Standard & Poor’s also announced that it has licensed the S&P GSCI Dynamic Roll Index to BNP Paribus to serve as the basis for BNP Paribus investment products based upon the Index.
According to the announcement, the S&P GSCI Dynamic Roll Index is an enhanced version of the S&P GSCI, “one of the industry’s most closely watched commodities indices.” It is designed for investors seeking long only exposure to the commodity market but with the desire to reduce the potential negative impact of contango on roll returns, according to a press release. Contango describes a situation in the futures market where prices for future delivery are higher than prices for immediate (or nearer) delivery. The term is also used to describe an upward sloping forward curve in the futures market.
“The development of the S&P GSCI Dynamic Roll Index is based on market demand for indices that can potentially alleviate the negative impact of rolling into contango and offering lower volatility exposure to the commodity market,” says Michael G. McGlone, Senior Director of Commodity Indexing at S&P Indices. “The launch of this index is part of S&P Indices’ strategy of expanding its tool-box of S&P GSCI offerings with innovative solutions that meet client demand.”
According to the firm, the S&P GSCI Dynamic Roll Index seeks to roll into the optimal area of the futures curve to provide superior overall returns in times of contango. When the futures curve for a given commodity is in a general state of contango, the S&P GSCI Dynamic Roll methodology uses futures contracts months that are further out on the futures curve, with the intention of minimizing the effects of negative roll yields. When the futures curve for a given commodity is in a general state of backwardation, by the nature of the S&P GSCI Dynamic Roll methodology, the index is to generally use nearby futures contracts, according to S&P.
Complete eligibility criteria, as well as index calculation guidelines, is available at http://www.spgsci.standardandpoors.com.