VanEck today announced the launch of the VanEck CMCI Commodity Strategy ETF (CMCI) on the Cboe Exchange. CMCI is designed to bring, in the words of the issuer, a “constant maturity” approach to the U.S. commodity ETF category.
CMCI seeks to track, before fees and expenses, the performance of the UBS Constant Maturity Commodity Total Return Index. This is the same underlying index as the VanEck Constant Maturity Commodity Index Fund.
The index allocates across maturities. It seeks to minimize exposure to the front end of the futures curves. It also aims to mitigate the impact of negative roll yield in contango environments.
“Commodities have historically played a range of important roles in investor portfolios,” said VanEck Portfolio Manager Roland Morris. These roles include “acting as a hedge against inflation and source of uncorrelated returns.”
“However, traditional or ‘first generation’ commodity indices typically only trade short-dated futures contracts,” Morris added. This “can significantly hinder returns, particularly when commodity markets are in contango. Through a next generation, constant maturity approach, investors can minimize exposure to the front end of the futures curve, with less concentration risk and lower volatility.”
Morris is also a commodities strategist for VanEck’s Global Resources Strategy.
Addressing Drawbacks of Commodity Investing
CMCI addresses several drawbacks associated with commodity investing. Namely, concentration in individual commodities or sectors and the deteriorating effects of “rolling” futures contracts. The fund considers economic indicators along with global consumption data. CMCI provides exposure to commodities with liquidity-informed economic significance across five sectors: energy, agriculture, industrial metals, precious metals, and livestock.
To address the roll yield dilemma, CMCI targets commodity futures positions along the maturity curve for each commodity component. It repositions exposure daily to maintain a constant exposure to a target maturity over time.
Ed Lopez, head of product management for VanEck, added that CMCI can “enhance commodities exposure” to portfolios. And it can do this “while also mitigating some of the most serious drawbacks that have plagued first-generation commodity indices since their start.”
CMCI carries an expense ratio of 0.65%.
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