Commodities Series 15 - BNP Commodities Long/Short Index
Commodities Series 15 offer investors leveraged exposure to the performance of the BNP Paribas AWR Commodity 4% VC ER Index (“the BNP Commodity Long/Short Index”). The objective of the BNP Commodities Long/Short index is to deliver diversified and uncorrelated performance across various market regimes. It provides a synthetic long/short exposure to commodities with the aim of extracting performance from three main sources of alpha within commodities:
- Carry
- Momentum; and
- Value
What are the three sources of commodity alpha being extracted by the BNP Index?
The diagram below indicates the three sources of alpha that the BNP Index provides access to:
The benefits and costs of holding a commodity vary with time. This is reflected in the shape of the commodity futures curve. The objective of this strategy is to capture the carry cost differential per commodity, by buying the futures contracts with lower carry costs and selling front-month contracts (typically with higher carry costs).
Physical commodity supply tends to persist across time and is generally slow to react to changes in demand, which creates different trends across commodities. The objective of this strategy is to capture bullish or bearish trends per commodity. Overweight the outperforming commodities and underweight underperforming commodities.
Demand may exceed supply, driving prices higher. In these cases, the spot price tends to be higher that the forward price (known as backwardation*). The objective of this strategy is to benefit from the rise in price of raw materials that are in high demand but witnessed a tightness in supply.
A Summary of the key features:
More information on Commodities Series 15 – BNP Commodities Long/Short Index can be obtained by downloading the PDS.