The L&G Multi-Strategy Enhanced Commodities UCITS ETF provides broad commodity exposure, but the strategy departs materially from a conventional front-month commodity index. It retains the Bloomberg Commodity Index universe, while modifying both contract selection and commodity weights in an attempt to improve the economics of holding futures.
For individual commodities, futures maturities can be selected using one of three rules: roll yield, momentum or seasonality. The roll-yield approach selects the contract offering the most favourable implied roll within the next nine months; the momentum approach selects the maturity that has historically outperformed the nearby contract most strongly; and the seasonal approach targets predetermined maturities where seasonal effects are considered relevant.
Portfolio weights are also dynamic. Starting from Bloomberg Commodity Index weights, the methodology increases allocations to the ten commodities exhibiting the strongest backwardation and scales down the remainder. Commodity-group caps are then applied, with the largest group limited to 33%.
The result is still fundamentally long-only commodity exposure, but with an additional systematic return engine coming from where along the futures curve exposure is taken and how capital is allocated across commodities. The index is rebalanced monthly, while the ETF itself obtains the index return synthetically through unfunded total return swaps backed by collateral.