Alpha commodity indexes: a sustainable source of absolute returns?

Investor interest in alpha commodity index products has surged over the past year and banks are hard at work creating more of them. Can these exotic new instruments really provide a sustainable source of absolute return? And is the market getting too crowded? Alexander Osipovich reports

In the beginning, things were simple when it came to index products. Back in 1991, Wall Street bankers created the Goldman Sachs Commodity Index (now called the S&P GSCI) to track the prices of a basket of 24 commodities. In the years that followed, the financial industry produced a wide array of products linked to the S&P GSCI that allowed investors to get exposure to commodity prices without having to hold physical barrels of oil, bushels of wheat and so on. Academics, fund managers and