The BCI Methodology:
- Invests in exchange-traded futures contracts, offering transparency and liquidity
- Sets maximum and minimum allocation targets to preserve broad diversification
- Reduces transaction costs through a proprietary transaction-minimizing strategy
- Provides multiple sources of return and risk control by uniquely combining four return factors:
Dynamic Asset Allocation
The algorithm-based model increases commodity exposure when prices rise and reduces exposure when prices decline. The model employs clearly defined rules to control both the minimum and maximum levels of exposure by sector and by individual commodity.
Daily Roll
The daily rolling of commodity exposure from front month to next-out futures contracts seeks to generate roll return and increase the potential for favorable pricing while smoothing price volatility.
Beta
The beta factor provides broad-based exposure to the diversification benefits and potential profit opportunities of a commodity investment.
Cash
In declining commodity markets, underlying commodity market exposure is reduced and the cash position increased.
Prudential Bache currently offers four proprietary investment strategies:
- The Bache Commodity Index - BCI methodology applied to 19 commodities for broad-based long-only exposure
- The Bache Commodity Select Index - BCI methodology applied to 10 commodities for smaller investments and concentrated exposure
- The Bache Commodity Long/Short Index - BCI methodology applied to 19 commodities with the ability to take short positions
- The Bache Commodity Green Strategy - BCI methodology employed while providing exposure to sustainable energy and clean air materials