What constitutes a total return commodity index?

A total return commodity index is designed to track the performance of a basket of commodities while considering not only the price changes of these commodities but also the income generated from investing in them. This typically involves the inclusion of futures contracts for commodities as well as cash or cash-equivalent positions that can earn a return.

Option C represents this concept accurately, as it includes fully de-leveraged futures contracts, which reflect the actual commodity price movements without the amplification effects of leverage, alongside cash. This combination allows the index to provide a more comprehensive picture of total returns by including both the appreciation (or depreciation) of the futures contracts as well as the yield from cash investments.

When futures contracts are held without leverage, they tend to depict the actual market performance of the underlying commodities more accurately. The cash component is equally significant as it allows the index to earn interest in periods when commodities are held rather than being traded, thus enhancing overall returns. The emphasis on 'fully de-leveraged' signifies that the performance of the index is not distorted by the effects of leverage, thus aligning better with actual investor experiences.

In summary, the correct option captures both key components of total return indices—the futures for performance tracking and cash for income generation—essentially providing a holistic view