The ETF industry’s newest commodity offering combines brains and natural resources, but it’s worth closer examination before you dive in.
SummerHaven Investment Managment LLC partnered with a Yale professor to create the computer-driven investment strategy on which the U.S. Commodity Index Fund (NYSEArca: USCI) is based. Ian Salisbury for The Wall Street Journal reports that USCI will have the assistance of Yale Management School Professor Geert Rouwenhorst, whose research helped drive the increasing small-investor interest in commodities.
The fund’s strategy favors commodities with low inventory, which are more prone to price spikes, and is supposed to produce better returns than conventional commodity indexes whose holdings reflect production or trading.
USCI will also seek out 14 different commodities each month based on dynamics that are subject to inventory levels. It works with a roster of 27 possible options, ranging from crude oil to live cattle to soybeans. Once chosen, the commodities are held in equal amounts, with exposure to futures contracts tied to each commodity making up 7.14% of the fund.
Tisha Guerrero contributed to this article.