Sugar and soymeal appear to have been treated far worse by
the index fund rebalancing than investors had expected- and Chicago grains far
Funds which track the S&P GSCI and DJ UBS agricultural commodities
indices once a year, in early Janauary, rejig their portfolios to return
weightings back to those of the index they follow.
This means selling top performers of the previous year,
whose weighting will have increased beyond mandated levels, and buying laggards,
which will have been left underrepresented.
The funds also adjust to changes the indices might introduce
to their make-up. The DJ UBS index, for instance, ramped up its exposure to
Kansas wheat and soymeal during the rebalancing, but cut its weightings for
Chicago soybeans and wheat.
The process expected to bring some $1.5bn into soft
commodities, but remove $700m from livestock futures and $1.3bn from grains and
Regulatory data for the weeks to January 15, a period which pretty
much matches the rebalancing timetable, suggest that index funds adjusted positions
in many commodities in line with investors' expectations, as calculated from
the indices' published weightings rejig.
Index fund net long position, Jan 15 and week-on-week change
Chicago corn: 391,610 lots, (+18,117)
NY sugar: 299,866 lots, (+22,215)
Chicago wheat: 146,785 lots, (-33,227)
Chicago cattle: 106,173 lots, (-6,642)
Chicago soybeans: 104,175 lots, (-23,250)
Kansas wheat: 61,788 lots, (+14,342)
Index funds' net long in New York cocoa futures, for
instance, showed a small decline, according to the Commodity Futures Trading
Commission (CFTC), as had been expected, according to Morgan Stanley
calculations.Regulatory data, on coffee, feeder cattle and lean jogs too
tallied with expectations.
... and out of whack
However, in sugar, index funds raised their net long holding
by some 11,000 lots fewer than expected, and in Kansas wheat by more than 7,000
In soymeal, index funds appear to have cut their net long
position by 3,800 lots, according to data supplied by Rabobank – compared a
forecast increase in their net long position of more than 50,000 lots.
But index funds proved more generous than expected in corn,
for which the net long was raised well above expectations, while cutting their
holding in Chicago wheat less than forecast.
The discrepancies may be in part down to the CFTC data
available including both futures and options, while the indices are composed
only of "exchanged-traded futures contracts".
However, they also stoke the idea of a process which is more
difficult to forecast, especially in its price impact, than might be thought.
Morgan Stanley ahead of the rebalancing cautioned that the
price impact of the process is "murky".