DBLCI Optimum Yield (OY) Index
Encyclopedia
In May 2006, Deutsche Bank launched a new set of commodity index products called
the Deutsche Bank Liquid Commodities Indices Optimum Yield, or DBLCI-OY. The
DBLCI-OY indices are available for 24 commodities drawn from the energy, precious
metals, industrial metals, agricultural and livestock sectors. A DBLCI-OY index based
on the DBLCI benchmark weights is also available and the optimum yield technology
has also been applied to the energy, precious metals, industrial metals and agricultural
sector indices. Like the DBLCI, the DBLCI-OY is available in USD, EUR, GBP and JPY
on a hedged and un-hedge basis. The DBLCI-OY is rebalanced on the fifth index
business day of November when each commodity is adjusted to its base weight. The
DBLCI-OY is also listed as an exchange-traded fund
(ETF) on the American Stock
Exchange.
in backwardated
term structures or minimises the negative roll yield in contangoed
markets from the list of tradeable futures that expire in the next 13 months.
The changing pattern in commodity term structures has important implications for commodity index investing. Historically the engine room of performance within a commodity index has derived from the positive roll return generated in the energy sector due to the tendency for forward curves in this part of the commodity complex to be downward sloping or backwardated
. However, the appearance of contango
in the crude oil term structure over the past three years has meant the benefits of a positive roll return have disappeared and have been replaced by a negative roll return.
the Deutsche Bank Liquid Commodities Indices Optimum Yield, or DBLCI-OY. The
DBLCI-OY indices are available for 24 commodities drawn from the energy, precious
metals, industrial metals, agricultural and livestock sectors. A DBLCI-OY index based
on the DBLCI benchmark weights is also available and the optimum yield technology
has also been applied to the energy, precious metals, industrial metals and agricultural
sector indices. Like the DBLCI, the DBLCI-OY is available in USD, EUR, GBP and JPY
on a hedged and un-hedge basis. The DBLCI-OY is rebalanced on the fifth index
business day of November when each commodity is adjusted to its base weight. The
DBLCI-OY is also listed as an exchange-traded fund
Exchange-traded fund
An exchange-traded fund is an investment fund traded on stock exchanges, much like stocks. An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE...
(ETF) on the American Stock
Exchange.
Rolling Methodology
The rationale of the Optimum Yield technology was to address the dynamic nature of commodity forward curves. Unstable forward curves has meant the traditional approach employed by commodity indices, namely rolling futures contracts on a predefined scheduled (e.g. monthly) has, in our view, become an inferior strategy for passive commodity index investing. The DBLCI-OY indices are designed to select the futures contacts that either maximises the positive roll yieldRoll yield
The roll yield is the yield that a futures investor captures when their futures contract converges to the spot price; in a backwardated futures market the price rolls up to the spot price, so the roll yield is positive, whereas when the market is in contango the price rolls down to the spot price,...
in backwardated
Backwardation
Normal backwardation, also sometimes called backwardation, is the market condition wherein the price of a forward or futures contract is trading below the expected spot price at contract maturity. The resulting futures or forward curve would typically be downward sloping , since contracts for...
term structures or minimises the negative roll yield in contangoed
Contango
Contango is the market condition wherein the price of a forward or futures contract is trading above the expected spot price at contract maturity. The resulting futures or forward curve would typically be upward sloping , since contracts for further dates would typically trade at even higher prices...
markets from the list of tradeable futures that expire in the next 13 months.
The changing pattern in commodity term structures has important implications for commodity index investing. Historically the engine room of performance within a commodity index has derived from the positive roll return generated in the energy sector due to the tendency for forward curves in this part of the commodity complex to be downward sloping or backwardated
Backwardation
Normal backwardation, also sometimes called backwardation, is the market condition wherein the price of a forward or futures contract is trading below the expected spot price at contract maturity. The resulting futures or forward curve would typically be downward sloping , since contracts for...
. However, the appearance of contango
Contango
Contango is the market condition wherein the price of a forward or futures contract is trading above the expected spot price at contract maturity. The resulting futures or forward curve would typically be upward sloping , since contracts for further dates would typically trade at even higher prices...
in the crude oil term structure over the past three years has meant the benefits of a positive roll return have disappeared and have been replaced by a negative roll return.
Characteristics of the DBLCI-Optimum Yield
- Six commodities: WTI crude oil, heating oil, aluminium, gold, corn and wheat.
- Index rolls to the futures contract that generates the maximum implied roll return from the list of tradable futures that expire in the next 14 months.
- Commodity weights are re-balanced annually.
- The DBLCI-OY is listed as an Exchange Traded Fund on the American Stock Exchange
- Total and excess returns data are available from December 2, 1988.
Components and Base Weights
| Index Weight | Contract Months | Exchange | |
|---|---|---|---|
| Energy | |||
| WTI Crude Oil | 35.00% | Jan-Dec | NYMEX |
| Heating Oil | 20.00% | Jan-Dec | NYMEX |
| Precious Metals | |||
| Gold | 10.00% | Dec | COMEX |
| Industrial Metals | |||
| Aluminium | 12.50% | Dec | LME |
| Grains | |||
| Corn | 11.25% | Dec | CBOT |
| Wheat | 11.25% | Dec | CBOT |
The DBLCI Family of Commodity Indices
- Deutsche Bank Liquid Commodity Index (DBLCI)Deutsche Bank Liquid Commodity IndexThe Deutsche Bank Liquid Commodity Index was launched in February 2003.It tracks the performance of six commodities in the energy, precious metals, industrialmetals and grain sectors. The DBLCI has constant weightings...
- DBLCI Mean Reversion (MR) IndexDBLCI Mean Reversion (MR) IndexThe DBLCI Mean Reversion Index is a commodity index published by the Deutsche Bank. Launched at the same time as the Deutsche Bank Liquid Commodity Index in February 2003, the DBLCI-Mean Reversion has the same underlying assets...
- DBLCI Optimum Yield (OY) Broad Index
- DBLCI Optimum Yield (OY) Balanced IndexDBLCI Optimum Yield (OY) Balanced IndexThe DBLCI-OY Balanced has the same underlying 14 commodities as the DBLCI-OYBroad, but, the energy sector weight is reduced from 55% of the broad index to 35%.The DBLCI-OY Balanced is designed to be UCITS III compliant, that is the weight of no...
Other indices
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- Rogers International Commodity IndexRogers International Commodity IndexThe Rogers International Commodity Index is a composite, USD based, total return index, designed by Jim Rogers in 1996/1997. The first fund began on July 31, 1998....
- Standard & Poor's Commodity IndexStandard & Poor's Commodity IndexThe Standard & Poor's Commodity Index is a commodity price index that measures the price changes in a cross section of agricultural and industrial commodities with actively traded U.S. futures contracts, stretching across five sectors - Energy, Metals, Grains, Livestock, and Fibers & Softs. Only...