Characteristics of Commodity Indices

Investors often seek exposure to commodities for diversification and inflation hedging. Commodity indices are important tools used in this context, representing a basket of various commodities. One of the most common types of commodity indices is the strategy based on liquidity and market capitalization of individual commodity futures.

In analyzing commodity indices, it’s crucial to understand the different methodologies employed to construct these indices. Some indices are price-weighted, while others may be equally weighted or based on production levels. The choice of index can significantly influence investment performance and risk exposure.

Which of the following statements most accurately describes a primary characteristic of commodity indices in their composition?