What Is the S&P GSCI?

The S&P GSCI is a composite index of commodities that measures the performance of the commodity market. The S&P GSCI is the commodity equivalent of stock indexes, such as the S&P 500 and the Dow Jones. The S&P GSCI was simply called the Goldman Sachs Commodity Index (GSCI) before it was purchased by Standard & Poor’s in 2007. Investing in a GSCI fund provides a broadly diversified, unleveraged, long-only position in commodity futures.

Key Takeaways

  • The S&P GSCI is a composite index of commodities that measures the performance of the commodity market.
  • The S&P GSCI is made up of 24 exchange-traded futures contracts that cover physical commodities spanning five sectors.
  • The S&P GSCI is designed to be investable, and there are ETF products designed to track its performance.
  • The S&P GSCI automatically rolls futures contracts, which may not be an optimal investment strategy.

How the S&P GSCI Methodology Works

The 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 in 2019 are energy, industrial metals, precious metals, agriculture, and livestock. This sector mix has been consistent over the years, but the weighting shifts year to year.

Components of the S&P GSCI

The 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 2019 reference percentage dollar weights (RPDW) for the S&P GSCI.

Commodity

2019 RPDW

Chicago Wheat

2.77%

Kansas Wheat

1.15%

Corn

4.36%

Soybeans

3.14%

Coffee

0.72%

Sugar

1.54%

Cocoa

0.32%

Cotton

1.41%

Live Cattle

3.48%

Feeder Cattle

1.27%

Lean Hogs

1.91%

WTI Crude Oil

26.42%

Brent Crude Oil

18.61%

Gas Oil

5.56%

Heating Oil

4.45%

RBOB Gasoline

4.48%

Natural Gas

3.11%

Aluminum

3.89%

Copper

4.45%

Lead

0.78%

Nickel

0.76%

Zinc

1.28%

Gold

3.72%

Silver

0.42%

Energy was the largest sector at 62.63% of the index. Agriculture had a 15.41% share, while livestock came in at 6.66%. Industrial metals accounted for 11.16% of the GSCI, and precious metals were 4.14%. This mix is reevaluated and rebalanced on an annual basis.

Investing in the S&P GSCI

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.

Criticism of the S&P GSCI Index

The 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.

Other Commodity Indexes

Other widely watched and traded commodity indexes include the Credit Suisse Commodity Benchmark Index and the Bloomberg Commodity Total Return Index. It is essential to understand how commodity indexes are weighted and rebalanced. These differences will affect the performance of tracking products over time.