Roll Yield Maintained Positive Performance
The UBS Constant Maturity Commodity Index (CMCITR) was up 1.89% during the second quarter but underperformed the Bloomberg Commodity Index (BCOM), which was up 2.89%. However, year-to-date, CMCITR outperformed BCOM by more than 2% (7.17% versus 5.14%).
While BCOM’s outperformance during the quarter was mostly attributed to a larger allocation in natural gas and precious metals commodities, CMCITR outperformed in roll yield. CMCITR’s curve positioning and roll methodology continue to outperform BCOM in a relatively flat roll yield environment.
CMCITR Outperformed in Q2 2024 Due to Roll Yield Contribution
Source: Bloomberg. Data as of June 2024. Past performance is no guarantee of future results. Index performance is not illustrative of fund performance. It is not possible to invest in an index.
Sector Lookback: Industrial Metals: Strongest Sector in Q2
Natural gas, WTI crude oil and Brent crude oil led the energy sector in Q2. U.S. natural gas prices rose sharply primarily due to extremely warm weather in the U.S. and the continued war in Ukraine. WTI crude oil and Brent crude oil both rose about 2% in the quarter, however, products such as gasoil, heating oil, and unleaded gas, were slightly lower.
The agriculture sector declined in Q2, with only wheat and coffee being higher. Cocoa prices fell but were still up sharply for the year. BCOM’s zero allocation to cocoa ensured no negative contribution to performance for the quarter; however, the index missed out on the year-to-date contribution when the commodity showed returns of 100%.
Corn was down 10% and soybeans were down around 5%, which had negative impacts on the agriculture sector during Q2.
The industrial metals sector was the strongest in Q2, with total returns of around 9%. Copper increased 10% and zinc 21%, both of which were the strongest performers. CMCITR’s higher allocation to the sector helped relative performance versus BCOM but did not offset BCOM’s outperformance in energy and precious metals.
The precious metals sector rose in Q2 by 7%. Silver led the sector, increasing about 18% in the quarter. BCOM has a higher allocation to precious metals than CMCITR. Although the precious metals sector holds the smallest weight in both indices, its overweight in BCOM (20%) added positive contribution to returns (+1.1%) over CMCITR (weight: 6.3%).
The livestock sector fell in Q2 due to a decline of 11% in lean hog prices, which offset a small gain in live cattle prices.
Comparative Index Sector Weights
CMCITR’s higher weighting to Industrial Metals helped relative performance in Q2 2024
Source: VanEck, Bloomberg. Data as of June 2024.
Outlook: Can Commodity Prices Continue to Rally?
Commodity prices could continue to rally in the second half of the year. The U.S. economy started to slow down in Q2, raising the chances of the Federal Reserve (Fed) cutting interest rates in September 2024. If that happens, it is expected that the U.S. dollar will decline, thus helping to push commodity prices higher in the fall and winter. In addition to a possible U.S. easing, global geopolitical risks are rising. Concerns surrounding the candidates’ suitability for the U.S. presidential election later could also cause geopolitical risks to rise even further in the second half of 2024.
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