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MLM Commodity Index™
The MLM Commodity Index™, a sub-index of the MLM Index™, is an equal-weighted portfolio of the 11 commodity futures contracts in the MLM Index™. The MLM Commodity Index™ can take long or short positions in any of its 11 markets; there are no neutral positions.
Methodology
The MLM Commodity Index uses a simple trend-following algorithm (identical to that used in the MLM Index™) that signals the possible inception of significant price trends in the commodity markets.
Why Not Long All the Time?
  • Real (inflation adjusted) commodity prices fall over the long term: Product substitution and improvements in production and technology act as natural barriers to rising prices.
  • Backwardation: Long-always index providers have historically argued that there is an inherent "roll or convenience yield" due to the natural backwardation of a market (in which the nearest future price is greater than the deferred future price). They argued that returns could be earned simply from rolling forward futures contracts. The problem with this approach is that only certain markets exhibit this behavior. Furthermore, the markets that historically had exhibited significant backwardation (namely the energy markets such as crude oil, heating oil, and unleaded gas) reversed, and now exhibit contango (in which the nearest future price is lower than the deferred price) and earn a negative roll yield.
  • Diversification: While commodity prices tend to have low correlation to traditional asset classes, in times of global economic stress commodities can be highly correlated to traditional asset classes.
The MLM Commodity Index measures the true economic premium available to investors. It is less susceptible to the inherent drawbacks of long always strategies. The Index can be profitable in both rising and falling markets and returns remain truly uncorrelated to traditional asset classes.
Summary Profile
  • 11 commodity markets
  • Long or short positions in all markets at all times
  • Equal-weighted
  • Rebalanced monthly
  • Unleveraged
  • Transparent

To learn more about the MLM Commodity Index, including historical performance, please complete a registration form.