Auspice Managed Futures Excess Return Index (AMFERI)
After positive returns in all 6 months of the first half of 2013, the AMFERI continued to give back some of the gains in August. Investor sentiment has become mixed in the global equity markets (an area not covered by this trend following strategy) with the US weak, Europe neutral and the commodity laden Canadian index strong. While Commodities were generally stronger on the month led by Energy, Metals and Ags, Interest Rates and Currencies (vis-à-vis the USD) continued to be weak.
The AMFERI was down 0.96% in August.
While it appears that August was challenging for many CTA strategies, the outperformance by the AMFERI in Q12 still has it outperforming most in 2013.
As seen in the next table, the long term performance of AMFERI versus both investable and non-investable managed futures indices has been exceptional. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.
As a single strategy CTA index, this strategy provides the benefits of traditional CTA through trend following and agility along with the benefits of transparency and third party publishing, monitoring and benchmarking. The strategy now underlies ETFs, 40 act mutual funds and managed accounts providing a low cost means of allocating to Managed Futures without sacrificing performance.
In August, the index was up in 3 of the 5 sectors. The stance remains defensive - the index is currently positioned short in 7 of 12 commodity markets having added 2 long positions. The index is also tilted short in the financial markets with 7 of the 9 components now holding a short weight, having also added a long position during the month. Currencies remain tilted short versus the USD and the index is short Bond futures.
Modest gains were made from short positions in Interest Rates and Currencies while Agricultural commodities were very profitable and benefitted from tactical long and short weights within the sector. The most challenging sector was Metals followed by Energy. The top performing components within the index were long Soybeans and Crude Oil while Short Wheat and Sugar. Most significant losses were from the shift from short to long in Heating Oil as well as short positions held in Silver and Gold.
While the strategy continues to take advantage of long term trends in targeted asset classes, it is also subject to shifts in trend and may give back gains at pivot points. A shift to a long stance in Energy is an example of this and caused much of the loss on the month.
Gains were made by holding a weight in Crude Oil put on in early July. However, it was two new long weights in Gasoline and Heating Oil added near the end of the month that provided a small sector loss. The loss occurred because of the end of month headline effect plaguing the Energy sector. It is important to understand these are long term position shifts and reflects a significant change in positioning over the last 60 days in this sector. Natural Gas remains short.
The Metals sector was also challenging as markets rallied across the sector while the index components remain short. The index remains short weight in Gold, Silver and Copper on a long established trend lower that has been the most profitable for the strategy in 2013.
The Ag sector was the star performer in August with gains made both short and long within the sector highlighting the importance of intra-sector tactical weighting.
The long position in Soybeans was profitable as the strongest component of the Grains made a significant move higher while the short in Wheat was also profitable. A small loss on the short in Corn was absorbed. The Sugar market continued to fall and the index remains short. Cotton remains long while this market corrected lower during the month but profitable long term.
Rates were slightly profitable as prices softened modestly in August. Most of the gain came from the short end of the curve in 5 and 10 year Notes.
A modest gain was made in Currencies as shorts vis-a-vis the US Dollar were profitable. Again the exception was the Euro, which yet again was repositioned, now long. It has been range-bound of late. The index is currently short Aussie dollar, Yen, Canadian dollar, British Pound. The index is now long US Dollar Index and the Euro.
While it is impossible to predict the future, it is important to note that the performance by the AMFERI is non-correlated and positive to the traditional markets. For 2013 year to date, the correlation to S&P 500 is -0.34 despite both being positive return on the year. This combination illustrates an important feature of managed futures that benefits all portfolios. For it is not just non-correlation, but added absolute performance specifically when you need it most that helps reduce the depth and length of inevitable setbacks in any portfolio.
For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis below.
Synopsis of AMFERI Drawdown and Return analysis.
Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley). Please contact us at Auspice for the complete analysis.
Strategy and Index
The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return).
About the Index Provider
Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.
Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Fund Manager / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US. Auspice’s core expertise is managing risk and designing and executing systematic trading strategies.
Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.