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Portfolio Update – September 2020 – Which is the Best Commodity Index?

Portfolio Update – September 2020 – Which is the Best Commodity Index?

  • Monthly portfolio update: Fairly stable month (again): bonds recover, while other assets decrease slightly
  • Book tip: Hot Commodities by Jim Rogers (link at the bottom of the post)
  • In case you missed it: Where does Real Estate fit in the All Seasons Portfolio? (post from 12 September 2020)

Hello, and great to have you back for a new portfolio update.

I know that I am slightly delayed with publishing this post, as I usually spend a few hours over the first weekend of each month to write my thoughts and review the portfolio performance. This weekend, however, I just moved to a new flat, and found it hard to find the necessary time to write the update.

But here is a photo from the balcony, which is a clear improvement from my last view. Hoping to find great writing inspiration on this balcony in the future.

Anyway, in September I made some changes in the portfolio. Not big ones, but mainly moving assets from one exchange to another, from LSE to Xetra, mainly for cost optimisation and to get rid of ETFs denominated in USD.

This move only included my gold and commodities ETFs. The gold exposure remains the same (physically-backed, but only a different issuer: Xetra-Gold), but for my commodities, I have changed the underlying tracked index from Bloomberg Commodity Index (BCOM) to Rogers International Commodity Index (RICI).

As the special topic for this post, let me elaborate a but more on commodities indicies before reviewing my portfolio. It turned out to a slightly longer text than first anticipated, but well worth the read, so buckle up.

The Best Commodity Index

It is not a secret that commodities investing for the layman is a challenging operation. It is more difficult to get access to the underlying products than when you invest in stocks, as commodities are traded as future contracts with maturity dates. It thus takes more time and resources to start trading commodities than other asset classes.

The best option for the non-professional investor is therefore to attain access to commodities through ETFs. But the number of available ETFs is greatly limited, and so is the indexes that the ETFs can track.

This is because the general market environment has not been at all favourable for commodities for the past three decades (much unlike the 1970s when we last saw the start of a great commodities bull run). With low inflation and high economic growth, other asset classes have fared better than commodities, even though commodities are biased to perform well in times of high economic growth (but not in a low inflation environment). As the interest for commodities has been cool, ETF issuers have not put any effort in developing good alternatives for the investor seeking exposure to commodities. The trade volume, caused by ow investor interest, has been too low.

This has meant that the available products may not be optimal for commodity investing, which, ironically, will keep volumes low. The strategies for the available ETFs are few to pick from, making it difficult for the investor to find alternatives that make sense. The commodities knowledge with the ETF issuers has been greatly lacking, due to it not being an area of interest or a horse they want to bet on.

For investors there are principally three main indices to select from:

  • Bloomberg Commodity Index
  • Refinitiv/CoreCommodity CRB
  • Rogers International Commodity Index

When you select your Commodity portion of your portfolio, you will most likely have exposure to the commodities included in one of these three indices. As it is important to have an understanding of your exposure and risk, you should be aware of a) what commodities are included in each index, and b) the rules for determining the relative weights of the commodities within the indices.

Let us begin with the “a)” item above: what commodities will you be exposed to with each index?

A: Commodities Included in the Indices

Shown below, is a table of the three indices, with the different commodities used to build them, as well as the weights of the commodities. These are the target balances of each index, meaning that the actual weights may differ between rebalancing dates (indices are usually rebalanced quarterly). Note also that these numbers are target weights as per October 2020, meaning that the targets may differ in subsequent years.

Common Commodity Indexes

CommodityRogers International Commodity IndexBloomberg Commodity IndexRefinitiv / CoreCommodity CRB IndexCategory
WTI Crude Oil15,00%7,99%23,00%Energy
Natural Gas6,00%7,96%6,00%Energy
Gold5,00%13,62%6,00%Precious Metals
Aluminium4,00%4,33%6,00%Industrial Metals
Copper4,00%6,96%6,00%Industrial Metals
Silver4,00%3,78%1,00%Precious Metals
RBOB Gasoline3,00%2,26%0,00%Energy
Unleaded Gas (NYMEX)0,00%0,00%5,00%Energy
Wheat (CBOT)2,75%3,04%1,00%Agricultural
Soybean Oil2,00%2,90%0,00%Agricultural
Milling Wheat2,00%0,00%0,00%Agricultural
Zinc2,00%3,43%0,00%Industrial Metals
Lead2,00%0,00%0,00%Industrial Metals
Live Cattle2,00%4,02%6,00%Agricultural
Heating Oil1,80%0,00%5,00%Energy
Platinum1,80%0,00%0,00%Precious Metals
Gas Oil1,20%2,60%0,00%Energy
Wheat (CME)1,00%1,46%0,00%Agricultural
Wheat (MGEX)1,00%0,00%0,00%Agricultural
Tin1,00%0,00%0,00%Industrial Metals
Lean Hogs1,00%1,78%1,00%Agricultural
Nickel1,00%2,75%1,00%Industrial Metals
White Sugar1,00%0,00%0,00%Agricultural
Soybean Meal0,75%3,30%0,00%Agricultural
Orange Juice0,60%0,00%1,00%Agricultural
Palladium0,30%0,00%0,00%Precious Metals
Milk Class III0,20%0,00%0,00%Agricultural
ULS Diesel0,00%2,11%0,00%Energy

As you note from the above, the different indices vary greatly when you consider what commodities you get exposure to. The Rogers International Commodity Index (“RICI”) is by far the broadest index, giving you exposure to 38 different underlying commodity futures contracts.

The Bloomberg Commodity Index (“BCOM”), which is the most popular index for ETFs to use as benchmark, is the second broadest index, built by 24 different constituents.

The Refinitiv/CoreCommodity CRB index (f.k.a. Thomson Reuters/CoreCommodity CRB Index) (“CRB”) is the least popular index of the three, and also the one with the fewest commodities. Here, you will have invested in 19 commodities.

But even though the number of commodities vary greatly between each index, the exposure to different subcategories of commodities are similar. This is visualized by the below table.

Commodity Indexes by Category

As of 2020Rogers International Commodity IndexBloomberg Commodity IndexRefinitiv / CoreCommodity CRB Index
Industrial metals14,00%17,47%13,00%
Precious Metals11,10%17,40%7,00%

When you invest in commodities, at least with broad commodity indices, your main exposure will be to energy and agricultural products, as these are the most significant sectors in world trade. If you want to narrow down your exposure to certain products, for example oil and energy for environmental reasons, this is often possible by picking an ETF investing in a subindex, for example by investing only in RICI Metals and RICI Agriculture indices, .

Energy constitutes a huge part of the indices because the indices reflect how the global economy looks. Oil is still the most traded resource, why it will take up a great chunk of your broad commodity index.

As the indices give you exposure to different commodities, they will perform and behave a bit differently from each other. For example, during the Covid-19 crisis, oil prices went down rather abruptly (especially WTI Crude, however, no indices were impacted by the May crash, as the futures contracts for all ETFs had already been rolled when the prices went negative). This meant that indices with heavier exposure to these assets performed worse.

As all indices have heavy allocation to energy, none performed well, but most importantly, a sudden decline in expected economic growth will impact not only energy futures contracts, but prices across the range of commodities.

From a diversification perspective, I prefer to get access to a greater number of commodities, why from these above indices, I prefer the RICI based on the diversification criteria and getting access to a broad basket of commodities.

B: Managing of Weights and Changes to Index Composition

As commodity prices are heavily influenced by supply and demand, and there is a lag of several years between matching supply with the higher of lower demand, prices of most commodities move in long cycles. For example, it may take up to more than a decade to get a mine up and running from prospecting to government permission to start of excavation.

The demand for commodities change in society, and we are likely to see a shift from oil based energy to renewable tech in the coming decades. Thus, it is likely that oil demand will decrease, while metals needed in the greentech segment will increase (for example Rare Earth Elements in windmills or lithium and nickel in batteries).

It is therefore vital to know how each of the three indices (BCOM, RICI and CRB) will change their weights for each commodity and what rules they follow for determining the weights.

The BCOM, for example, starts off its index construction based on “production data” (The Bloomberg Commodity Index Methodology, page 9), meaning that it weighs the commodities based on supply. The BCOM weights change almost yearly (albeit the commodity balances are determined down to the sixth decimal point)

The RICI determines the weights of commodities based on demand, as the define that changes in the index, albeit rare, will be made following “changes in global consumption pattern” (The RICI Handbook, page 5). This is an important difference from BCOM, and a rule that makes much more sense if you think about it. With higher demand, prices are likely to move up, based on the lag of several years for supply to catch up. Reversely, if demand would decrease (for oil for example), the prices will go down until supply decreases enough for prices to stabilize again. Thus, it is better to determine weights based on demand, rather than supply, as you would otherwise be on the wrong side of the changes.

The CRB determines its weights based on “consumption, production levels and trends” (REFINITIV/CORECOMMODITY CRB Fact Sheet). However, the CRB methodology or rules for inclusion is not clearly stated, and are made ambiguously by a committee. It is stated that the CRB determines weights based on importance, but regardless, aluminium weighs 600 percent more than wheat, and the only crude oil contract is WTI (making up 23% of the whole index), while Brent is completely left out.

Which method is the best? BCOM has the benefit of rule based and meticulous balances, but it is an issue that weights and compositions are determined based on supply. The CRB index determines its weight manually, and, on the face of it, ambiguously, which makes it hard to predict whether it will be a good index for the future. The RICI, on the other hand, also has clear rules for the index composition, and bases changes on demand. I strongly prefer a demand-based approach, as it gives the investor the best shot at being nearer to the front of the curve when changes in the market occur.

In summary, the RICI is the best commodity index of the lot, both when you seek a broad basket of commodities (38 different futures contracts) and an index with logical rules to changes of composition based on demand rather than supply. This will be beneficial also in coming years in a shift from oil-based energy sources to renewables. Moreover, with broad basket, you get access to also smaller commodities that are interesting investment opportunities, such as palladium or lumber. Therefore, I have elected to make the transition from BCOM to RICI in September. The ETF I have selected to get this exposure is the Market Access Rogers Int Com Index UCITS ETF (M9SA).

For a list of ETFs tracking different Commodity indices, check out this page from JustETF for more inspiration.

Portfolio Update September 2020

Let us now turn our attention to the portfolio performance in September. Bearing in mind the long expose on commodities, I will try to be brief with respect to market updates.

In September, equity markets stalled following investor worry about further fiscal stimulus, the coming U.S. election, and an increasing number of coronavirus cases in Europe. For example, the S&P 500 was down 3.92% for the month.

FTSE All-World September 2020

For the government bond market (including inflation-linked bonds), yields have been volatile during the month, with uncertainty of the U.S. election, and expectations of further central bank stimulus. The bons prices have recovered in September when compared to last price in August, but yields remain in a tight span.

Gold prices dipped below USD 1,900/oz for a few days in September for the first time since July. However, the prices have again recovered to the mid-1,900 range as investors prepare for the coming elections and potential volatility

As for Commodities, the World Bank issued its latest Pink Sheet (semi-annual index summary), reporting a weak month for energy commodities with declines in excess of 5%. On the other hand, metals and agricultural products gained 2% and 2.7% respectively, helping a broad basket of commodities ending up fairly stable over the month.

Looking more closely at my portfolio, since my August 2020 update the overall portfolio is more or less similar, but with some shifts between assets. Looking back, this has in fact been the case since April, where the portfolio moves in a tight span.

Thus, there are not much changes in the portfolio allocations. I remain overweight in gold and underweight in long-term government bonds in anticipation of the U.S. election, and further uncertainty with the virus and the world economy’s ability to recover. The recoveries on the stock markets are driven much by fiscal stimulus, meaning that further gains or losses may much be attributed to actions from the Fed and ECB. It is wise to remain cautious and diversify.

From the below graph, you can see the gains and losses over the month, where bonds have been the positive factor in September, and most other asses being slightly down. The movements are, however, small.

As for YTD changes, the story of the past month is rather undramatic. There really is not much to add here.

Lastly, here’s a view of the ETFs in my portfolio, and the performance of each during the last month, in table form. The changes of ETFs for commodities and gold makes it a bit messy this month, but the developments should be fairly easy to track anyway.

iShares Global Inflation Linked Govt Bond UCITS ETFTIPSIE00B3B8PX14€599.96€604.72-0.56%
iShares USD Treasury Bond 20+yr UCITS ETFGovt Bond LongIE00BSKRJZ44€1,249.68€1,276.74-1.10%
Invesco Bloomberg Commodity UCITS ETFCommoditiesIE00BD6FTQ80€336.49€0.00-100.00%
Market Access Rogers International Commodity UCITS ETFCommoditiesLU0249326488€0.00€320.85N/A
Xetra GoldGoldDE000A0S9GB0€481.39€0.00-100.00%
Xtrackers Physical Gold ETCGoldGB00B5840F36€0.00€468.18N/A
Vanguard FTSE All-World UCITS ETFEquityIE00B3RBWM25€1,291.04€1,272.64-1.43%

Many thanks for your attention, and in case you missed it, I published a great post about real estate investing and how it fits in the All Seasons Portfolio strategy. Here is a link to the post if you look for any further reading.

Thank you very much for your attention, and I hope you leave a comment about your portfolio development and your especially thoughts about commodity investing.

I have also set up a Patreon site, to cover hosting costs, which reach a couple hundred euros annually. If you find any content here at all useful and feel that you can treat me for the equivalent of a double-espresso, read more about what this means on the Support page here on the website. I have a hosting bill of around EUR 140 falling due in November, so any support is extremely helpful, as the monetization of this blog is very limited.

Looking forward to hearing from you,

Book tip: Hot Commodities by Jim Rogers

I have already in a previous post linked to Hot Commodities by Jim Rogers, but as commodities was the theme for this month’s post, I thought it is a great idea to link to it again. If you haven’t read this book already, now would be the time!

As commodities play an important part of the All Seasons Portfolio Strategy, and gives you exposure to seasons of high inflation and high growth, it is wise to learn a little bit about how commodity investing works. As trading commodities are built entirely by futures contracts instead of physical assets, this adds another level of complexity when compared to stock market investing.

The best book about commodities is, hands down, Hot Commodities, written by Jim Rogers, a successful commodity trader and co-founder of the Quantum Fund. In this book, Rogers shares great advice for commodity trading and detailed tips on how to invest in this huge global market place.

With this great book, you will better understand how to trade in commodities like crude oil, or soft commodities such as coffee, wheat or sugar. You will enhance your knowledge about how the 7.5% commodity portion of your All Seasons Portfolio adds value.

For anyone interested in the All Seasons Portfolio and Risk Parity investing, I find this a great read as you enhance your understanding for both the vulnerabilities of the economies (ref. discussion above on credit ratings) and government bonds. Or check out other great books on the topic on the Book recommendation page.

Check it out today on Amazon (affiliate link):

Buy it on

This Post Has 5 Comments

  1. Great article as usual. I removed the commodities Etf from my portfolio. The reason is that the ones available are not liquid enough with all the problematics that such a thing brings with it. I replaced it with more single commodities Etf or big cap commodities stocks. I also removed all the Etf that were not in eur (I live in Europe) to reduce the volatility of the portfolio. Last I added a little bit of Btc because I think they have to be in every balanced portfolio. These are my changes in September. See you next month!

    1. Grazie mille Carlo!
      Investing in stocks in commodity producers is a viable option. That’s for example how RPAR ETF attains exposure to this asset class. So I think both ways are good ways, i.e. either investing in commodity producers (equity) or in a diversified commodity futures contract index with a good rebalancing strategy (Rogers International Commodity Index). Which ETF do you have for your commodity exposure if I may ask?
      I think that at least for commodities, the currency exposure is of less importance. This is because it is the price movements of the underlying commodity which is the key factor regardless which currency the commodity is traded, and then most of the currency effect should be cancelled out. With a (somewhat) effective market, there would otherwise be huge arbitrage gains available if you could have the same commodity but trade it in another currency vs. changes in a particular currency pair, but as there are no such free lunches, the currency exposure should be minimal.
      I note that BTC has had good development lately, surpassing USD 11,000 again in October. Where do you see that Bitcoin and cryptocurrencies fit in the seasons? At least in theory, I’d say it is an asset which is biased to perform well in a high growth, high inflation environment, but do you think that applies also now when the sector is still in its infancy? As I think you know more about crypto than I, I would love to hear your thougts.
      Looking forward to hearing from you again,

  2. What broker do you use and how much do you pay in fees? I’m just curious because you have already made a couple of changes in your portfolio and they could be quite costly to execute.

    And what about the tax perspective of switching between two different ETFs? Do you pay taxes in such cases or is there some exception for this in Sweden?

    By the way, when I was reading this post, I first thought you left Bloomberg Commodity Index because of its high exposure to gold. But your reasoning makes a lot of sense. I might also switch to Rogers International Commodity Index in the future.

    1. Hi Tomas,
      These are very important items that you bring up.
      I use Degiro as my broker, which have a transaction fee of €2 + 0.03% for ETFs. They have a list of ETFs as well that can be traded without costs, but none of my holdings qualify for free trading.
      As for taxes, this is very much dependent on country, and important to be aware of. In Sweden, we have a special tax exemption with a certain account type, which allows trading without tax impact. Instead of being taxed 30% on capital gains when any asset is sold, we have an annual standard tax calculated on the total value of your portfolio (30% of a “standard yield” which currently is about 1.5%). This means that if your average CAGR is more than 1.5%, then this tax treatment will always be more beneficial than the usual capital gains tax. It also means that I can trade as much as I want within that account without tax implications.
      I have the impression that this tax treatment is not that common in other countries (I have seen similar regulations in only Finland and Norway, and perhaps the U.K.(?)). But regardless, as I still do have transaction costs, my aim is to keep changes at an absolute minimum. The whole point of the All Seasons Portfolio strategy is that you can more or less forget about it, only to rebalance it occasionally. And even then, my main means of rebalancing will be by adding funds in asset classes have lower exposure to than what I have aimed.
      As for commodities, yes, the BCOM index has a bit more gold, and as gold anyway constitutes 7.5% of the aimed allocation, it slightly throws off the balance. That is, however, not the main reason, as the key word here is “slightly”. As BCOM has 13% gold, that would mean the total gold exposure goes from 7.5% to 8.475% (7.5% gold + (13% of 7.5% commodities)). This could also be adjusted for by decreasing the gold tracker, but it requires a bit more items to always keep track on when maintaining the portfolio. Hence, as you say, the gold exposure was not the most important decisive factor, but rather the diversification and weight adjustment rules were more important to me.
      As a side note, the American RPAR ETF (managed by Alex Shahidi) used commodity stocks instead for the commodity exposure. That is also one way to go if you want to look into what will suit you best (Rogers International Commodity Index or a Commodity stock index), but I am yet to look closer into the correlations between such index vs commodities and the stock market respectively. I am comfortable with attaining my commodity exposure through an index tracking futures contracts instead of stocks, but it is something you could bear in mind and consider. 🙂

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