Bloomberg Commodity Index
The Bloomberg Commodity Index (BCOM) is a broadly diversified benchmark index that tracks the performance of a basket of commodity futures contracts, providing investors with exposure to 22 physical commodities across energy, agriculture, livestock, industrial metals, and precious metals sectors.[1] It is designed to reflect the overall movement in commodity prices while emphasizing liquidity and economic significance, with the index calculated on an excess return basis every 15 seconds during trading hours.[2] The index includes 24 exchange-traded futures contracts and imposes diversification rules, such as capping any single commodity at 15% and any sector group at 33% of the total weight.[1] Originally launched on July 14, 1998, as the Dow Jones-AIG Commodity Index with a base value of 100 as of December 31, 1990, it was created to offer a standardized measure of commodity market performance dating back to 1960.[1] In 2009, following the acquisition of rights by UBS, it was renamed the Dow Jones-UBS Commodity Index to incorporate a broader set of commodities and refine its weighting methodology.[3] The index underwent a significant transition in 2014 when Bloomberg L.P. partnered with UBS to assume responsibility for its calculation, governance, and branding, resulting in its rebranding to the Bloomberg Commodity Index effective July 1, 2014, while maintaining continuity in its composition and rules.[4] This shift positioned Bloomberg as the administrator of one of the world's most tracked commodity benchmarks, with estimated assets under management exceeding $100 billion in related products.[5] The index's methodology involves annual rebalancing of target weights, determined by a combination of two-thirds based on trading liquidity and one-third on world production volume from the prior year, ensuring representation of globally significant commodities.[1] Futures contracts are rolled monthly over a five-day schedule (the sixth through tenth business days) to minimize contango and backwardation effects, with the total return version (BCOMTR) accounting for collateral yields on fully invested positions.[6] As of the 2025 target weights, the index allocates 30.01% to Energy (e.g., Brent crude oil at 8.03% and natural gas at 7.78%), 23.15% to Grains (e.g., soybeans at 5.97% and corn at 5.62%), 15.12% to Industrial Metals (e.g., copper at 5.37%), 18.78% to Precious Metals (e.g., gold at 14.29%), and 5.33% to Livestock.[7] BCOM serves as a key reference for commodity-linked investments, exchange-traded funds, and derivatives, offering a balanced alternative to equity and fixed-income markets amid economic cycles influenced by inflation and supply dynamics.[8]History and Development
Origins and Early Evolution
The Dow Jones-AIG Commodity Index was launched on July 14, 1998, by AIG Financial Products Corp. in collaboration with Dow Jones & Company, marking the introduction of a standardized benchmark for tracking commodity futures performance.[9][10] This index addressed the growing demand among investors for diversified exposure to commodities, moving beyond single-commodity investments by aggregating futures contracts across multiple sectors to provide a more balanced representation of the broader commodity markets.[3] At inception, it emphasized liquidity and economic significance, using U.S. dollar-weighted production data to ensure the index reflected real-world commodity dynamics without over-reliance on any one asset.[10] The early methodology centered on futures contracts for physical commodities traded primarily on U.S. exchanges, with an initial composition of 20 commodities spanning key sectors such as energy, metals, and agriculture to promote diversification.[11] Weights were determined through a combination of liquidity metrics—based on trading volume—and production levels, applying a 2:1 ratio favoring liquidity to select and proportion contracts that were both economically relevant and easily accessible for investors.[10][9] This approach incorporated five-year historical averages for these factors, ensuring the index's structure remained grounded in verifiable market data while adhering to diversification caps, such as limiting any single commodity to no more than 15% of the total weight.[10] The first reweighting took effect in January 2000, introducing a formal annual adjustment process that recalibrated the index's composition based on updated liquidity and production data to maintain its relevance amid evolving market conditions.[10] This update built directly on the 1998 multipliers used at launch, reflecting changes in commodity volumes and output without altering the core diversification rules, and set the precedent for ongoing refinements in the index's early years.[10]Rebranding and Modern Updates
In 2009, amid the global financial crisis and AIG's involvement in related turmoil, the index underwent a significant rebranding when UBS acquired the rights from AIG Financial Products Corp., renaming it the Dow Jones-UBS Commodity Index to reflect the new partnership with Dow Jones & Company.[10] This change ensured continuity for investors while distancing the benchmark from AIG's distressed assets.[4] On July 1, 2014, following Bloomberg L.P.'s acquisition of the index business from UBS, the benchmark was rebranded as the Bloomberg Commodity Index (BCOM), marking Bloomberg's entry as the administrator and emphasizing its focus on enhanced data integration and transparency.[4] Bloomberg fully acquired the index in September 2020, solidifying its role in managing the family of commodity benchmarks.[10] To adapt to evolving market dynamics, BCOM introduced a five-year averaging period for liquidity data in 2019, smoothing annual fluctuations in trading volumes and U.S. dollar values to better reflect long-term market depth in component selection.[10] In April 2024, the methodology added buffer rules for component inclusion, applying a 10% threshold buffer (reducing the removal criteria from 0.4% to 0.36% interim commodity index percentage) to promote stability and reduce frequent turnover amid volatile commodity flows.[12] March 2024 saw the inclusion of Murban Crude Oil futures contracts as a new eligible instrument, providing exposure to Middle Eastern benchmarks alongside Brent and WTI.[13] In July 2024, Bloomberg launched dedicated indices for Cobalt and Lithium, tracking futures on these critical minerals for electric vehicle supply chains, while expanding Aluminum coverage to U.S.-specific contracts.[12][14] For 2025, the annual reconstitution announced on October 31, 2024, confirmed no additions or deletions to BCOM components, maintaining the existing 22 commodities.[5] However, Cocoa met eligibility criteria for the first time, positioning it for potential inclusion in the 2026 review pending sustained performance.[5] On October 30, 2025, the annual reconstitution for 2026 was announced, adding Cocoa as a new component for the first time, bringing the total to 23 commodities, effective January 2026.[15]Overview and Purpose
Definition and Objectives
The Bloomberg Commodity Index (BCOM) is a rules-based, diversified index that tracks the performance of a basket of 24 commodity futures contracts representing 22 physical commodities across six sectors: Energy, Grains, Industrial Metals, Precious Metals, Softs, and Livestock.[16] Its primary objectives are to serve as a broad-based benchmark for commodity market exposure, allowing investors to assess overall trends in the commodity sector while mitigating the risks associated with single-asset investments through inherent diversification.[16][10] The index was launched in 1998 to provide a reliable, liquid measure of commodity performance for institutional and retail investors.[17] Key features include the Excess Return version, which reflects changes in futures prices, and the Total Return variant, which adds the collateral yield from investments in Treasury bills to account for the opportunity cost of holding futures positions.[16][8] Designed with weights determined two-thirds by market liquidity and one-third by global production, the BCOM covers approximately two-thirds of the global commodity futures market by liquidity, emphasizing the most actively traded contracts.[10]Structure and Diversification Rules
The Bloomberg Commodity Index (BCOM) is structured around six primary sectors to provide broad exposure to global commodity markets while maintaining diversification. These sectors include Energy, encompassing commodities such as crude oil and natural gas; Grains, including corn and soybeans; Industrial Metals, such as copper and aluminum; Precious Metals, featuring gold and silver; Softs, which cover coffee and sugar; and Livestock, represented by cattle and hogs. This sectoral breakdown ensures the index captures diverse economic drivers, from energy supply shocks to agricultural cycles and industrial demand.[10] To manage risk and prevent over-concentration, BCOM imposes strict diversification caps applied to target weights. No single commodity may exceed 15% of the index, while the combined weight of a commodity and its close-priced derivatives is capped at 25%. Additionally, no sector or related group can surpass 33%, and each included commodity must maintain a minimum weight of at least 2% (provided sufficient liquidity exists). These rules serve to mitigate volatility from dominant assets, enhance overall portfolio stability, and promote liquidity by favoring tradable contracts suitable for institutional investors. By reflecting broad market dynamics through balanced representation, the caps help the index serve as a reliable benchmark for commodity exposure without undue bias toward any one area.[10][5] The diversification rules are enforced annually during the January rebalancing process, where interim weights are adjusted to align with updated targets calculated from liquidity and production data. This rebalancing occurs on the fourth business day of January, ensuring the index adapts to evolving market conditions while upholding the caps to sustain risk-managed diversification throughout the year.[10]Methodology
Weighting Calculation
The weighting of individual commodities in the Bloomberg Commodity Index (BCOM) is determined annually through a methodology that balances market liquidity and global production data, ensuring diversification and representation across sectors. The core formula for each commodity's Commodity Index Percentage (CIP), which serves as the basis for target weights, is calculated as CIP = (2/3 × Commodity Liquidity Percentage (CLP)) + (1/3 × Commodity Production Percentage (CPP)). This 2:1 ratio emphasizes liquidity to promote investability while incorporating production to reflect economic significance.[18] The CLP measures a commodity's trading activity relative to the broader futures market. It is derived from a five-year average of the most recent available data on the product of trading volume and U.S. dollar value for each designated contract, expressed as a percentage of the total for all contracts across commodities. Data for this calculation is sourced from the Futures Industry Association (FIA), with adjustments applied to London Metal Exchange (LME) volumes divided by three to align with U.S. futures for comparability.[18] In contrast, the CPP captures the commodity's share of global output, using a five-year average of the most recent available world production volumes adjusted by U.S. dollar values, as a percentage of the aggregate for all commodities. Production data is compiled from authoritative sources including the U.S. Department of Agriculture (USDA) for agricultural products, the U.S. Geological Survey (USGS) for metals and minerals, the U.S. Energy Information Administration (EIA) for energy commodities, and the Food and Agriculture Organization of the United Nations (FAOSTAT) for additional agricultural statistics. Derivative commodities, such as cottonseed oil, are excluded, and production is allocated across related sectors using a Commodity Sector Allocation Percentage.[18] Following the initial CIP computation, several adjustments ensure compliance with diversification rules and prevent overconcentration. Interim CIPs (ICIPs) below 0.4% are excluded, with their weight reallocated proportionally to remaining commodities; existing BCOM components receive a 10% buffer, retaining inclusion if above 0.36%. ICIPs are then capped at 33% per commodity group (e.g., energy or metals), with excess redistributed equally among unaffected items in the group while respecting the cap. Sector-level caps limit any single sector to 25% and individual commodities (or paired contracts like Brent and WTI crude) to 15%, with overflows scaled back proportionally across eligible commodities. Gold and silver receive fixed weights equal to their CLPs to prioritize liquidity over production volatility, with any differences reallocated. Commodities with an ICIP-to-CLP ratio exceeding 3.5 are further adjusted downward, and those below 2% are boosted to 2% before final scaling to sum to 100%.[18] For sub-indices and variants, final CIPs are multiplied by Commodity Index Multipliers (CIMs) to derive effective weights. Each CIM is computed as (CIP × 1,000 / Settlement Price) × Adjustment Factor, using prices from the first eligible futures contract on the fourth business day of January (the CIM Determination Date). These multipliers remain fixed for the year, facilitating consistent tracking across BCOM family indices.[18]Futures Contract Rolling
The futures contract rolling process in the Bloomberg Commodity Index (BCOM) serves to maintain continuous exposure to commodity futures without incurring physical delivery obligations, while seeking to minimize the adverse effects of contango—where near-term contracts trade at a premium to deferred ones—and capitalize on backwardation, where the opposite occurs. By systematically shifting positions from expiring near-term contracts to longer-dated ones, the index avoids disruptions at expiration and ensures ongoing liquidity.[18] Rolling occurs monthly over a five-business-day period, typically the 6th through 10th business days of the contract month, with 20% of the exposure transitioned each day to achieve a linear shift. The mechanics involve a weighted average of the lead future (WAV1, the nearest eligible contract) and the next future (WAV2, the subsequent eligible contract), starting at 80% WAV1 and 20% WAV2 on the first roll day, progressing to 100% WAV2 by the end. This is formalized as the daily index value adjustment: BCOM_t = BCOM_{t-1} × [WAV1_t × RW_t + WAV2_t × (1 - RW_t)], where RW_t is the roll weight declining from 0.8 to 0 over the period. Contract months vary by commodity to align with liquidity patterns; for instance, NYMEX natural gas rolls into March, May, July, August, and October contracts, while WTI crude oil targets March, May, July, August, September, October, and December.[18] Roll yield, defined as the price differential between the near-term and deferred contracts expressed on a percentage basis, directly influences index returns during the transition—positive in backwardation as prices converge upward, and negative in contango due to downward convergence.[18] Certain BCOM variants extend the roll period to 10 business days (6th-15th) to further smooth transitions and reduce volatility, particularly in the Bloomberg Commodity Index Total Return variant. In 2024, the addition of the Bloomberg Commodity Murban Crude Oil Index incorporated standard ICE futures calendar rolling, targeting monthly contracts from January through December to track Abu Dhabi-sourced crude exposure.[18][13]Index Calculation and Variants
The Bloomberg Commodity Index (BCOM) is calculated daily as an excess return index, reflecting the performance of a fully collateralized portfolio of commodity futures contracts. The daily excess return is computed as the sum of each commodity's daily price return multiplied by its target weight, based on the prior day's settlement prices from regulated exchanges. This approach ensures the index captures price movements without assuming reinvestment of collateral yields.[10] The formula for the daily excess return DER_t can be expressed as: DER_t = \sum_{i=1}^{N} (r_{i,t} \times w_i) where r_{i,t} is the daily price return for commodity i (calculated as \frac{P_{i,t} - P_{i,t-1}}{P_{i,t-1}}, with P denoting settlement prices), w_i is the target weight for commodity i, and N is the number of commodities. The index level is then updated as BCOM_t = BCOM_{t-1} \times (1 + DER_t).[10][19] A total return variant, known as the Bloomberg Commodity Total Return Index (BCOMTR), incorporates the yield from collateral invested in 91-day U.S. Treasury bills. This variant is calculated as BCOMTR_t = BCOMTR_{t-1} \times (1 + DER_t + TBD_t), where TBD_t represents the daily Treasury bill yield, derived from the 13-week U.S. Treasury bill auction rates. The total return accounts for both commodity price changes and interest income, providing a more complete measure of returns for fully funded positions.[10] BCOM offers several variants and sub-indices to meet diverse user needs, including sector-specific sub-indices such as the BCOM Energy Subindex, which tracks energy commodities like crude oil and natural gas. The equal-weight variant (BCOMEW) assigns identical weights to all components, reducing concentration risk compared to the production- and liquidity-weighted parent index. Specialized sub-indices include the BCOM Murban Crude Oil Index, launched in March 2024 to track the performance of Murban crude oil futures traded on the Intercontinental Exchange.[10][20] Real-time data for BCOM calculations is sourced from Bloomberg Professional terminals, drawing on settlement prices from major futures exchanges like NYMEX and ICE. Historical data extends back to 1960 through back-testing, with interpolation applied for periods prior to 1998 where complete futures data was unavailable, ensuring consistency in long-term performance analysis.[19][10] Rebalancing for BCOM occurs annually, with target weights updated at the end of January based on the latest liquidity and production data; these changes take effect on the first trading day of February. This timing aligns with the index's rules to maintain diversification while incorporating market developments from the prior year.[10][18]Components and Weights
Included Commodities
The Bloomberg Commodity Index (BCOM) consists of 24 exchange-traded futures contracts representing 22 physical commodities, diversified across six sectors to provide broad exposure to the commodity markets. These components are selected based on liquidity and production criteria, with no application of ESG screening in the selection process. The contracts are traded on major exchanges including NYMEX, ICE, LME, COMEX, CME, CBOT, and KCBOT.[18]Energy Sector
The Energy sector includes six contracts, focusing on key oil, refined products, and natural gas benchmarks that reflect global energy supply dynamics.- WTI Crude Oil (NYMEX): Represents light sweet crude oil produced in the United States, serving as a primary benchmark for North American oil pricing and hedging against supply disruptions.[18]
- Brent Crude Oil (ICE): Tracks North Sea Brent crude, a global benchmark for international oil prices, influencing pricing for over two-thirds of the world's traded oil cargoes.[18]
- Natural Gas (NYMEX): Based on Henry Hub natural gas deliveries in Louisiana, it provides exposure to U.S. natural gas markets, used for heating, electricity generation, and industrial applications.[18]
- RBOB Gasoline (NYMEX): Covers reformulated gasoline blendstock for oxygen blending, reflecting U.S. retail gasoline prices and demand from transportation fuels.[18]
- ULS Diesel (NYMEX): Tracks ultra-low sulfur diesel, a key heating oil and transportation fuel in the U.S., sensitive to winter demand and refining capacity.[18]
- Low Sulphur Gas Oil (ICE): Represents low sulfur gas oil used primarily in Europe for diesel fuel, capturing regional refining and import trends.[18]
Precious Metals Sector
This sector features two contracts on bullion metals, valued for their roles as stores of value and inflation hedges.- Gold (COMEX): Futures on gold bullion, providing exposure to the safe-haven asset used in jewelry, investment, and central bank reserves.[18]
- Silver (COMEX): Covers silver bullion, which serves industrial uses in electronics and solar panels alongside investment demand.[18]
Industrial Metals Sector
Comprising five contracts, this sector tracks base metals essential for manufacturing, construction, and infrastructure.- Aluminum (LME): High-grade primary aluminum futures, reflecting production from bauxite and demand in automotive, packaging, and aerospace industries.[18]
- Copper (COMEX): Grade A copper cathode, a key indicator of global economic health due to its use in wiring, plumbing, and electronics.[18]
- Lead (LME): Standard lead ingots, utilized in batteries, radiation shielding, and ammunition.[18]
- Nickel (LME): Primary nickel for stainless steel and battery production, linked to electric vehicle and alloy demand.[18]
- Zinc (LME): Special high-grade zinc, primarily used for galvanizing steel to prevent corrosion in construction and automotive sectors.[18]
Livestock Sector
The two contracts in this sector provide exposure to U.S. meat production and protein supply chains.- Live Cattle (CME): Futures on live cattle ready for slaughter, hedging risks in beef production and feedlot operations.[18]
- Lean Hogs (CME): Tracks lean hogs for pork processing, reflecting swine farming costs and consumer demand for pork products.[18]
Grains Sector
This sector includes six contracts across five commodities, emphasizing staple crops for food, feed, and biofuel uses.- Corn (CBOT): Corn futures, a major U.S. crop for ethanol, animal feed, and food processing.[18]
- Soybeans (CBOT): Whole soybeans, key for oil extraction, meal production, and global export markets.[18]
- Soybean Meal (CBOT): Soybean meal byproduct, primarily used as high-protein livestock feed.[18]
- Soybean Oil (CBOT): Refined soybean oil, employed in cooking, biodiesel, and industrial applications.[18]
- Wheat (Chicago SRW, CBOT): Soft red winter wheat, suited for baking and milling into flour.[18]
- Wheat (KC HRW, KCBOT): Hard red winter wheat, valued for bread-making due to its higher protein content.[18]
Softs Sector
The three contracts cover tropical agricultural products influenced by weather and trade flows.- Coffee "C" (ICE): Arabica coffee beans from Central and South America, hedging against volatile harvest yields.[18]
- Cotton No. 2 (ICE): Upland cotton, the dominant variety for textiles and apparel manufacturing.[18]
- Sugar No. 11 (ICE): World raw centrifugal sugar, a benchmark for global sugar trade and refining.[18]
Annual Target Weights for 2025
The Bloomberg Commodity Index (BCOM) annual target weights for 2025 were announced on October 31, 2024, and became effective in January 2025, with no changes to the index's commodity composition.[5][7] These weights reflect adjustments based on production and trading liquidity data, adhering to BCOM's diversification rules that cap any single group at 33% and any commodity (including derivatives) at 15%.[7] At the group level, Energy remains the largest allocation at 30.01%, a slight decrease from 30.13% in 2024.[7] Precious Metals saw a marginal decline to 18.78% from 18.82%, while Industrial Metals dropped to 15.12%—its lowest weight since the index's inception in 1991.[5][7] In contrast, Grains increased modestly to 23.15% from 23.10%, Softs rose to 7.61% from 7.35%, and Livestock edged up to 5.33% from 5.25%.[7] The following table summarizes the 2025 target group weights alongside 2024 figures for comparison:| Group | 2025 Weight | 2024 Weight | Change |
|---|---|---|---|
| Energy | 30.01% | 30.13% | -0.12% |
| Grains | 23.15% | 23.10% | +0.05% |
| Precious Metals | 18.78% | 18.82% | -0.04% |
| Industrial Metals | 15.12% | 15.35% | -0.23% |
| Softs | 7.61% | 7.35% | +0.26% |
| Livestock | 5.33% | 5.25% | +0.08% |
Performance and Applications
Historical Performance Metrics
The Bloomberg Commodity Index (BCOM) has delivered an average annual excess return of approximately 4-5% since its launch in 1998, reflecting the performance of commodity futures prices net of collateral yields, while the total return version, which includes collateral returns from Treasury bills, has averaged around 6-7% annually over the same period.[22] This long-term performance underscores the index's role as a diversification tool, though it has varied significantly due to commodity market cycles driven by supply disruptions, geopolitical events, and macroeconomic shifts. Volatility, measured as annualized standard deviation, has typically ranged from 15-20%, with a notable low correlation to equities of about 0.3, providing ballast during stock market downturns.[23][24] Key performance periods highlight the index's sensitivity to global events. In 2007, amid rising demand and pre-crisis commodity boom, BCOM recorded a spot return of 25.3%, with total return of 16.2% when including collateral.[22] Conversely, the 2008 financial crisis triggered a sharp decline, with spot returns at -28.9% and total returns at -35.6%, marking a maximum drawdown of around -40% from peak to trough in 2008-2009. The 2014-2016 period saw negative performance due to the oil price crash, with annual spot returns of -17.0% in 2014 and -18.4% in 2015, followed by a partial recovery of 23.1% in 2016 spot returns, though total returns were tempered by roll yields. In 2022, amid energy shortages and inflation pressures, the index surged with total returns of 17.5%, driven primarily by energy and metals components.[22][22][22][25] Risk-adjusted metrics further illustrate BCOM's profile, with historical Sharpe ratios ranging from 0.3 to 0.5 for total returns over multi-year periods, balancing modest returns against elevated volatility. The index experienced its deepest historical drawdown of approximately -59% starting in 2008, lasting over a decade before recovery, emphasizing the importance of roll yield impacts during contango-heavy environments. As of November 17, 2025, BCOMTR has posted year-to-date gains of approximately 14.4%, propelled by strength in industrial metals and energy amid supply chain recoveries, though full-year 2025 data remains subject to year-end commodity dynamics.[26][23][1][27]| Key Period | Spot Return (%) | Total Return (%) | Notable Drivers |
|---|---|---|---|
| 2007 | 25.3 | 16.2 | Pre-crisis demand boom[22] |
| 2008-2009 | -28.9 (2008) | -35.6 (2008) | Financial crisis collapse[22] |
| 2014-2016 | -17.0 (2014), -18.4 (2015), 23.1 (2016) | -17.0 (2014), -24.7 (2015), 11.8 (2016) | Oil crash and recovery[22] |
| 2022 | N/A | 17.5 | Energy inflation surge[25] |
| 2025 (YTD Nov 17) | N/A | 14.4 | Metals and energy gains[27] |