SummerHaven Dynamic Commodity Index℠ ("SDCI")
SDCI Index Methodology
SDCI – Index Philosophy
The SummerHaven Dynamic Commodity Index ("SDCI") was developed by SummerHaven Index Management to provide an active commodity index benchmark for investors. The SDCI is based on the notion that commodities with low inventories will tend to outperform commodities with high inventories, and that priced-based measures, such as futures basis and price momentum, can be used to help assess the current state of commodity inventories1.
SDCI – Index Construction
The SDCI selects 14 commodity contracts with equal weighting from a universe of 27 eligible commodities each month through three steps:
STEP 1: Commodity Selection – BackwardationChoose 7 commodities with the greatest backwardation (or least contango).
Backwardation is measured as the annualized % price difference between the futures price for the closest-to-expiration contract and the next closest-to-expiration contract for each commodity.
STEP 2: Commodity Selection – MomentumFrom the remaining 20 commodities, choose 7 commodities with greatest 12-month price momentum, subject to a diversification requirement*. Momentum is measured as the % price difference between the futures price for the closest-to-expiration contract and the price of the closest-to-expiration contract 12-months ago for each commodity.
STEP 3: Contract Month SelectionFor each of the 14 index commodities, SDCI selects the contract month with the greatest backwardation (or least contango), taking into account the allowed contracts and maximum tenor for each commodity market.
The maximum eligible tenor is measured as the number of months starting from the maturity of the closest-to-expiration contract. The previous not withstanding, the contract expiration is not changed for that month if a commodity remains in the index, as long as the contract does not enter expiry or enter its notice period in the subsequent month.
|Commodity Symbol||Commodity Name||Sector||Allowed Contracts||Max. tenor|
|NG||Natural Gas||Energy||All 12 Calendar Months||12|
|CL||Crude Oil||Energy||All 12 Calendar Months||12|
|XB||RBOB||Energy||All 12 Calendar Months||12|
|HO||Heating Oil||Energy||All 12 Calendar Months||12|
|CO||Brent Crude||Energy||All 12 Calendar Months||12|
|QS||Gas Oil||Energy||All 12 Calendar Months||12|
|LC||Live Cattle||Livestock||Feb, Apr, Jun, Aug, Oct, Dec||5|
|LH||Lean Hogs||Livestock||Feb, Apr, Jun, Jul, Aug, Oct, Dec||5|
|FC||Feeder Cattle||Livestock||Jan, Mar, Apr, May, Aug, Sep, Oct, Nov||5|
|W||Wheat||Grains||Mar, May, Jul, Sep, Dec||7|
|C||Corn||Grains||Mar, May, Jul, Sep, Dec||12|
|S||Soybeans||Grains||Jan, Mar, May, Jul, Aug, Sep, Nov||12|
|SM||Soymeal||Grains||Jan, Mar, May, Jul, Aug, Sep, Oct, Dec||7|
|BO||Bean Oil||Grains||Jan, Mar, May, Jul, Aug, Sep, Oct, Dec||7|
|LA||Aluminum||Industrial Metals||All 12 Calendar Months||12|
|HG||Copper||Industrial Metals||All 12 Calendar Months||12|
|LX||Zinc||Industrial Metals||All 12 Calendar Months||7|
|LN||Nickel||Industrial Metals||All 12 Calendar Months||7|
|LL||Lead||Industrial Metals||All 12 Calendar Months||7|
|LT||Tin||Industrial Metals||All 12 Calendar Months||7|
|GC||Gold||Precious Metals||Feb, Apr, Jun, Aug, Oct, Dec||12|
|SI||Silver||Precious Metals||Mar, May, Jul, Sep, Dec||5|
|PL||Platinum||Precious Metals||Jan, Apr, Jul, Oct||5|
|SB||Sugar||Softs||Mar, May, Jul, Oct||7|
|CT||Cotton||Softs||Mar, May, Jul, Dec||7|
|KC||Coffee||Softs||Mar, May, Jul, Sep, Dec||7|
|CC||Cocoa||Softs||Mar, May, Jul, Sep, Dec||7|
SDCI Rebalancing:Price observations for the steps described above are taken on the fifth-to-last business day of each month. SDCI rebalancing takes place during the last four business days of the month. At the end of each of these days one fourth of the prior month portfolio positions are replaced by an equally-weighted position in the commodity contracts determined on the selection date. At the end of the rebalancing period, the SDCI targets an equal-weight position of approximately 7.14% in each of the selected commodity contracts.
|REBALANCING START||REBALANCING END|
|January 27, 2015||January 30, 2015|
|February 24, 2015||February 27, 2015|
|March 26, 2015||March 31, 2015|
|April 27, 2015||April 30, 2015|
|May 26, 2015||May 29, 2015|
|June 25, 2015||June 30, 2015|
|July 28, 2015||July 31, 2015|
|August 26, 2015||August 31, 2015|
|September 25, 2015||September 30, 2015|
|October 27, 2015||October 30, 2015|
|November 24, 2015||November 30, 2015|
|December 28, 2015||December 31, 2015|
1 Geert Rouwenhorst, SummerHaven partner and Yale professor, is a recognized leader for his academic research linking commodity futures returns to inventories:
See “The Fundamentals of Commodity Futures Returns” under Reference Materials.
* Diversification requirement: SDCI requires at least one component from each of the six commodity sectors: Precious Metals, Industrial Metals, Energy, Livestock, Softs, and Grains. If a sector isn't represented after selecting the 7 momentum commodities, the commodity with the highest price change among the commodities of the omitted sector is substituted for the commodity with the lowest price change among the seven momentum commodities.