Next-Generation Commodity Benchmarks : RASA TM Benchmarks Designed to Align with CIO Investment Objectives

Investors can construct commodity benchmarks better aligned with their investment objectives. This is important because common “plain-vanilla” benchmarks, constructed to mimic relative production activity, may be inconsistent with a CIO’s objectives.CIOs can use the Real Asset Sensitivity Analysis (RASA TM) framework to construct a benchmark that meets a desired investment objective (target an inflation or growth beta) while accounting for beta estimation uncertainty. To do so, investors specify a desired inflation or growth exposure, at a given investment horizon, then construct a RASA benchmark using individual commodity futures indices. Such benchmarks not only would have delivered better risk-adjusted performance historically, compared to traditional commodity benchmarks, but would have been better aligned with investors’ investment objectives.Today’s index technology enables a CIO to construct a RASA commodity benchmark, with independent third-party calculation and reporting, to track the commodity exposure that better matches their investment objectives. We illustrate how this can be done using our portfolio construction methodology