Take a look at the following charts. Which one would you buy? (Note: They all get to about the same place in the end).
Made your choice? then read on…
If you picked #1, you need to consider that despite great returns in the last 8 years, it has periodic drawdowns (pullbacks) of 50% plus historically.
If you picked #2, you need to accept that while it did well in a number of periods, this investment also does pullback, often for a 2-3 year period. However, those drawdowns have been substantially small (roughly half) of Investment #1.
If you picked #3, you need to accept you may not get the highest returns in any period. Moreover, you may have periods when you underperform other investments. However, to your benefit, this investment has a fraction (11% versus 50%) of the drawdown and volatility (7.7% versus 15%) of choice 1 and it gets to the same result.
So what are they?
1 is the stock market.
2 is Auspice Diversified.
3 is a 50:50 combination of 1 and 2.
If overlayed, you can see the characteristic of each is different but complimentary. All three get to about the same place at approximately 5% annualized (not considering fees), but they do it in different ways. How to choose?
- If you believe that an asset’s trend is the best indicator of the future, you might buy the one that has recently done well, #1.
- If you have perfect timing, which none of us do, you might buy the one "on sale", #2.
- If you recognize that trends come and go and that timing the market is almost impossible you should combine the two different things together (i.e Diversification), #3.
The benefit of the combined investment?
- Better return (3% relative)
- 48% lower volatility
- 79% less pullback (drawdown)
- 56% better Sharpe ratio
What is the right choice for you?
If you interested in our help in improving your portfolio, please reach out. We can find the right combination for you.
IMPORTANT DISCLAIMERS AND NOTES
Futures trading is speculative and is not suitable for all customers. Past results is not necessarily indicative of future results. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offence to claim otherwise.
*Returns for Auspice Diversified or “ADP” represent the performance of the Auspice Managed Futures LP Series 1. Performance for this example is calculated gross of all fees.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Price Return data is used (not including dividends).
For U.S. investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to Qualified Eligible Persons “QEP’s” as defined by CFTC Regulation 4.7. For Canadian investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to “Accredited Investors” as defined by CSA NI 45-106.