iShares, the exchange-traded funds platform of BlackRock, has launched a new futures-based commodity ETF that aims to smooth out the effects of contango - a term which describes when a futures price of a commodity is above the expected future spot price.

The iShares Dow Jones-UBS Roll Select Commodity Index Trust is based on the Dow Jones-UBS Roll Select Commodity Index, which currently tracks 22 commodities futures contracts, including agriculture, energy and metals, the firm said in a statement.

When a market moves into a contango phase, it means people are willing to pay more for the commodity at some point in the future rather than paying towards the costs of buying the commodity today.

For each commodity, the iShares index rolls into the futures contract that shows the least contango effect, or the most backwardation (a term which is the opposite of contango), selecting from those contracts with nine months or fewer until expiration.

“Many investors look to commodities to diversify beyond stocks and bonds, but when investing in commodity funds that typically hold futures contracts, the buying and selling of contracts can detract from fund performance. By using an innovative index, the iShares Dow Jones-UBS Roll Select Commodity Index Trust seeks to minimize the costs of changing or rolling futures contracts, enabling the it to ultimately provide investors efficient access to diversified commodities,” said Ravi Goutam, head of Americas Product for iShares at BlackRock.