“You might think the world is always violent, wars and conflicts are always happening somewhere. This moment can’t be any special. That would be wrong”[1]
This month’s blog is brief, but in our opinion, important. Consider the following:
The number of wars and global conflicts are at the highest levels in 80 years. This could be the most violent period of the 21st century.[2]
The highest number of violent conflicts since WWII — 2 billion people, representing a quarter of humanity — live in places affected by such conflict.[3]
If you are 35 years old, you have never lived in a time with so many deaths from global conflicts.[4]
If you're younger than 80 you've never lived in a world with so many different conflicts either between countries or among non state groups such as terrorists’ cells and drugs cartels.[5]
Last year 2023 was an all-time record year for global food insecurity.[6]
We are a world at war. This comes as inflation has failed to continue downwards – and in fact has resumed upwards recently – in the US[7], Canada[8], and the Eurozone[9]. But what about commodity prices and volatility? Markets have been benign since Q2 2022, and many commodity sectors have pulled back.
The team at Auspice has seen the same cycles many times. We have traded through them, and they can be seen in both long only commodity indexes, and trend-following CTA indexes.
Consider the BTOP50, an index of the largest 21 CTA funds. The BTOP50 has live performance dating back to 1987. As of December, it sat at a -8.1% drawdown and had returned -1.6% over the prior 12 months[10]. Since its 1987 inception, there have been 106 instances where the 12-month return was negative[11].
The average return following a 12-month negative return over the subsequent 36-months has been +17.8% with the return being profitable 93% of the time.[12] Indeed, as per Chart 1 below, aside from the 2011-2019 Quantitative Easing period, drawdowns for trend-following CTAs have provided attractive investment opportunities. Further, drawdowns for CTAs, with risk management embedded into trend-following, have actually been shallower than those of equity indices such as the TSX60 depicted below.
Chart 1: TSX60 and BTOP50 CTA performance Since BTOP50 Inception (1987).
Source: Auspice Capital Advisors Ltd and Bloomberg as at January 31st 2023. You cannot invest directly in an index.
Similarly, as illustrated in last month’s Blog, the long only Goldman Sachs Commodity benchmark (“GSCI TR”) also has a history of ebbs and flows during bull markets. The 1970s bull market experienced a 3-year correction, the 1980s bull market experienced a 2-year correction, and the early 2000s bull market experienced two 12+ month corrections. Previous corrections have provided attractive opportunities to add exposure. See Chart 2 below.
Chart 2: Goldman Sachs Commodity Index (GSCI TR) Bull Market Returns.
Source: Auspice Capital Advisors Ltd and Bloomberg as at January 31st 2023. You cannot invest directly in an index.
Going forward, the risks, in our opinion, are highly skewed to the upside. Both war and global food insecurity are at highest levels of our lifetimes while inflation has started to turn upwards.
If you don’t have a 5-10% commodity or CTA allocation, reach out to us today at info@auspicecapital.com.
References:
[1] 1:40, “World on Fire, Part 2: Global Conflict Has Surged to an 80-Year High. Why?”. Available at https://open.spotify.com/episode/6X7CxpO7PDnY0UbVec1Ef5?si=LlXx3ZKESrWpDSaZlCAT1Q and further podcast platforms.
[2] https://www.theringer.com/2024/1/16/24039609/world-on-fire-part-2-global-conflict-has-surged-to-an-80-year-high-why
[3] https://press.un.org/en/2023/sc15184.doc.htm
[4] 2:10, “World on Fire, Part 2: Global Conflict Has Surged to an 80-Year High. Why?”. Available at https://open.spotify.com/episode/6X7CxpO7PDnY0UbVec1Ef5?si=LlXx3ZKESrWpDSaZlCAT1Q and further podcast platforms.
[5] 2:19, “World on Fire, Part 2: Global Conflict Has Surged to an 80-Year High. Why?”. Available at https://open.spotify.com/episode/6X7CxpO7PDnY0UbVec1Ef5?si=LlXx3ZKESrWpDSaZlCAT1Q and further podcast platforms.
[6] https://reliefweb.int/report/world/global-food-crisis-what-you-need-know-2023
[7] https://www.cnbc.com/2024/01/11/cpi-inflation-report-december-2023-consumer-prices-rose-0point3percent-in-december-higher-than-expected-pushing-the-annual-rate-to-3point4percent.html
[8] https://www.theglobeandmail.com/business/article-inflation-rate-december-canada-live-updates/
[9] https://www.cnbc.com/2024/01/05/euro-zone-inflation-rebounds-in-december-fueling-rate-cut-debates.html
[10] Source: Auspice Investment Operations and Bloomberg. Data also available at https://portal.barclayhedge.com/cgi-bin/indices/displayHfIndex.cgi?indexCat=Barclay-Investable-Benchmarks&indexName=BTOP50-Index
[11] https://www.linkedin.com/posts/michaelmelissinos_short-term-losses-generally-provide-advantageous-activity-7150176368226435073-thdG
[12] https://www.linkedin.com/posts/michaelmelissinos_short-term-losses-generally-provide-advantageous-activity-7150176368226435073-thdG
Definitions:
· The Barclay BTOP50 CTA Index seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The BTOP50 employs a top-down approach in selecting its constituents. The largest investable trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50. The index does not encompass the whole universe of CTAs. The CTAs that comprise the index have submitted their information voluntarily and the performance has not been verified by the index publisher.
· The S&P Goldman Sachs Commodity Excess Return Index (“GSCI TR”) is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities.
· The S&P/TSX 60 (“TSX 60”) Index is a stock market index of 60 large companies listed on the Toronto Stock Exchange. Maintained by the Canadian S&P Index Committee, a unit of Standard & Poor’s, it exposes the investor to 60 stocks in nine industry sectors. Price Return data is used (not including dividends).
Important Disclaimers and Notes:
Some of the assumptions and opinions contained herein are the view or opinion of the firm and are based on management's analysis of the portfolio performance.
Prior to February 28, 2023, Auspice Diversified Trust was offered via offering memorandum only and this Fund was not a reporting issuer during such prior period. The expenses of the Fund would have been higher during such prior period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer. Auspice obtained exemptive relief on behalf of the Fund to permit the disclosure of the prior performance data for the Fund for the time period prior to it becoming a reporting issuer.
Commissions, trailing commissions, management fees and expenses may all be associated with investment funds. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
The contents on this website are provided for informational and educational purposes and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting and tax. Please consult with your own professional advisor on your particular circumstances.
Futures trading is speculative and is not suitable for all customers. Past results are 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. Please read the offering documents before investing.
Certain statements in this document are forward- looking statements, including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, “target”, “seek”, “will” and similar expressions to the extent they relate to the Fund and the Manager. Forward- looking statements are not historical facts but reflect the current expectations of the Fund and the Manager regarding future results or events. Such forward-looking statements reflect the Fund’s and the Manager’s current beliefs and are based on information currently available to them. Forward-looking statements are made with assumptions and involve significant risks and uncertainties. Although the forward-looking statements contained in this document are based upon assumptions that the Fund and the Manager believe to be reasonable, neither the Fund or the Manager can assure investors that actual results will be consistent with these forward-looking statements. As a result, readers are cautioned not to place undue reliance on these statements as a number of factors could cause actual results or events to differ materially from current expectations.
The forward-looking statements contained herein were prepared for the purpose of providing prospective investors with general educational background information about the Funds and may not be appropriate for other purposes. Neither the Fund or the Manager assumes any obligation to update or revise them to reflect new events or circumstances, except as required by law.
This blog may contain hypertext links to web sites owned and controlled by other parties than Auspice. We have no control over any third-party-owned web sites or content referred to, accessed by or available on this web site and therefore we do not endorse, sponsor, recommend or otherwise accept any responsibility for such third-party web sites or content or for the availability of such web sites. In particular, we do not accept any liability arising out of any allegation that any third-party-owned content (whether published on this or any other web site) infringes the intellectual property rights of any person, or any liability arising out of any information or opinion contained on such third-party web site or content