DoubleLine launches multi-factor commodities ETF

Feb 8th, 2024 | By | Category: Commodities

Jeffrey Gundlach’s DoubleLine Capital has launched the DoubleLine Commodity Strategy ETF (DCMT US) which is designed to capture diverse factor returns across the broad commodities market.

Broad commodities index ETF

DCMT tilts towards commodities whose futures markets are in backwardation.

The fund, now trading on NYSE Arca, features an expense ratio of 0.65%.

DCMT aims to broadly mirror the Barclays Backwardation Tilt Multi-Strategy Index, a ‘next-generation’ index closely associated with the Bloomberg Commodity Index (BCOM).

BCOM is a renowned benchmark that tracks the performance of 24 commodity futures spanning six sectors: energy, grains, industrial metals, precious metals, softs, and livestock. Commodities in the BCOM index are weighted two-thirds by liquidity and one-third by global production while capping the influence of any single commodity sector at 33%.

The Barclays index covers all 24 commodity markets featured in BCOM; however, it strategically adjusts commodity weights in favour of those demonstrating backwardation in their futures markets (where prices of contracts with shorter-term expirations are higher than for contracts with longer-term expirations). Backwardation suggests the potential for positive roll yields as futures contracts approach their expiration dates and their prices align closer to spot prices.

The Barclays index further refines its selection of futures contracts within each commodity through an analysis based on carry, seasonality, and momentum factors.

The carry factor emphasizes selecting the futures contract that is expected to offer the best roll yield for the following month.

The seasonality factor favours exposure to a static December futures tenor that may generally outperform a position held in the front-month futures tenor.

The momentum factor is based on selecting the futures contract that has outperformed the return of a front-month futures strategy by the greatest degree over the past year.

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