What Is the Dow Jones Commodity Index (DJCI)?
The Dow Jones Commodity Index (DJCI) is a weighted index that tracks a lot of 28 different commodity futures contracts, in conjunction with metals, agricultural products, and energy commodities paying homage to oil and fuel.
Key Takeaways
- The Dow Jones Commodity Index (DJCI) is a huge measure of the commodity futures market that emphasizes diversification and liquidity through a simple, simple, equal-weighted approach.
- Its weightings are adjusted yearly to ensure that no specific individual commodity or commodity groups dangle a disproportionate have an effect on over the index common.
- The index tracks 28 different commodities, from agricultural to precious metals to energy products.
How the Dow Jones Commodity Index (DJCI) Works
The DJCI is an index that represents the weighted market price of quite a lot of commodities futures contracts. The contracts represented by the use of the index are weighted consistent with commodity production levels and the liquidity of the underlying contracts.
Each and every 365 days, the index is rebalanced consistent with the criteria that no specific individual commodity can represent over 20% of the index and a minimum weight for inclusion of 0.25%. Similarly, the rebalancing promises that no one grouping of contracts can represent over one-third of the overall.
There are two primary uses of the DJCI. First, it provides treasured market wisdom for patrons and analysts who need to keep abreast of the total state of commodity markets. second, it allows buyers to speculate on commodity prices by the use of the use of exchange-traded notes (ETNs) whose pricing are associated with the DJCI.
The ones ETNs are functionally similar to exchange-traded funds (ETFs). Then again, whilst ETFs are market-traded investment vehicles used to invest in equity securities, ETNs are unsecured debt gear which may well be issued by the use of underwriting banks.
Underneath the words of the ones debt gear, the investor is entitled to repayment of a specified primary price which fluctuates consistent with the potency of an underlying benchmark. With regards to ETNs which may well be associated with the DJCI, the investor would due to this fact obtain the following repayment price if commodity prices rise. Conversely, lower commodity prices would lead to a loss upon maturity of the debt device.
ETNs provide a good looking way for patrons to participate throughout the commodities markets because of their high liquidity relative to shopping for underlying commodities. Moreover, ETNs in recent years are extraordinarily proper in tracking their underlying benchmarks, on account of the extraordinarily computerized nature of the stylish financial markets. For patrons who suspect that commodity prices may decline, ETNs may also be purchased transient for speculative or hedging purposes.
History of the Dow Jones Commodity Index (DJCI)
The commodity index was once to begin with created by the use of American International Workforce (AIG) in 1998, to be able to meet the then-growing market name for for distinct market indices excited about selection property. Upon its inception, the index excited about a bunch of 19 commodities.
In 2009, the rights to the index were purchased by the use of the UBS Workforce (UBS), which renamed it the Dow Jones-UBS Commodity Index. Most now not too way back, UBS determined to change its partnership from Dow Jones to Bloomberg in 2014, forming the Bloomberg Commodity Index (BCOM). In October of 2011, S&P Dow Jones re-launched its type of the Commodity Index (the DJCI) on its own.
