It is time to take a closer look at commodities, but there is a little problem. It is not clear how to best access this asset class. One could buy a single commodity manager or a bundle of commodity managers, or one could buy an index-like solution. These index-like solutions could come in three forms, a beta, strategy, or enhanced index. These strategy and enhanced indices may have characteristics like a diversified commodity manager.
An investor could think that buying a beta index would be easy and would serves as a proxy passive investment in commodities, but the returns across some of the key alternatives would be very fairly disperse. The same would be true for strategy indices which may be driven by factors such as backwardation and contango, or enhanced indices which may include active rules-based long/short decisions. To show the complexity of the index choice problem, we looked at the performance over different time-frames for these three categories as defined by Bloomberg.