COMIXCM Commodity Index Fund - Class I
Commodities rebounded from the COVID-19 (COVID) crisis lows in the spring during the third quarter. CMCI was up 8% during the quarter, led by strong gains in the industrial metals and agricultural sectors. China led the global economic recovery because of its ability to control the COVID crisis more effectively than other countries. China’s economic rebound pushed industrial metals, grains and hog prices sharply higher during the summer months.
The U.S. and Europe both also recovered during the summer, as falling COVID cases allowed some partial economic reopening. The one sector that remained mostly range bound during the quarter was energy. Crude oil prices were unchanged over the summer despite a solid recovery in gasoline demand. Air travel did not return to normal and, indeed, may take several more years to recover fully.
Copper was one of the highlights of the quarter, rising 13% on strong demand from China. The same was true for live hogs which were up 20%. Soy beans, bean meal and corn prices all rallied during the summer on the rebound in Chinese demand. Gold, which had been rising all year, was up 4% during the quarter.
Methodology of the Fund's Underlying Index: CMCI
UBS Bloomberg CMCI Highlights
- Diversified across 29 commodities and five maturities
- Potential for higher risk-adjusted returns than traditional commodity indices
- Constant maturity approach: daily rolling of a small proportion of underlying futures
- Monthly rebalancing: limited concentration risk in any one underlying commodity
The UBS Bloomberg Constant Maturity Commodity Index ("CMCI") diversifies across 29 commodity components and up to five maturities. The CMCI chooses between maturities of five “constant maturities”: three-month and six-month and one-, two- and three-year maturities for certain commodities. This can be done either selectively for individual commodities to diversify over time, or collectively for all those included in the index to diversify both across commodities and over time. In periods of persistent contango, this allows the index to place its exposure at more favorable (i.e., less sloping) sections of the futures curve and keep it there. This can prevent slippage into the steeper part of the curve, or the portion of the curve typically associated with higher roll losses.
Key Investment Terms
"Contango" refers to an upward sloping term structure, in which indices that hold front-month contracts will incur a cost each time contracts expire and must be rolled to more expensive, longer-dated contracts. As contracts move closer to expiration, their value converges with spot prices. So, “contango cost” usually is measured by the difference between spot prices and front-month futures.
"Backwardation" is the opposite of contango, and refers to a downward sloping term structure. Backwardation tends to occur in contracts and during periods when traders are concerned about scarcity of supplies. Thus, traders would rather have commodities in-hand now (spot) than in the future, and will pay for the privilege.
"Roll Yield" refers to the positive or negative contribution caused by rolling an expiring contract.