How to Determine Which Commodities Index to Use - dummies

How to Determine Which Commodities Index to Use

By Amine Bouchentouf

With so many commodities indexes to choose from, how do you decide which one to follow? Generally, the S&P Goldman Sachs Commodity Index (S&P GSCI) is the most tracked index in the market — it has the most funds following, or tracking, its performance.

As of 2010, more than $85 billion in assets tracked its performance, and this number is growing monthly. The index is pretty popular with institutional and, increasingly, individual investors. It’s also perhaps the easiest one to follow because you can track it by investing through the Oppenheimer Real Asset Fund, as well as through the S&P GSCI futures contracts on the CME.

Although the S&P GSCI is the most widely tracked index, the most closely watched index (there’s a difference) is the Reuters/Jefferies CRB Index. The CRB Index is a global benchmark for what the commodities markets are doing.

As such, it is the equivalent of the Dow Jones Industrial Average in the commodity world: When investors want to gauge where the commodity markets are heading, they usually turn to the CRB Index. In addition, when analysts or journalists discuss the performance of the commodities markets, they usually refer to the CRB Index.

Investors who don’t trade futures or don’t feel comfortable investing in an index through a mutual fund can always choose to invest in an index through ETFs, which offer the convenience of trading complex financial instruments with the ease of trading stocks. Currently, the DBLCI is the only index tracked by an ETF, the DBC.

Buying the DBC is as simple as logging into your brokerage account or calling your broker and placing an order for the number of DBC units you want to purchase. An ETF is in the works to track the S&P GSCI, and you will probably see more ETFs that track these commodity indexes as more investors seek access to this area of the market.