Nasdaq and Axioma’s new indices use equities to track gold, oil and softs
Analytical software providers Axioma have teamed up with exchange giant Nasdaq to launch indexes that track the spot prices of various commodities using a basket of relevant equities.
Ian Webster, Axioma’s managing director, Europe, said the partners had chosen to base the spot-price-tracking products on the movements in selected equities.
This would avoid some of the problems associated with using derivatives, he said.
In particular, it would remedy curve distortions, which create deviations from the spot price.
The indexes will track gold, oil and a basket of agricultural products.
For the gold index, the equities will track the settlement price movements of the prevailing gold contract (COMEX Gold).
Examples of companies in the product include Randgold Resources, Royal Gold, Yamana Gold, Zhaojin Mining and Newmont Mining Corp.
The oil product will track the West Texas Intermediate (WTI) contract.
Some of its main holdings include Canadian Natural Resources, Woodside Petroleum, Markwest Energy Partners and Noble Corporation.
The agricultural index will be driven by equities that track a basket of agriculture commodities as determined by NASDAQ.
Examples of constituents are Mosaic, Yara International, Potash, Uralkali and Agrium.
Each commodity has its advantages in diversified portfolios, and each is at the apex of macro-economic / political influences at present.
For the gold-tracking index, gold mining shares are the logical underlying securities, whereas for oil a combination of shares in oil explorers and producers will be used.
Webster explained: “You might think here of the oil majors, but a lot of companies hedge their exposure so they are not as correlated to oil prices.”
For the combined spot price of the basket of agricultural goods, the underlying will be drawn from the specialty chemicals, farming and fishing and food product sectors.
The products will have their weightings rebalanced monthly, but correlation to spot prices will be monitored constantly.
Another option for spot-price investors, to hold the physical, is possible with bullion, but very difficult with oil. Each has storage and insurance costs, as well.
Added Webster, “Axioma has already partnered with benchmark provider Russell to produce strategy-based equity tracker products, and other partners to produce models that follow factors such as momentum and volatility.
“We are all used to the Morningstar style boxes, such as large-, mid- and small-cap, value and growth. To some extent volatility and momentum and beta are just different ways of slicing and dicing it.”
Webster noted passive products had become “much more sophisticated” in recent years “and what was once considered alpha is now being captured in a systematic way.”