Since the early-90s, the primary avenue available for investing in commodities has been via traditional indices. These indices performed well for a period of time, but UBS says that over the last few years it has become increasingly clear that investors need diversification across maturities as well as across commodities; currently investors are limited to short-dated maturities in the traditional indices. The limitation to short-dated maturities has had several negative repercussions for the investor and, more recently, has been responsible for a significant deterioration of overall returns.
UBS bankers say that the solution to many of the recent issues faced by investors lies not in creating increasingly complex vehicles, but in providing greater flexibility and choice. The CMCI allows investors to easily diversify across maturities and commodities and more efficiently adapt their commodity index investment to the current economic environment.
The CMCI is designed to be an international benchmark for modern commodity investment. It is composed of a basket of 28 commodity futures with a series of available investment maturities for each individual commodity using a highly innovative calculation methodology. This will allow investors much greater flexibility in their risk profile. The CMCI is weighted to reflect the relative importance of each individual commodity in the index to the world economy û with weights based on a blend of economic indicators (GDP, PPI, and CPI) as well as liquidity and open interest of the underlying futures contracts.
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