Commodity investing traditionally has been a challenge for individuals to pursue, but a new ETF has rolled out as a user-friendly alternative to what has been available in the past. The United States Commodity Index Fund (USCI) is a commodity pool that tracks the SummerHaven Dynamic Commodity Index Total Return, less USCI’s expenses. The index is comprised of 14 futures contracts that are selected each month from a list of 27 possible futures contracts.

As a result, USCI is what is known as an “actively managed” fund, since it buys futures contracts each month based on the pricing and inventory levels of each commodity. The aim is to diversify the fund’s holdings to avoid concentrating on a single commodity and to keep out commodities that seem less attractive during a given month. The fund also has the flexibility to buy futures contracts for the various commodities that range between three and nine months. So, the fund essentially tries to cherry-pick the available futures contracts each month to enhance profitability.

Regular readers of my ETF Talk feature know that I typically refrain from recommending new ETFs until they have established a track record and a minimum daily trading volume of about 100,000 shares. I have not changed my approach, but I do like to keep you apprised of new ETFs that break away from the traditional strategies and offer something unique. USCI, officially launched Aug. 10, is such a fund.

The investment objective of USCI specifically is for the daily changes, in percentage terms of its units’ net asset value, to reflect the daily changes of the index, which consists of six commodity sectors. Those sectors are energy, precious metals, industrial metals, grains, softs and livestock. Among those six sectors are the 27 eligible commodities that can be chosen during a given month: crude oil (brent); crude oil (WTI), gas oil, heating oil; natural gas; unleaded gasoline; feeder cattle; lean hogs; live cattle; bean oil; corn; soybeans; soybean meal; wheat; aluminum; copper; lead; nickel; tin; zinc; gold; platinum; silver; cocoa; coffee; cotton and sugar.

The 14 commodity benchmark futures contracts used for the month of October are: Corn SEP11; Cotton DEC10; Gas Oil NOV10; Wheat MAR11; Coffee DEC10; Feeder Cattle NOV10; Soybean Oil MAY11; Tin DEC10; Copper SEP11; Nickel NOV10; Sugar #11 MAY11; Unleaded Gasoline (RBOB) DEC10; Silver DEC10; and Lean Hogs DEC10. It is interesting to note that the fund left out gold futures contracts during the current month, indicating to me that the yellow metal’s recent pricing surge has made it a less attractive investment than the other commodities in the pool.  

To obtain my latest ETF advice and my stop prices for each recommendation, I encourage you to sign up for my ETF Trader service by clicking here. As always, I am pleased to answer any of your questions about ETFs, so please do not hesitate to contact me if you have one. To send your question to me, click here. You may see your question answered in a future ETF Talk.