Dow Jones Commodity Index (DJCI)

What Is the Dow Jones Commodity Index (DJCI)?

The Dow Jones Commodity Index (DJCI) is a weighted index that tracks many 28 unique commodity futures contracts, including metals, agricultural products, and energy commodities like oil and gas.

How the Dow Jones Commodity Index (DJCI) Works

The DJCI is an index that addresses the weighted market value of different commodities futures contracts. The contracts addressed by the index are weighted in view of commodity production levels and the liquidity of the underlying contracts.

Every year, the index is rebalanced in light of the criteria that no individual commodity can address more than 20% of the index and a base weight for inclusion of 0.25%. Also, the rebalancing guarantees that nobody grouping of contracts can address more than one-third of the total.

There are two principal uses of the DJCI. To begin with, it gives significant market data to investors and analysts who wish to keep side by side of the general state of commodity markets. Second, it permits traders to estimate on commodity prices by utilizing exchange-traded notes (ETNs) whose pricing are linked to the DJCI.

These ETNs are practically like exchange-traded funds (ETFs). Nonetheless, though ETFs are market-traded investment vehicles used to invest in equity securities, ETNs are unsecured debt instruments that are issued by underwriting banks.

Under the terms of these debt instruments, the investor is qualified for repayment of a predefined principal value which varies in view of the performance of an underlying benchmark. On account of ETNs that are linked to the DJCI, the investor would in this manner get a higher repayment value assuming commodity prices rise. On the other hand, lower commodity prices would lead to a loss upon maturity of the debt instrument.

ETNs give an appealing way to investors to take part in the commodities markets in view of their high liquidity relative to purchasing underlying commodities. Likewise, ETNs today are highly accurate in tracking their underlying benchmarks, due to the highly mechanized nature of the modern financial markets. For investors who suspect that commodity prices might decline, ETNs can likewise be sold short for speculative or hedging purposes.

History of the Dow Jones Commodity Index (DJCI)

The commodity index was initially made by American International Group (AIG) in 1998, with an end goal to meet the then-developing market demand for distinct market indices zeroed in on alternative assets. Upon its initiation, the index zeroed in on a group of 19 commodities.

In 2009, the rights to the index were purchased by the UBS Group (UBS), which renamed it the Dow Jones-UBS Commodity Index. Most as of late, UBS chose to switch its partnership from Dow Jones to Bloomberg in 2014, framing the Bloomberg Commodity Index (BCOM). In October of 2011, S&P Dow Jones re-sent off its variant of the Commodity Index (the DJCI) all alone.

Highlights

• The Dow Jones Commodity Index (DJCI) is a broad measure of the commodity futures market that underlines diversification and liquidity through a simple, clear, equivalent weighted approach.
• Its weightings are adjusted every year to guarantee that no individual commodity or commodity groups hold a lopsided influence over the index total.
• The index tracks 28 unique commodities, from agricultural to precious metals to energy products.