The Deutsche Bank Liquid Commodity Index (DBLCI) was launched in February 2003. It tracks the performance of six

commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a comm ...

in the energy, precious metals, industrial metals and grain sectors. The DBLCI has constant weightings for each of the six commodities and the index is rebalanced annually in the first week of November. Consequently, the weights fluctuate during the year according to the price movement of the underlying commodity futures.

Rolling methodology

Energy contracts are rolled monthly, all other commodity futures contracts are rolled annually. This rolling procedure was adopted given the historical tendency for energy curves to be in

backwardation Normal backwardation, also sometimes called backwardation, is the market condition where the price of a commodity's forward or futures contract is trading below the ''expected'' spot price at contract maturity. The resulting futures or forward cu ...

and metal and agricultural forward curves to be in

contango Contango is a situation where the futures price (or forward price) of a commodity is higher than the ''expected'' spot price of the contract at maturity. In a contango situation, arbitrageurs or speculators are "willing to pay more owfor a comm ...

. Futures contracts rolling takes place between the second and sixth business day of the month. The DBLCI is quoted in both total returns and excess returns terms in US dollars as well as a variety of major currencies.

Characteristics

* Six commodities: WTI crude oil, heating oil, aluminium, gold, corn and wheat. * Constant weighting which reflect world production and inventory, providing a diverse and balanced commodity exposure. * A rule-based and transparent calculation methodology. Energy contracts are rolled monthly, metal and grain contracts annually. * Total and excess returns data are available from December 1, 1988.

Features

Two of the main distinguishing features between the DBLCI and other commodity indices relate to the number of components and the overall allocation to the energy complex. While the number of commodities in the S&P Goldman Sachs Commodity Index, Dow Jones-AIG and the Reuters-Jeffries/CRB index are broadly similar ranging from 19 to 24 commodities, the DBLCI has just six commodities. The allocation to energy also differs substantially ranging from 70% in the S&P GSCI, 55% in the DBLCI, 39% in the RJ/CRB and 33% in the Dow Jones-AIG. A lower number of commodities in an index can offer certain advantages. For example, it involves an investor in only the most liquid commodity contracts in their respective sectors. Last year, aluminium accounted for 46% of combined turnover on the LME. Consequently, a commodity index which has part of its basket in lead or nickel would entail greater

liquidity risk Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price. Types Market liquidity – An asset cannot be so ...

since these two metals constitute only 11% of total turnover on the LME. Energy markets exhibit a similar degree of market concentration with the benchmark

West Texas Intermediate West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract tr ...

(WTI) crude oil contract representing 37% of total energy futures turnover on NYMEX in 2006.

Components and base weights

{, class="wikitable" , - ! ! Index Weight ! Contract Months ! Exchange , - , Energy , , , , - , WTI Crude Oil , 35.00% , Jan-Dec , NYMEX , - , Heating Oil , 20.00% , Jan-Dec , NYMEX , - , Precious Metals , , , , - , Gold , 10.00% , Dec , COMEX , - , Industrial Metals , , , , - , Aluminium , 12.50% , Dec , LME , - , Grains , , , , - , Corn , 11.25% , Dec , CBOT , - , Wheat , 11.25% , Dec , CBOT , -

Rolling methodology

Characteristics

Features

Components and base weights

See also