how the s p gsci works
the s p gsci is weighted by world production and comprises the physical commodities that have active liquid futures markets there is no limit on the number of commodities that may be included in the s p gsci any commodity whose contract satisfies the eligibility criteria and the other conditions specified in this methodology are included the s p gsci is designed to reflect the relative significance of each of the constituent commodities to the world economy while preserving the tradability of the index by limiting eligible contracts to those with adequate liquidity the calculation of the relative weights of commodities in the index involves a four step process based on world production levels 1the methodology of the s p gsci was left unchanged when standard poor s took over the index the s p gsci is made up of 24 exchange traded futures contracts that cover physical commodities spanning five sectors the sectors currently include energy industrial metals precious metals agriculture and livestock this sector mix has been consistent over the years but the weighting shifts year to year the s p gsci is designed to be investable and there are etf products designed to track its performance the s p gsci captures global inflation of core commodities therefore it is useful for creating funds that have low correlations with traditional asset classes the ishares s p gsci commodity index etf gsg is an etf product that tracks the index components of the s p gscithe index s components qualify for inclusion in the index based on liquidity measures and are weighted in relation to their global production levels that makes the gsci valuable as both an economic indicator and a commodities market benchmark below is a table of the 2021 reference percentage dollar weights rpdw for the s p gsci 1energy was the largest sector at 54 of the index agriculture had a 27 share while metals were 19 drawbacks of the s p gsci indexthe s p gsci automatically rolls futures contracts which may not be an optimal investment strategy futures contracts are affected by contango and backwardation and they can cause commodity futures to perform differently than actual commodities in theory professional commodities traders can also use contango and backwardation to profit at the expense of simple automatic rolling strategies this may be a significant flaw in the s p gsci it could also be more theoretical than real like many early criticisms of stock market index funds the component mix of the s p gsci is reevaluated and rebalanced on an annual basis other commodity indexesother widely watched and traded commodity indexes include the credit suisse commodity benchmark index the rogers international commodities index and the bloomberg commodity total return index the dow jones commodity index djci is a weighted index that tracks a wide range of 28 different commodity futures contracts including metals agricultural products and energy commodities such as oil and gas it is essential to understand how commodity indexes are weighted and rebalanced these differences will affect the performance of tracking products over time 