The launch of the commodity indexes must be seen as a "coming of age" moment for commodities among the individual investor set. Once the domain of institutional investors, commodities have been democratized by the launch of exchange-traded funds and other low-cost access vehicles, and now have become part of the broader investing discussion. If Morningstar has set its sights on an asset class, it must clearly be hearing about it from its constituents.

So what are these new indexes?

Interestingly, the Morningstar Commodity Indexes take a different approach from most popular commodity futures indexes, in that they come in five unique flavors: long only, short only, long/short, long/flat and short/flat.

The long- and short-only indexes are exactly what they sound like: they take long and short positions, respectively, in each of the 20 commodities that are included in the indexes. The short index is the first major index to track the performance of a short strategy in the commodities market.

The other indexes, however, are more strategic, reflecting different ways that commodity investors play the commodities futures market. The long/short index uses a momentum rule to determine on a monthly basis if it will hold long, short or flat positions in each commodity. The long/flat index doesn't go short, while the short/flat index doesn't go long. Each represents a different approach to the market.

"A combination of long and short positions can allow investors to take advantage of the momentum that commodity futures prices often exhibit," said Sanjay Arya, director of Morningstar Indexes.  "We've created passive long-short, long-flat, and short-flat commodities indexes to increase the options available to investors and to serve as benchmarks for active managers."

The momentum rule that determines the long and short positions rely on a 12-month moving average of a commodity's linked price, which includes both price changes and roll yield. If the commodity's price is above its moving average, i.e., if the commodity is performing well, a long position is taken; if the price is below the moving average, the index goes short.

The only exception to this rule is the energy sector, where the index doesn't short. This echoes a handful of other commodities strategies, such as the S&P DTI, which refuse to take short positions in oil. The reason given is that oil is subject to huge risks from geopolitical spikes unrelated to the underlying supply and demand.

The index is reconstituted annually, but rebalanced on a monthly basis.

The Morningstar indexes are unique in comparison with the major existing commodity index families. Most obviously, the S&P/Goldman Sachs Commodity Index, the Dow Jones AIG Commodity Index, the Deutsche Bank commodity indexes and the Reuters/Jefferies CRB indexes are all long-only indexes. The indexes also cap individual component commodities at 10% of the index, which limits the exposure in particular to crude oil. As a result, the energy sector has a significantly lower weighting in the Morningstar indexes, at 39.3%, compared to the popular S&P GSCI, which is 71% energy. Morningstar's energy weighting is more in line with the DJ-AIG (33%) and Reuters CRB (39%). The Deutsche Bank commodity index weights energy at slightly more than 50%.

Further, the Morningstar indexes weight metals at 38.4%, higher than any of the other indexes; only the Reuters/Jefferies CRB index comes remotely close with a 34% weighting, while the S&P GSCI index weights metals at about 11%.

Agriculture earns a light 13.9% weight in the Morningstar indexes, similar to the S&P GSCI's 13.5% weighting. The other indexes give the sector a weight of at least 20%. Livestock has an 8.4% weighting in the Morningstar indexes; meanwhile, Deutsche Bank's index doesn't even include the sector, and the DJ-AIGCI is the only one that has a heavier weighting (10.45%).

With its major competitors offering just long-only indexes, Morningstar is definitely breaking into new territory with its strategic approach. Other index providers do offer strategic indexes-the aforementioned S&P DTI uses (in part) a commodity rotation strategy, and other index providers like Goldman Sachs have introduced indexes that tweak the roll yields with performance in mind.

Those efforts, however, have been designed with an eye on delivering performance. In contrast, Morningstar's products are designed to help evaluate the performance of commodity managers. Of course, that doesn't mean we don't expect index-linked commodity products to launch on these indexes in the near future...