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LSC Commodity ETN Tries to Minimize Risk

The Rydex Managed Futures Strategy Fund (RYMFX), which was launched a little over a year ago, has lived up to its billing since inception, as the chart below shows.

RYMFX goes long and short various commodity and financial futures based on technical indicators, with the intention of providing an absolute return without much correlation to the to U.S. stock market.


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Source:

There is now a similar product in the exchange-traded arena with the ELEMENTS Linked to the S&P Commodity Trends Indicator Total Return (LSC). The index underlying LSC has fixed allocations to energy 37.5%, grains 23.00%, precious metals 10.50%, industrial metals 10%, livestock 10% and softs (things like coffee, cocoa and sugar) 9%.

In looking at the chart of the 16 subsector breakdown, based on the index's technical method, it will either be long or short the 2% weight, for example, to cocoa.


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Source:

Similar to RYMFX, when technical conditions call for shorting energy, the index will instead have no position -- this is a means for reducing volatility because the oil market can be prone to upward price shocks due to geopolitical concerns in a manner that is not common with other commodities.

The index will go long "when a sector's current price is equal to or greater than an exponential average of the past seven monthly price inputs." It will go short, or flat in the case of energy, when the current price is less than the seven month exponential average.

Coincidentally, the strategy behind RYMFX also focuses on a seven-month moving average, though RYMFX uses it slightly differently.

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