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Commodity futures and forward contract prices are highly volatile and the commodity markets can also lack sustained movements of prices in one direction, whether up or down, for extended periods. Participation in a market that is either volatile or trendless could produce substantial losses. Price movements of commodity interests are influenced by, among other factors: changing supply and demand relationships; governmental, agricultural and trade programs and policies; climate; and national and international political and economic events.
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The S&P GSCI Index is the first major investable commodity index. It is one of the most widely recognized benchmarks that is broad-based and production weighted to represent the global commodity market beta. The index is designed to be investable by including the most liquid commodity futures, and provides diversification with low correlations to other asset classes.
The Bloomberg Commodity Index is a leading commodities benchmark. It is constructed using 24 of the most traded commodities futures contracts across six sectors. One third of the target weights of the 24 commodities in BCOM is derived according to world production of each commodity and two thirds is derived from the underlying liquidity of each commodities futures market. Weights are then adjusted further to cap commodity and sector exposures enhancing diversification and reducing the impact of idiosyncratic risk. Each of the six sectors that make up BCOM: Energy, Grains, Softs, Industrial Metals, Precious Metals, and Livestock, is restricted to a maximum weight of 33% and each individual commodity is restricted to a maximum weight of 15%. BCOM indices use a consistent, systematic process to best represent the commodities markets today.
The Bloomberg Natural Gas Subindex is a single commodity subindex of the Bloomberg CI composed of futures contracts on Natural Gas. It reflects the return of underlying commodity futures price movements only and is quoted in USD.
The S&P 500 Index is a capitalization weighted index comprised of 500 stocks chosen for market size, liquidity, and industry group representation. The S&P 500 Index is constructed to represent a broad range of industry segments in the U.S. economy. The S&P 500 focuses on the large-cap segment of the market with over 80% coverage of US equities. Criteria for inclusion include financial stability (minimize turnover in the index), screening of common shares to eliminate closely held companies, and trading activity indicative of ample liquidity and efficient share pricing. Companies in merger, acquisition, leveraged-buy-outs, bankruptcy (Chapter 11 filing or any shareholder approval of recapitalization which changes a company’s debt-to-equity ratio), restructuring, or lack of representation in their representative industry groups are eliminated from the index.
The Russel 3000 Index is composed of 3000 large U.S. companies, as determined by market capitalization. This portfolio of Securities represents approximately 98% of the investable U.S. equity market. The Russell 3000 Index is comprised of stocks within the Russell 1000 and the Russell 2000 Indices. The index was developed with a base value of 140.00 as of December 31, 1986.
Tracking risk is simply the standard deviation of a portfolio's relative returns (relative to some benchmark). Whereas the standard risk measure of standard deviation measures the absolute return volatility, tracking error measures the volatility of the return differences between the portfolio and the benchmark over time. A portfolio that is actively managed in an aggressive manner would have a large amount of tracking error versus its index, whereas a portfolio that is more constrained to look like its index (an index fund being the extreme) would have smaller amounts of tracking error.
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