Industry Updates

BlackRock switches index on commodity roll ETF to increase diversification

ROLL will soon track futures of an additional five commodities

Jamie Gordon

Commodities table

BlackRock will broaden the scope of its commodity roll ETF by switching its underlying index, investment objective and name, ETF Stream can reveal.

Effective 1 February 2022, the iShares Bloomberg Roll Select Commodity Swap UCITS ETF (ROLL) will switch from tracking the Bloomberg Roll Select Commodity Total Return index to the Bloomberg Enhanced Roll Yield Total Return index.

The benchmark change follows an extraordinary general meeting (EGM) hosted in Dublin on 10 December, in which ROLL investors voted in favour of the resolution. 

ROLL’s current index tracks futures contracts on 21 commodities spanning energy, agriculture, industrial metals, precious metals and livestock. For each, the index rolls into futures showing the most backwardation or least contango, with nine months or fewer until expiry.

Launched in June, ROLL’s incoming benchmark seeks to lessen the traditional trade-off between liquidity and performance, reduce roll congestion and mitigate the effects of negative carry by using three or four equal-weighted contracts for each commodity, Bloomberg said.

Its annually rebalanced basket contains futures on 26 commodities which based on the index’s 2021 target weightings means ROLL will gain new exposures to ultra-low sulphur diesel, lead, tin and feeder cattle.

Commenting on the decision, a BlackRock spokesperson told ETF Stream: “The rationale for changing the benchmark is to deliver an improved solution for clients looking to gain long-only, liquid, diversified exposure to commodities.

“The new index has more commodities and a different weighting and futures rolling methodology to the old benchmark. The index was designed in collaboration with Bloomberg.

“Over time, we expect it to deliver superior returns whilst maintaining similar risk and correlation characteristics to the old benchmark.” 

Offering support for this prediction, the enhanced roll yield index booked better backdated performance versus the select commodity benchmark over the past two decades.

chart, histogram

Source: Bloomberg

This change to ROLL comes two months after BlackRock partnered with MSCI to incorporate the EU’s Climate Transition Benchmark (CTB) into its $9bn ESG enhanced ETF range.

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