Dow Jones Commodity Index - S&P Dow Jones Indices
[Pages:27]Dow Jones Commodity Index
Methodology
December 2021
S&P Dow Jones Indices: Index Methodology
Table of Contents
Introduction
3
Index Objective and Highlights
3
Supporting Documents
3
Index Constituents and Weightings
4
Index Eligibility
4
Weighting Scheme
4
Dow Jones Commodity Index Values
7
Dow Jones Commodity Sector Indices
7
Index Calculation
8
Calculation of the Total Dollar Weight (TDW) of the Dow Jones Commodity Index
on Non-Roll Days
8
Calculation of the Normalizing Constant
8
Contract Daily Return
8
Forward Indices
10
Currency of Calculation and Additional Index Return Series
10
Index Governance
12
Index Committee
12
Index Policy
13
Holiday Schedule
13
Contact Information
13
Index Dissemination
14
Tickers
14
Index Data
14
Web Site
14
Appendix A
15
Contracts Included
15
Appendix B
16
Dow Jones Commodity Index Dynamic Roll
16
Appendix C
18
Dow Jones Commodity Index Single Commodity Capped Component
18
Appendix D
20
Dow Jones Commodity Index Forward Spread
20
Handling of Market Disruption Events
20
S&P Dow Jones Indices: Dow Jones Commodity Index Methodology
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Appendix E
22
Dow Jones Commodity Index Enhanced
22
Appendix F
24
Methodology Changes
24
Disclaimer
25
S&P Dow Jones Indices: Dow Jones Commodity Index Methodology
2
Introduction
Index Objective and Highlights
The Dow Jones Commodity Index is a broad-market commodity index comprised of liquid commodities f rom three major sectors: Energy, Agriculture and Livestock, and Metals.
The sectors are equally weighted within the index and rebalance monthly. Individual commodities within each sector are weighted by relative liquidity as measured by the five-year average total dollar value
traded (TDVT) annually. As part of the weighting scheme, the largest component is capped at 32% and any additional components are capped at 17% on a monthly basis.
For inf ormation on the roll and contract schedule, please refer to Appendix A.
Supporting Documents
This methodology is meant to be read in conjunction with supporting documents providing greater detail with respect to the policies, procedures and calculations described herein. References throughout the methodology direct the reader to the relevant supporting document for further information on a specific topic. The list of the main supplemental documents for this methodology and the hyperlinks to those documents is as follows:
Supporting Document S&P Dow Jones Indices' Commodities Indices Policies & Practices Methodology S&P Dow Jones Indices' Index Mathematics Methodology
URL Commodities Indices Policies & Practices
Index Mathematics Methodology
This methodology was created by S&P Dow Jones Indices to achieve the aforementioned objective of
measuring the underlying interest of each index governed by this methodology document. Any changes to or deviations from this methodology are made in the sole judgment and discretion of S&P Dow Jones Indices so that the index continues to achieve its objective.
S&P Dow Jones Indices: Dow Jones Commodity Index Methodology
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Index Constituents and Weightings
Index Eligibility
Liquidity. Each individual commodity must have a TDVT of at least $15 billion ($5 billion for current index commodities) to be eligible for index inclusion.
Country of Listing. Commodities must be traded on exchanges in developed countries. The "developed country" designation is based on the S&P Developed BMI. Country classification changes, if any, become ef f ective during the index's first rebalancing in January following the effective date in the S&P Developed BMI.
For information on the S&P Developed BMI, please refer to the S&P Global BMI, S&P/IFCI Methodology available at available at .
Minimum Weight. The minimum percentage weight requirement for a commodity to be eligible for index inclusion is 0.25% (0.1% for current index commodities).
Weighting Scheme
The weighting scheme consists of three steps: 1. Weighting the individual commodities by liquidity 2. Capping the components 3. Equal weighting the sectors
Step 1 - Liquidity Weighting
The individual commodities in the Dow Jones Commodity Index are liquidity weighted. The liquidity measure used is the Total Dollar Value Traded (TDVT). A five-year simple moving average of the TDVTs is used to determine the effective TDVT for each of the commodities in the index. The TDVT, f or the annual period from September through August, is the sum of the monthly volume of the eligible contracts multiplied by the average contract price for the month multiplied by the size of the contract. The individual TDVTs f or each commodity are then compared to obtain the initial weights of each commodity. The initial weights of the commodities within the same component group are then added up to obtain the initial component weight for that component.
Step 2 ? Component Capping
There are 19 components, with five containing more than one commodity based on their similarity. The multiple commodity components are as follows:
? Petroleum: WTI Crude Oil, Brent Crude Oil, RBOB Gasoline, Gasoil and Heating Oil ? Wheat: Chicago Wheat and Kansas Wheat ? Soybean: Soybeans, Soybean Oil, Soybean Meal ? Cattle: Feeder Cattle and Live Cattle ? Copper: LME Copper, North American Copper
S&P Dow Jones Indices: Dow Jones Commodity Index Methodology
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The f ollowing table lists the components:
Commodity Contract Code CL HO LCO RB LGO NG W KW C S BO SM KC SB CC CT LC FC LH MAL
MCU HG MPB MNI MZN SI GC PL
Commodity Name WTI Crude Oil Heating Oil Brent Crude Oil RBOB Gasoline Gasoil Natural Gas Chicago Wheat Kansas Wheat Corn Soybeans Soybean Oil Soybean Meal Cof fee Sugar Cocoa Cotton Live Cattle Feeder Cattle Lean Hogs Aluminum LME Copper NA Copper Lead Nickel Zinc Silver Gold Platinum
Component Petroleum Petroleum Petroleum Petroleum Petroleum Natural Gas
Wheat Wheat Corn Soybeans Soybeans Soybeans Cof fee Sugar Cocoa Cotton Cattle Cattle Lean Hogs Aluminum Copper Copper Lead Nickel Zinc Silver Gold Platinum
The capping procedure follows two rules, in succession:
1. No single component's weight can exceed 32%. If any component's weight exceeds 32%, it is capped at 32% and any excess weight is distributed proportionately among the remaining components.
Adjusted weights are calculated at each rebalancing as follows:
If InitialComponentWeightj > 32%, then TargetWeightj = 32%
The individual adjusted weights of commodity i within the component j are obtained as follows:
AdjustedWeighti = TargetWeightj * InitialWeighti InitialComponentWeightj
For all remaining components:
AdjustedComponentWeightj =
68% * InitialComponentWeightj
(100% - DJCICappedWeightc)
where:
DJCICappedWeightc = Total weight of all capped components in the index as of the rebalancing reference date.
InitialComponentWeightj = The sum of the initial weights of all the commodities within the same component j in the index as of rebalancing reference date.
S&P Dow Jones Indices: Dow Jones Commodity Index Methodology
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2. No remaining component's weight can exceed 17%. Following the implementation of step 1 above, if any remaining component's weight exceeds 17%, it is capped at 17% and the excess weight is distributed proportionately among the remaining uncapped components. This process is repeated iteratively until all the capping rules are met.
For any subsequent components:
If InitialComponentWeightj > 17% then TargetWeightj = 17%
The individual adjusted weights of commodity i within the component j are obtained as follows:
AdjustedWeighti = TargetWeightj * InitialWeighti InitialComponentWeightj
For all remaining components:
AdjustedComponentWeightj =
(100% -TotalCappedWeight ) * InitialComponentWeightj
(100% - DJCICappedWeightc)
where:
TotalCappedWeight = the index weight of all capped components as of the rebalancing ref erence date.
Step 3 - Sector Equal Weighting
Af ter the components are capped, the three sectors (Energy, Agriculture and Livestock, and All Metals) are equal-weighted. For each sector, the individual adjusted weights of the commodities in that sector are summed up. This sum is the adjusted sector weight for that sector.
The f inal weight of each commodity j in sector i is defined to be as follows:
FinalWeight(j) of Sector (i) = 100 * AdjustedWeightj / 3 * AdjustedSectorWeight of Sectori
Contract Weight Factor (CWF) Formula. At the annual rebalancing, the individual CWFs are calculated as f ollows:
CWFi = FinalWeighti / (Pricei / DJCIPrice)
where:
CWFi
= The CWF f or commodity i in the index as of the rebalancing reference date.
Pricei
= The price f or commodity i in the index as of the rebalancing reference date.
DJCIPrice = The sum of all individual prices of commodities in the index as of rebalancing ref erence date.
FinalWeighti = The weight of commodity i, in the index as of the rebalancing reference date.
Capping Frequency: Monthly
Rebalancing Frequency: The weights are reset to the annual weights on a monthly basis.
Rebalancing Date: The Dow Jones Commodity Index business day before the first monthly roll date.
S&P Dow Jones Indices: Dow Jones Commodity Index Methodology
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Dow Jones Commodity Index Values
On any given day, the value of the index is equal to the total dollar weight of the index divided by a normalizing constant, which assures the continuity of the index over time by enabling comparisons to be
made between the values of the index at various times. The total dollar weight of the index is the total dollar weight of the underlying commodities. The dollar weight of the underlying commodities on any given day is equal to the product of the daily contract reference price, the appropriate contract weight f actor (CWF) and, the appropriate "roll weights" needed during the roll period.
Dow Jones Commodity Sector Indices
Four component sector capped indices and nine sub-sector uncapped indices are also part of the index f amily.
Capped Component Agriculture & Livestock Energy & Metals Agriculture All Metals
Energy Livestock
Grains Sof ts Petroleum
Uncapped All Cattle All Wheat Precious Metals Industrial Metals
Membership of the Nine Sub-Sector Uncapped Indices: 1. Energy: WTI Crude Oil, No 2 Heating Oil, Brent Crude Oil, Gasoil, Unleaded Reg Gas RBOB, Natural Gas 2. Livestock: Feeder Cattle, Live Cattle, Lean Hogs 3. Grains: Corn, Kansas Wheat, Soybeans, Chicago Wheat 4. Softs: Cocoa, Cotton #2, Coffee, Sugar #11 5. Petroleum: WTI Crude Oil, No 2 Heating Oil, Brent Crude Oil, Gasoil, Unleaded Reg Gas RBOB 6. All Cattle: Feeder Cattle, Live Cattle 7. All Wheat: Kansas Wheat, Chicago Wheat 8. Precious Metals: Gold, Platinum, Silver 9. Industrial Metals: Copper High Grade, High Grade Primary Aluminum, Copper - Grade A, Primary Nickel, Standard Lead, Special High Grade Zinc
S&P Dow Jones Indices: Dow Jones Commodity Index Methodology
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