The Auspice Diversified Program was up 0.04% in November.
Equities moved higher and we are capturing the upside through US, European, Asian and Canadian markets. This continues to dominate market movement.
In Interest Rates, the curve is steepening as the market pushed higher in the front of the curve (lower yields) while the back was weak and thus pushing long term yields higher.
Currencies weakened vs. USD.
Commodities were mixed. Significant moves occurred in Metals and Grains.
While the strategy and the overall managed futures sector has pulled back in the last few years as depicted in Chart 1, it is important to understand that the correlation to the equity markets has not been a strong negative. In fact, the correlation since the beginning of 2011 has been approximately -0.15%.
Chart 1: Auspice Diversified Program since 2007
While the return of the strategy in this short period of time has been negative, the overall risk adjusted value to a portfolio is positive due to the non-correlation resulting in:
- Lower portfolio volatility during the period.
- Lower portfolio drawdown.
- Potential protection and performance in the event of future stock market corrections.
These elements improve the non-correlated risk-adjusted performance and reduce overall portfolio risk while the performance is being dominated by Equities. Focusing on the long term benefits of diversification will ultimately safeguard investors’ portfolios when investors need it the most.
As shown in Table 1, the long term performance and benefit of crisis alpha has been significant leading to higher annualized performance, lower volatility and lower drawdowns versus traditional equity markets. In the current environment, investors should remain committed to having non-correlated assets in their portfolio. Adding to undervalued assets and non-correlated strategies could be advantageous at this time.
Table 1: 6 Year Annualized Performance Auspice Diversified
Note that on a 6 year basis the Auspice return is very close to that of the S&P with far less volatility and with higher risk metrics (Sharpe/MAR) and half the drawdown.
Figure 1: November Attribution for Auspice Diversified
Sectors and Trades:
- Most profitable positions were all Equity indices complemented by a new short Yen position - and long Eurodollars.
- Gains made in long short term Rates positions while exiting 10 Year Notes.
- Grains gained from short Corn.
- Added a number of short Metals positions.
- Most challenging sector was Currencies.
Key Points Regarding our Positions
- Petroleum markets diverted in November with domestic Gasoline and Heating Oil headed higher while Crude fell.
- After exiting most energy exposure in September and October, the only remaining long position was in GasOil which was exited during the month for a small loss.
- We have added a short position in WTI Crude.
- With continued weakness in the Metals sector, we have added two new shorts on both the Precious and Industrial sides. We took new shorts in Gold and Palladium as well as Nickel and Aluminum.
- Metals sector has been the most profitable commodity sector in 2013.
- Grains were a mixed bag with Corn, Canola and Wheat softening while the Soybeans complex rallied.
- While we remain largely on the sidelines, we continue to hold a profitable short in Corn for a small sector gain.
- Softs were off this month after a great October. The sector was choppy and lacking pervasive trend.
- Remain short Cotton and Coffee both of which were sideways over the month and slightly higher at month end.
- We have exited the OJ short for a small loss as the market has rallied significantly and continued to do so post exit.
- We are holding a long Lumber position while it weakened during the month.
- Currencies were challenging in November as many global markets lacked direction. Short term gyrations and position changes resulted in a sector loss.
- We exited Aussie, Euro and Swiss Franc on weakness.
- Added new shorts in Canadian Dollar and Japanese Yen.
- Remain long the British Pound.
- Small gain in the sector as the market continued higher in the front (yield lower) while softening (yields higher) further out on the curve.
- In the short end of the curve, we are holding long positions in Eurodollar, Euribor, Sterling 3 month and German Shatz 2 years.
- In the long end of the curve, we have exited the long position in US 10 Year Notes.
- The Equity sector provided the largest portfolio gain from positions in long Nasdaq, S&P, DJ Euro Stoxx, and the Canadian TSX 60.
- We entered new long positions in the Asian equity markets at mid month including Nikkei and Hang Seng.
- Remain short the VIX which continues to drift lower as the market rallies.
- We are happy to participate in this extended rally but remind clients we are cautious.