Chartered Financial Analyst Level 2

Explanation

Maximizing backwardation would most likely result in the highest return for commodity indexes.

Why backwardation maximizes returns:

• Backwardation occurs when futures prices are lower than spot prices
• For long positions, this creates positive roll yields
• When rolling contracts, you sell high and buy low
• This generates additional returns beyond price appreciation

Why contango reduces returns:

• Contango occurs when futures prices are higher than spot prices
• For long positions, this creates negative roll yields
• When rolling contracts, you sell low and buy high
• This reduces overall returns

Note: Options B and C are identical in the text (both say "Maximizing backwardation"), but the correct principle is that maximizing backwardation leads to higher returns due to positive roll yields.

Therefore, B: Maximizing backwardation (or C, which is identical) would most likely result in the highest return.