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By Jim Wiederhold
Except for intermittent fasting groups or keto dieters who tend to skip it, breakfast is considered by many to be the most important meal of the day. Now, there is a reliable and publicly available benchmark for the performance of the most liquid commodities typically consumed at breakfast. The S&P GSCI Dynamic Roll Breakfast (OJ 5% Capped) is a global production-weighted index offering another example of thematic ways to look at commodities allocations within portfolios. A liquidity-based allocation to orange juice (OJ) has been incorporated into the index construction because breakfast without OJ is like a day without sunshine. With a three-year annualized total return of 20.15%, the performance has outpaced broad equities, other asset classes and even the market standard commodities benchmark, the S&P GSCI, by 5% annualized. If breakfast commodities were its own commodities sector, it would have been the second-best performing over the past three years (see Exhibit 1).
The heavy agriculture weighting of the index, at roughly 90%, is the clear main driver of performance for breakfast. Not forgetting bacon, lean hogs currently have a weight of about 10% to round out the theme. Corn and wheat make up the bulk of the index because these two breakfast commodities are by far the most produced and consumed commodities around the world; roughly two billion tons of corn and wheat are produced each year in total. The other commodities are much smaller, and this is reflected in the current percentage weights as of the end of April (see Exhibit 2).
A growing concern among central bankers regarding food inflation serves to highlight the importance of agricultural commodities to the global economy from both a societal and environmental perspective. This new index may offer a way of gaining exposure to themes such as inflation and geopolitics. The Ukraine-Russia conflict is disrupting global food and energy supplies to an unprecedented degree. A prime example is the tightening global wheat supply picture. Ukraine is considered Europe’s breadbasket and roughly one-third of global exports of wheat come from the Ukraine/Russia region. Wheat exports out of the Black Sea have been strained over the past few months as the conflict continues. Global wheat prices have skyrocketed, and with the high weighting in the breakfast index, wheat was an important driver in the solid performance. In response to the geopolitical tensions and persistent supply chain bottlenecks, food protectionism is returning to the fore. For example, plans by India, the world’s largest exporter of sugar, to restrict exports to prevent a surge in domestic prices could put additional pressure on global sugar supplies.
Finally, the S&P GSCI Dynamic Roll Breakfast (OJ 5% Capped) employs a flexible monthly futures rolling strategy designed to alleviate the negative impact of rolling into contango and potentially limit volatility exposure to the commodities market. With its global focus, this new thematic index demonstrates our continued efforts to bring replicable and investable commodities-based benchmarks to a public audience.
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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
