers broad-based commodities exposure across six major sectors: energy, livestock, grains, softs, precious metals and industrial metals. Each of the 16 individual commodity components was selected based on its liquidity, economic relevance and long-term market viability. Unlike other indexes that determine their component weights by committee or computer optimisation, the LEX weights are based on the price value of the underlying futures contracts. This market-weighted approach allows the index to perpetually adjust, in terms of real dollars, to the ever-changing global commodities markets.
"At Arrow, we are dedicated to providing unique portfolio solutions designed to help enhance returns, while mitigating risk," says Barrato. "As part of a diversified portfolio, we believe the Arrow Commodity Strategy Fund presents an attractive option for investors seeking to participate in rising global demand for commodities or for those seeking to hedge against inflation."