Company: EDHEC-Risk Institute
Published: 04 December 2012
Given recent proliferation of indices, this review is of importance as it has become increasingly puzzling for investors to choose a specific index. Long-only second generation indices, which attempt to minimize the harmful impact of contango on performance and use active long-only signals based on momentum or roll-yields, are found to outperform their first generation counterparts. Third generation indices fare even better as they accurately buy backwardated assets and short contangoed ones, thereby reducing overall volatility. This raises the question as to whether these indices are serious contenders to commodity trading advisors who merely replicate strategies based on momentum or term structure.