IQAM Commodity Index

A combination of various commodities ensures diversification. This index utilises the forward curve by purchasing the contract¹ with the maximum backwardation² or the minimum contango³. The index’s commodities are selected each month following a strict process, making it a highly dynamic index.

The IQAM Commodity Index chooses from a universe of 25 commodities in the energy, agriculture, precious metals and base metals categories. Each month, 14 of these commodities are selected and equal weighted. The IQAM Non-Food Commodity Index chooses from a universe of 15 commodities in the energy, precious metals and base metals categories. Each month, 10 of these commodities are selected and assigned predetermined weights between 5,5% and 14,5%. This ranking is guided by commodity sustainability. The highest ranked will be assigned with a weight of 14,5%, while the lowest ranked commodity will be assigned with 5,5% weight.

To achieve the optimum composition, the commodities are selected in a two-stage process:

• Stage 1: For each of the available commodities a backwardation score and a momentum⁴  score are calculated. Both scores will be combined and the 10 commodities with the highest combined score are selected.
• Stage 2: Positioning of the various commodities on the forward curve based on the strongest backwardation or the weakest contango.

The graph above shows the trend in the two indices.