BlackRock Asset Management Canada has licensed the Morningstar Global Long/Flat Commodity Index to serve as the new benchmark for the iShares Broad Commodity Index Fund.
This exchange-traded fund trades on the Toronto Stock Exchange under the symbol “CBR,” and began tracking the Morningstar index on 30 November 2012.
The Morningstar Global Long/Flat Commodity Index is a fully collateralised commodity futures index that uses a momentum rule to determine if each commodity is held long or the assets are moved to cash.
This is the first investable vehicle listed in Canada to track the Morningstar Global Long/Flat Commodity Index.
“There are two potential sources of return when investing in commodities futures—price change and roll yield,” says Jeff Logan, head of iShares product, BlackRock Canada. “We selected the Morningstar Global Long/Flat Commodity Index as the benchmark for our Broad Commodity Index Fund because of its superior methodology that aims to maximise both the changes in commodity prices and the potential returns generated by rolling the future contracts.”
For each commodity in the index, Morningstar calculates a “linked” price series that incorporates both price changes and roll yield (the loss or gain that results from replacing an expiring contract with one that matures further in the future). At each monthly rebalancing, Morningstar evaluates whether changes should be made to the direction of the individual commodities in the index. The decision to change direction is based on whether the linked price is above or below its 12-month daily moving average.
“We are pleased that BlackRock Canada has licensed our index for an exchange-traded product,” says Sanjay Arya, senior vice president of Morningstar Indexes. “We have seen a tremendous increase in investor appetite for commodities in recent years given their low correlation to traditional asset classes and potential hedge against inflation. The Morningstar Global Long/Flat Commodity Index provides investors with a transparent benchmark that harnesses the natural momentum in the commodities futures market.”
