New Rogers Index

Jim Rogers has put his name on a new index that is a joint venture between CITIC Carbon Assets Management from Hong Kong and Banco Bilbao Vizcaya Argentaria that will be called the Rogers Global Resources Equity Index. It will own equities in energy, agriculture, forestry, mining and alternative energy. I was not able to find any real composition detail anywhere, the industry information came from an appearance that Jim made on Asia Squawk Box on Monday morning.

The only other detail item I could was that it has 200 constituents. It could have some utility as being a unique index if each of the five industries have an equal weight or somehow weighting is modified to avoid Exxon Mobil (XOM), BP and BHP Billiton (BHP) dominating the fund.

The announcement of this index addresses a point I’ve been thinking about lately which is whether it makes sense to combine energy and basic materials into one sector called resources (or any other suitable name). From the end user standpoint it can make portfolio construction a little easier. The two sectors add up to 16.5% of the S&P 500 so as is, anyone building at the sector level would probably need to make one decision about how to weight energy and another about how to weight basic materials. Obviously if they were blended into one sector there would be only decision to a make on sector weighting.

A little deeper there then are decisions about how to build each sector. Within the materials sector there are many themes or niches to consider like platinum miners in South Africa, fertilizer companies from all over, chemical companies, cement companies, quite a few things in Australia, rare earths, molybdenum miners, quite a few things in Canada, quite a few things in Latin America and still there are more. That is a long list for 3.5% (the sector’s weight in the SPX) of a portfolio. It would still be a lot even if you doubled up to 7%.

With energy there are mega cap integrated oil companies, exploration and production, oil service, coal companies, uranium companies, geothermal and again there are others but they fit in a little easier into energy’s 13%.

The biggest obstacle, well maybe it is not an obstacle, is that the two sectors don’t correlate as highly as I would of thought. I plugged in several related energy and materials funds (XLE and XLB for example) into ETFReplay’s correlation tool and for each one I looked at they each correlated closer to SPY than to each other and I’m not sure if that is a positive or a negative–obviously it is not a obstacle for this new Rogers index or a couple of other ETFs that don’t get too much attention or volume like the Jefferies TR/J CRB Global Commodity Equity Index Fund (CRBQ).

If the idea of combining the two sectors together does hold water then it helps make portfolio construction a little more efficient where building at the sector level is probably appropriate but maybe not with multiple holdings for each sector.

3 Comments

  1. “It’s not clear whether Ben Bernanke will be successful in promoting a third bubble in credit, but it seems more likely that the Fed’s interventions have done little except to defer the full resolution of the bubble we already had. Personally, I believe that the Fed’s existing policies have set the financial markets up to experience persistent disruptions in the years ahead, so for all intents and purposes, he might as well have created a full scale bubble – the outcome for investors appears likely to be the same.”

    Hussman was good this week. The open letter was also a good read

    Reply
  2. Cool correlation tool! Thanks for sharing.

    Reply
  3. Roger,

    How can the Egypt Vectors ETF (EGPT), down 5% just today, continue to trade when the Egyptian stock exchange has been closed during the unrest and is not scheduled to open until Sunday? Just curious.

    Reply

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New Rogers Index

Jim Rogers has put his name on a new index that is a joint venture between CITIC Carbon Assets Management from Hong Kong and Banco Bilbao Vizcaya Argentaria that will be called the Rogers Global Resources Equity Index. It will own equities in energy, agriculture, forestry, mining and alternative energy. I was not able to find any real composition detail anywhere, the industry information came from an appearance that Jim made on Asia Squawk Box on Monday morning.

The only other detail item I could was that it has 200 constituents. It could have some utility as being a unique index if each of the five industries have an equal weight or somehow weighting is modified to avoid Exxon Mobil (XOM), BP and BHP Billiton (BHP) dominating the fund.

The announcement of this index addresses a point I’ve been thinking about lately which is whether it makes sense to combine energy and basic materials into one sector called resources (or any other suitable name). From the end user standpoint it can make portfolio construction a little easier. The two sectors add up to 16.5% of the S&P 500 so as is, anyone building at the sector level would probably need to make one decision about how to weight energy and another about how to weight basic materials. Obviously if they were blended into one sector there would be only decision to a make on sector weighting.

A little deeper there then are decisions about how to build each sector. Within the materials sector there are many themes or niches to consider like platinum miners in South Africa, fertilizer companies from all over, chemical companies, cement companies, quite a few things in Australia, rare earths, molybdenum miners, quite a few things in Canada, quite a few things in Latin America and still there are more. That is a long list for 3.5% (the sector’s weight in the SPX) of a portfolio. It would still be a lot even if you doubled up to 7%.

With energy there are mega cap integrated oil companies, exploration and production, oil service, coal companies, uranium companies, geothermal and again there are others but they fit in a little easier into energy’s 13%.

The biggest obstacle, well maybe it is not an obstacle, is that the two sectors don’t correlate as highly as I would of thought. I plugged in several related energy and materials funds (XLE and XLB for example) into ETFReplay’s correlation tool and for each one I looked at they each correlated closer to SPY than to each other and I’m not sure if that is a positive or a negative–obviously it is not a obstacle for this new Rogers index or a couple of other ETFs that don’t get too much attention or volume like the Jefferies TR/J CRB Global Commodity Equity Index Fund (CRBQ).

If the idea of combining the two sectors together does hold water then it helps make portfolio construction a little more efficient where building at the sector level is probably appropriate but maybe not with multiple holdings for each sector.

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