Skip to Content
ETF Specialist

The Academic Commodity ETF

This broad-basket commodity exchange-traded fund uses market-price signals to construct its index--with mixed results.

Mentioned: , , , , ,

Strategies that eschew traditional market-cap weighting are the current trend in exchange-traded funds. Funds that use fundamental indexing or other rules-based weighting methodologies are popping up in almost every sector. In the commodities space, there's  United States Commodity Index (USCI), which launched in 2010 and uses market-price signals to construct its index. Most commodity indexes weight by consumption or production, but USCI's strategy is based on research by academics Geert Rouwenhorst and Gary Gorton. In a 2007 paper, Rouwenhorst and Gorton found that the futures contracts of commodities with low inventory consistently outperformed those of commodities with high inventory. They also found that selecting commodities for momentum, a risk factor that has garnered increased interest in recent years, boosts return. The index that USCI tracks seeks to capitalize on these observations, but the fund's live performance record has been below average compared with other broad-basket commodity ETFs since inception through the end of August.

It may be that the excess return generated by this fund's strategy can't be harnessed in a cost-effective way. USCI's expense ratio is 0.95%, and the fund incurs additional costs from brokerage fees. Investors can expect to pay up to 1.17% a year, which makes USCI the most expensive commodity exchange-traded product in an already-expensive space. The fund's estimated holding cost, which takes additional fees and tracking error into account, is 1.32% a year. This high cost can quickly eat into any excess return.

Abby Woodham does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.