Deutsche Bank Liquid Commodity Index
Encyclopedia
The Deutsche Bank Liquid Commodity Index (DBLCI) was launched in February 2003.
It tracks the performance of six commodities in the energy, precious metals, industrial
metals and grain sectors. The DBLCI has constant weightings
for each of the six commodities and the index is rebalanced annually in the first week
of November. Consequently the weights fluctuate during the year according to the
price movement of the underlying commodity futures.
annually. This rolling procedure was adopted given the historical tendency for energy
curves to be in backwardation
and metal and agricultural forward curves to be in
contango
. Futures contracts rolling takes place between the second and sixth
business day of the month. The DBLCI is quoted in both total returns and excess
returns terms in US dollars as well as a variety of major currencies.
indices relate to the number of components and the overall allocation to the energy
complex. While the number of commodities in the S&P Goldman Sachs Commodity
Index, Dow Jones-AIG and the Reuters-Jeffries/CRB index are broadly similar ranging
from 19 to 24 commodities, the DBLCI has just six commodities. The allocation to
energy also differs substantially ranging from 70% in the S&P GSCI, 55% in the
DBLCI, 39% in the RJ/CRB and 33% in the Dow Jones-AIG.
A lower number of commodities in an index can offer certain advantages. For
example, it involves an investor in only the most liquid commodity contracts in their
respective sectors. Last year, aluminium accounted for 46% of combined turnover on
the LME. Consequently a commodity index which has part of its basket in lead or
nickel would entail greater liquidity risk
since these two metals constitute only 11% of
total turnover on the LME. Energy markets exhibit a similar degree of market
concentration with the benchmark West Texas Intermediate
(WTI) crude oil contract
representing 37% of total energy futures turnover on NYMEX in 2006.
It tracks the performance of six commodities in the energy, precious metals, industrial
metals and grain sectors. The DBLCI has constant weightings
for each of the six commodities and the index is rebalanced annually in the first week
of November. Consequently the weights fluctuate during the year according to the
price movement of the underlying commodity futures.
Rolling Methodology
Energy contracts are rolled monthly, all other commodity futures contracts are rolledannually. This rolling procedure was adopted given the historical tendency for energy
curves to be in backwardation
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...
and metal and agricultural forward curves to be in
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...
. Futures contracts rolling takes place between the second and sixth
business day of the month. The DBLCI is quoted in both total returns and excess
returns terms in US dollars as well as a variety of major currencies.
Characteristics of the DBLCI
- Six commodities: WTI crude oil, heating oil, aluminium, gold, corn and wheat.
- Constant weighting which reflect world production and inventory, providing a diverse and balanced commodity exposure.
- A rule-based and transparent calculation methodology. Energy contracts are rolled monthly, metal and grain contracts annually.
- Total and excess returns data are available from December 1, 1988.
Salient Features of the DBLCI
Two of the main distinguishing features between the DBLCI and other commodityindices relate to the number of components and the overall allocation to the energy
complex. While the number of commodities in the S&P Goldman Sachs Commodity
Index, Dow Jones-AIG and the Reuters-Jeffries/CRB index are broadly similar ranging
from 19 to 24 commodities, the DBLCI has just six commodities. The allocation to
energy also differs substantially ranging from 70% in the S&P GSCI, 55% in the
DBLCI, 39% in the RJ/CRB and 33% in the Dow Jones-AIG.
A lower number of commodities in an index can offer certain advantages. For
example, it involves an investor in only the most liquid commodity contracts in their
respective sectors. Last year, aluminium accounted for 46% of combined turnover on
the LME. Consequently a commodity index which has part of its basket in lead or
nickel would entail greater liquidity risk
Liquidity risk
In finance, liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss .-Types of Liquidity Risk:...
since these two metals constitute only 11% of
total turnover on the LME. Energy markets exhibit a similar degree of market
concentration with the benchmark West Texas Intermediate
West Texas Intermediate
West Texas Intermediate , also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing. It is a light and sweet crude oil...
(WTI) crude oil contract
representing 37% of total energy futures turnover on NYMEX in 2006.
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
- DBLCI Optimum Yield (OY) IndexDBLCI Optimum Yield (OY) IndexIn May 2006, Deutsche Bank launched a new set of commodity index products calledthe Deutsche Bank Liquid Commodities Indices Optimum Yield, or DBLCI-OY. TheDBLCI-OY indices are available for 24 commodities drawn from the energy, precious...
- 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
- Dow Jones–AIG Commodity Index
- Reuters-CRB IndexReuters-CRB IndexThe Thomson Reuters/Jefferies CRB Index is a commodity price index. It was first calculated by Commodity Research Bureau, Inc. in 1957 and made its inaugural appearance in the 1958 CRB Commodity Year Book....
- 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...