Citigroup has launched the Citi BRIC Commodities Index, the first index that provides investors access to broad commodity exposure in proportion to the consumption of commodities in the BRIC countries.
Investors confident that price trends will be driven by continued robust growth of the commodity-hungry BRICs now have a straightforward way of expressing that view.
“As global growth becomes increasingly reliant on demand growth from the emerging market economies and less so on the US consumer, the eyes of the commodity investor are increasingly drawn to the BRIC economies influence on commodity prices. This index allows commodity investors to express this view and participate in the most appropriate proportions,” says Iain Armitage, head of Commodity Investor Products at Citi.
The Citi BRIC Commodities Index contrasts with various other commodity benchmarks that provide exposure in proportion to world production, market size or liquidity.
For example, over the past five years, the Citi BRIC Commodities Index allocation to energy and industrial metals has increased at the expense of agriculture as production of consumer goods has exploded in these countries and therefore the demand for raw materials has increased.
The index provides access to a basket of commodity futures with weighting based on the consumption of 13 key commodities, in proportion to the combined consumption of the BRIC economies. The Index will be rebalanced annually based on publicly available data.
Initially, the Citi BRIC Commodities Index will differ from more traditional commodity indices by having a lower weighting to energy and higher weightings to agricultural products/livestock and base metals.
Citi is launching two versions of the index, the Citi BRIC Commodities Index and the Citi BRIC Enhanced Commodity Index. The Citi BRIC Commodities Index takes exposure to the front end of the commodity futures curves similar to widely-known commodities benchmarks while the Citi BRIC Enhanced Commodity Index incorporates Citi’s proprietary CUBES roll enhancement strategy. CUBES minimises negative roll yields and seeks to capture positive roll yields in commodity futures curves by investing in more advantageous portions of the curve rather than simply the front end.
The Citi BRIC Commodities Index was developed by Citi Commodity Investor Products, a dedicated sales and structuring team with Citi’s Global Commodities Group. The group has launched a variety of index products linked to commodities that can be found on Bloomberg page CIP.
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