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The S&P GSCI (also known as the S&P Goldman Sachs Commodity Index) is a widely used benchmark index best known as a measure of global commodities markets performance. Comprising 24 exchange-traded futures contracts, the S&P GSCI spans five sectors and covers a variety of physical commodities, ranging from energy and industrial metals to soft commodities such as wheat and cocoa.
Trading began on the S&P GSCI in 1991 and since then, the index has evolved to become a widely accepted benchmark for commodities market performance. In 2017, the index was calculated in 23 currencies, and it is regularly used as a component in many commodities-based ETFs and other investment products.
An important feature of the S&P GSCI is its ability to automatically roll over futures contracts as they approach their expiration in order to remain investable. By causing investors’ positions in the index to "roll" from one futures contract to another, this feature minimizes the chances of investors being unable to meet their contractual obligations, as might happen if they held a long futures position that expired before they were able to respond.
However, while this dynamic feature serves to protect investors, it is not necessarily an optimal strategy. When rolling futures contracts, investors can incur higher costs compared to an actively traded strategy and may experience substantial price movement. As a result, investors should carefully weigh their investing objectives and compare the benefits of investing in the S&P GSCI with the potential costs of maintaining a tradeable positions in a futures contract.
In conclusion, the S&P GSCI presents investors with an opportunity to diversify their portfolios by gaining exposure to global commodities markets through a benchmark index, though it is important to consider the potential costs associated with the index’s auto-roll feature. ETFs designed to track the index provide additional liquidity and, importantly, investors investing through an ETF can easily identify, manage and control the cost of their exposure.
Trading began on the S&P GSCI in 1991 and since then, the index has evolved to become a widely accepted benchmark for commodities market performance. In 2017, the index was calculated in 23 currencies, and it is regularly used as a component in many commodities-based ETFs and other investment products.
An important feature of the S&P GSCI is its ability to automatically roll over futures contracts as they approach their expiration in order to remain investable. By causing investors’ positions in the index to "roll" from one futures contract to another, this feature minimizes the chances of investors being unable to meet their contractual obligations, as might happen if they held a long futures position that expired before they were able to respond.
However, while this dynamic feature serves to protect investors, it is not necessarily an optimal strategy. When rolling futures contracts, investors can incur higher costs compared to an actively traded strategy and may experience substantial price movement. As a result, investors should carefully weigh their investing objectives and compare the benefits of investing in the S&P GSCI with the potential costs of maintaining a tradeable positions in a futures contract.
In conclusion, the S&P GSCI presents investors with an opportunity to diversify their portfolios by gaining exposure to global commodities markets through a benchmark index, though it is important to consider the potential costs associated with the index’s auto-roll feature. ETFs designed to track the index provide additional liquidity and, importantly, investors investing through an ETF can easily identify, manage and control the cost of their exposure.