Sugar and soymeal appear to have been treated far worse by the index fund rebalancing than investors had expected- and Chicago grains far better.
Funds which track the S&P GSCI and DJ UBS agricultural commodities indices once a year, in early Janauary, rejig their portfolios to return weightings back to those of the index they follow.
This means selling top performers of the previous year, whose weighting will have increased beyond mandated levels, and buying laggards, which will have been left underrepresented.
The funds also adjust to changes the indices might introduce to their make-up. The DJ UBS index, for instance, ramped up its exposure to Kansas wheat and soymeal during the rebalancing, but cut its weightings for Chicago soybeans and wheat.
The process expected to bring some $1.5bn into soft commodities, but remove $700m from livestock futures and $1.3bn from grains and oilseeds
Closer to expectations
Regulatory data for the weeks to January 15, a period which pretty much matches the rebalancing timetable, suggest that index funds adjusted positions in many commodities in line with investors' expectations, as calculated from the indices' published weightings rejig.
Index funds' net long in New York cocoa futures, for instance, showed a small decline, according to the Commodity Futures Trading Commission (CFTC), as had been expected, according to Morgan Stanley calculations.Regulatory data, on coffee, feeder cattle and lean jogs too tallied with expectations.
... and out of whack
However, in sugar, index funds raised their net long holding by some 11,000 lots fewer than expected, and in Kansas wheat by more than 7,000 contracts.
In soymeal, index funds appear to have cut their net long position by 3,800 lots, according to data supplied by Rabobank compared a forecast increase in their net long position of more than 50,000 lots.
But index funds proved more generous than expected in corn, for which the net long was raised well above expectations, while cutting their holding in Chicago wheat less than forecast.
'Murky'
The discrepancies may be in part down to the CFTC data available including both futures and options, while the indices are composed only of "exchanged-traded futures contracts".
However, they also stoke the idea of a process which is more difficult to forecast, especially in its price impact, than might be thought.
Morgan Stanley ahead of the rebalancing cautioned that the price impact of the process is "murky".
