New S&P GSCI Multiple Contract Index aims to lessen contango effects

By Ashley Montgomery

Kansas City, Kan., Jan. 26 - S&P Indices has expanded its series of commodity indexes with the new S&P GSCI Multiple Contract Index, according to a news release.

"The S&P GSCI Multiple Contract Index is designed for those investors who want to reduce the negative effects of contango by gaining exposure to commodities futures contracts that are more dispersed along the futures curve," S&P senior director of commodity indexing Michael McGlone said in a news release.

"The index reflects increasing demand from the investment community for innovative additions to the S&P GSCI family of indices."

Contango occurs when the prices of front futures contracts fall below contracts that are further out. In addition to reducing the effects of Contango, the spread of exposure in the new index may reduce volatility risk, the release said.

Calculations for the new index are similar to the S&P GSCI. The index bases 55% of the components on contract months included in S&P GSCI, 30% on the contract months in the S&P GSCI 1-Month Forward Index, and 15% on the contract months in the S&P GSCI 2-Month Forward Index.

The weights of individual commodity contract production in the new index are the same as those in the S&P GSCI, with a fixed-percentage weight that allocates them beyond the front-most liquid futures contract on the futures curve.

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