Squezzing a Little More Out of Commodities – Earning Alpha from the Thomson Reuters/Jefferies CRB Index

Abstract

In this paper we use a common commodities benchmark – the Thomson Reuters/Jefferies CRB index - to construct alpha indices. We constrain the alpha indices based upon the current CRB methodology, e.g. cardinality and turnover, with one important difference – we let the commodity allocation change from month-to-month versus the current methodology’s fixed allocation. The results of our two alpha indices – one using a robust MVO (RMVO) and the other a kurtosis versus mean return optimization (MKO) – show either similar risk-adjusted returns and higher non risk-adjusted returns (RMVO) or higher returns and higher risk-adjusted returns (MKO).