Hurrah for Transparency in Commodity Indexes

By Brad Zigler

PMorgan's doin' it. Why not BNP Paribas or Goldman Sachs? Becoming transparent, I mean. No, not in the Invisible Man sense, but with respect to their newly launched commodity indexes.

A recent Desktop screed ("New Commodity Indexes: They're Just Teasing Us") railed about indexes being dangled in front of investors like lures, but offered nothing upon which to bite except self-aggrandizing press releases.

The three investment banks, ever timely, rolled out broad-based commodity indexes designed to counteract the ravages of contango (see "The Battle Against Contango" for a primer on contango) soon after the worst contango - crude oil's - inverted into backwardation.

No matter. We'll be better prepared for the next contango market with these benchmarks.

Or will we?

We won't if we don't know enough about them to critically evaluate their potential benefits and risks. And none of the banks provided any public insight into their gizmos until this week.

JPMorgan has now devoted space on its Web site to its Commodity Curve Index (CCI) (view it here), offering a downloadable white paper explaining index methodology and utility.

Kudos to JPMorgan for, as London front man Tim Owens puts it, "taking feedback on board" and making the white paper public.

CCI hasn't yet been licensed for an ETF or an ETN, but who doubts such machinations have not already commenced? Especially since competitor Goldman Sachs was quick to float an ETN based upon its contango-battling enhancement of the S&P/Goldman Sachs Commodity Index.

That fact actually makes Goldman the most egregious dangler. After more than a month of trading, there's still no space dedicated to the GS Connect Enhanced Commodity Total Return Strategy note (NYSE Arca: GSC) or its index on the company's Web site.

For heaven's sake, fellas, there's a publicly traded instrument based upon your index here. Is this any way to treat investors?

BNP Paribas is no better. There's nary a sign of disclosure on its Web site on the Commodity Market Representative Index, save for the press releases announcing its launch.

Index investors would surely benefit if Goldman and BNP Paribas followed JPMorgan's lead in making their indexes transparent. Without transparency - which is one of the prime movers for the ETF/ETN industry - investors are just buying pigs (or pork bellies) in pokes.

As of now, the advantage on the user-friendly scale is clearly JPMorgan's.