Commodities guru Jim Rogers has started an index that tracks the performance of companies that deal in commodities instead of the commodities themselves.
Rogers — who frequently points to studies that show investors make 300 percent more by buying commodities rather than commodities stocks — has teamed with Van Eck and S-Network indexes to launch the Rogers Van Eck Hard Asset Producers Liquid Index (RVE).
"If you find the right company, it's a good investment," Rogers says. "Whether we are industrialists or simple people, we all consume. Consumption is what makes the world go round."
Finding the right company is what the new index is about, according to Van Eck Global Executive Vice President Jan Van Eck.
"There's been a lack of a good benchmark for commodity equities," Van Eck says. "As a benchmark, RVE is a better way to evaluate how a manager is doing. You need an accurate index to capture that return."
Because it holds equities, RVE gives investors access to solar, water, and wind commodities unavailable in any other way.
"With the high prices of energy around the world, other sources of energy are being discovered and used," Rogers says. "We would be pretty remiss if we did not include those sources of energy."
The new index — derived from more than 900 commodity producers — classifies companies into six sectors: energy, agriculture, base/industrial metals, precious metals, alternative energy and water, and paper and forest products.
Within the sectors, the equities are weighted based on float-adjusted market cap. The index normalizes global consumption into U.S. dollars and rebalances to sector weightings quarterly.
"Energy has a 41 percent weighting in the index," explains Joseph LaCorte, vice chairman, S-Network. "If Exxon had a 10 percent weighting inside the energy sector, it would have a 4.1 percent weighting in the index."
At least half of a company's annual sales must come from the production or distribution of hard assets or related products and services.
However, companies that provide goods or services that help produce commodities are also eligible. For instance, Monsanto — which holds the top spot in the index with a weighting of 4.58 percent — supplies seed and fertilizer but doesn't actually grow corn or cotton.
The 310 stocks listed account for nearly 15 percent of the world's total stock market capitalization.
S-Network will also publish five related indexes: The RVE Hard Assets Producers Composite, the RVE Hard Assets Producers Liquid Index of 50 Stocks, the RVE Energy Producers Index, the RVE Agricultural Producers Index, and the RVE Metals Producers Index.
"We think the bull market in commodities still have a long way to go, especially when you look at growth rates in China, India, the Middle East, North Africa, and throughout most of the developing world, where demand for just about every commodity is rising at unprecedented rates," Rogers says.
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