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Citi launches risk balanced commodity index

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Citi has launched a commodities index that allows qualified investors to invest in a portfolio of 24 commodities in a risk balanced approach.

Dubbed VIBE Commodities, the index uses historical volatility and inter-commodity correlations to weigh its 24 commodity components so that the risk contribution of each commodity to the overall volatility of the index is close to equal.

Unlike other optimised commodity indices in the market, VIBE Commodities does not rely on expected future returns – which might be difficult to predict – in its weight allocation methodology. The index also differs markedly from traditional benchmarks weighted according to production and liquidity, which may contain biases that expose investors to commodity or sector concentration risks.

“By attempting to equalise the risk contribution of each commodity, VIBE Commodities showed lower volatility compared with traditional commodity benchmarks and an improved risk/return profile on a back-tested basis. We believe VIBE Commodities can deliver superior diversification above and beyond simple commodity or sector weight limits, and ultimately results in more efficient beta exposure to commodities,” says Ravi Ramachandran, Global Head of Citi Investment Strategies for Commodities.

This launch complements Citi’s family of VIBE indices on global equities markets.

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