Nasdaq OMX and risk analytics developer Axioma have launched a family of indexes that will give investors exposure to commodity spot prices, through the use of stocks.
The Nasdaq Axioma-Equity indexes will come in two styles, price and total return. The price return index follows a calculation of the rate of return of the underlying portfolios, taking into account only the capital appreciation of the portfolio, ignoring the income generated, such as dividends. In comparison, the total return index reinvests cash dividends on the date on which, or after, the securities trade without their previously declared dividends or distributions. The indexes will track commodities for crude oil, gold as well as a basket of spot agriculture prices.
The indexes will use Axioma’s portfolio construction and risk management tools and are meant to have as close to a beta of one as possible to the spot price movements of their underlying commodities.
John Jacobs, executive vice president of the Nasdaq OMX Global Index Group, told Money Management Executive that the indexes are addressing a growing demand for commodity exposure via equities. Numerous products and indexes, he says, have been launched over the years tracking the commodity producer via equity securities. However, these indexes are often less correlated to the commodity in question than institutions or other users realize.
“Our goal is to address this gap by creating indexes utilizing commodities that are attempting to closely replicate the daily price movements of spot commodities,” he says.
Axioma’s proprietary software will analyze the returns of a universe of equities classified in commodity producing sectors to construct the indexes, Jacobs said.
The indexes will be rebalanced monthly and have minimum volume and market capitalization requirements to ensure tradability. Holdings information will be available daily.
Equities, he says, tend to have more liquidity than commodity markets which can make trading easier for those tracking the indexes. Also, the equity indexes are designed to reflect a high beta to the spot prices.
The two crude oil indexes are the Nasdaq Axioma Equity-Commodity Oil Index and the Nasdaq Axioma Equity-Commodity Oil Total Return Index (NQAXOIL, NQAXOILX), while the gold indexes are branded as the Nasdaq Axioma Equity-Commodity Gold Index and the Nasdaq Axioma Equity-Commodity Gold Total Return Index (NQAXGLD, NQAXGLDX).
The agriculture indexes are the Nasdaq Axioma Equity-Commodity Agriculture Index and the Nasdaq Axioma Equity-Commodity Agriculture Total Return Index (NQAXAGR, NQAXAGRX).
Jacobs said discussions are underway to launch additional indexes but no specific plans or dates have been determined.
Tommy Fernandez writes for Money Management Executive.