It's never been easy for index investors. For one thing, there are financial advisors decrying investors' settling for "average" returns. As if it's not bad enough having money managers nattering them, now Congress wants to take it out of investors' hides as well.

In hearing rooms on both sides of the Capitol rotunda, commodity index investors are being pilloried by witnesses and legislators alike for pushing commodity prices - most particularly oil prices - higher.

Or so the argument goes. Long-only index funds, say critics, are indiscriminate buyers of commodity futures, snapping up contracts at whatever prices are necessary to put all of their capital to work. This price insensitivity, it's said, excessively bids up the cost of commodities like corn and oil.

But is that really so? Do index investors deserve such blame?

It's easy to see why legislators might think so. After all, oil prices picked up the pace of their northward gallop at about the same time exchange-traded commodity index funds - the focal point of so much Congressional vituperation - hit the market.

Funds based upon the S&P Goldman Sachs Commodity Index (S&P GSCI) and the Deutsche Bank Liquid Commodity Index (DBLCI) were launched in 2006. Owing to their large weightings in crude oil - now 55% for the S&P GSCI fund and 35% for the one based upon DBLCI - critics said they were nothing more than oil index funds in disguise. To make matters worse, exchange-traded funds and notes based exclusively on oil futures were also floated in 2006.

For a time, the carpers' fears might have seemed justified. There was a direct link between oil prices and long speculation. Between January 2006 and January 2007, the price of NYMEX spot futures and the size of the net long interest held by large speculators - where index funds would be counted - rose and fell apace. (Open interest represents the number of contracts awaiting liquidation or delivery, a measure of supply analogous to shares outstanding in the stock market.) The correlation between price and net long interest, at 78%, was, in fact, quite strong.

In 2007, though, the connection between long speculative interest and price fell apart. NYMEX crude advanced to dizzying values, while the proportion of open interest controlled by long speculators actually declined. Between January 2007 and mid-July 2008, in fact, the correlation deteriorated to only 42%.

Crude Oil Futures Prices Vs. Speculative Long Interest

Because of the lack of granularity in government-mandated reports, though, we can't tell how much of that net long interest in oil futures actually belongs to index funds. The Commodity Futures Trading Commission (CFTC), however, has operated a pilot program since 2006 that monitors commodity index fund trading in certain agricultural futures.

The price trajectory of corn fairly well traces the same arc as that of crude oil, as it more than doubled over the past year. Corn's the largest agricultural component of both the S&P GSCI and the DBLCI. If we compare the net long position of index funds in corn between January 2006 and now, we might gain some insight into their behavior with respect to oil.

Back in 2006, commodity index funds held about a quarter of the total open interest in corn futures:

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