Commodity index CCI introduces soyoil, changes roll

NEW YORK Fri Dec 21, 2012 2:53pm EST

NEW YORK Dec 21 (Reuters) - The Continuous Commodity Index , a more-than-five-decade-old market barometer, is introducing soyoil and dropping orange juice as part of changes to ease investor use of the product and boost potential returns.

Beginning Jan. 7, the CCI will give investors 5 days in a month to "roll out" of expiring front-month contracts in the 17 commodity futures markets it tracks, according to officials at Thomson Reuters, which owns and operates the index.

The CCI's current roll period is one-day. Rival commodity indexes such as the DJ-UBS Commodity Index and the S&P GSCI already practice 5-day roll periods, although their methodologies differ.0

"The reason for having a longer roll period is simply to ensure a very low tracking error going forward, since traders had to roll large quantities of contracts in a single day before," said Steve Harris, senior product manager for analytics at Thomson Reuters.

Created in 1957, the CCI has at least about $500 million tracking it. The index has been amended 10 times previously. Its 17 commodities maintain an equal weight of 5.88 percent.

From January, the components on the index will be crude oil -- the largest commodity market worth more than $130 billion -- followed by heating oil, natural gas, corn, soybeans, live cattle, gold, copper, sugar, cotton, cocoa, coffee, wheat, lean hogs, silver, platinum and soyoil.

Orange juice is being replaced due to its relatively lower liquidity to soyoil and position limits that are more restrictive.

The juice market as a whole is worth slightly more than $500 million while soyoil is valued at almost $9.5 billion.

"While the CCI aims to represent liquid commodities, the changes could turn out to be well-timed for investors given the recent rally in orange juice," said Florian Fischer, product manager for commodity indices at Thomson Reuters.

Juice prices have gained nearly 25 percent since the end of October on fears of a supply squeeze.

Soyoil, by comparison, is down about 6 percent, joining the slide in soybeans as better-than-expected U.S. crop yields in recent months offset price gains in the summer brought on by a crop-debilitating drought.

Another change will be the use of an arithmetic formula instead of geometric calculations in the daily rebalance of the index.

"The arithmetic model more accurately reflects investor returns and better serves exchange-traded funds (ETFs) that track commodity indexes," Harris said.

The CCI is mainly tracked by an ETF of the Greenhaven Funds, called the Greenhaven Continuous Commodity Index Master Fund . As of Dec. 20, the Greenhaven ETF was worth at least $485 million based on its closing price multiplied by outstanding shares.

Aside from the CCI, Thomson Reuters is also co-owner of the 19-commodity Thomson Reuters-Jefferies CRB index, often known as the CRB.

Unlike the equal-weighted CCI, the CRB has different weightings for its components, with U.S. crude oil dominating the index with nearly a quarter of total weighting.

Investment bank Jefferies provides the methodology for the CRB while Thomson Reuters calculates the index's moves.

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