The Auspice Diversified Program was down 4.07% in September.
- Equities moved higher and continue to dominate market movement despite a volatile 4 months.
- Bonds moved sharply higher on the month (lower rates).
- Currencies rallied significantly (vis-à-vis the USD).
- Commodities were generally lower led by Energies, Metals, and Grains.
Months like these are challenging. Surprise announcements by the FOMC and political grid lock regarding Budgetary Spending resulted in a number of sharp reversals and position changes in our portfolio.
Difficult times like these force me to remind myself why I invest in Managed Futures in the first place:
- Diversification beyond traditional asset classes.
- Non-correlated risk-adjusted performance reduces portfolio risk.
- Crisis Alpha and performance during stock market declines.
As illustrated in the line chart, savvy investors that have remained focused on the long term benefits of the strategy have benefited from the lower overall portfolio volatility, diversification and ultimately performance. Specifically, when investors needed it the most!
Balance these needs against the rest of my portfolio of equities and fixed income leads me to conclude that nothing has changed in my outlook or reason to invest in the strategy. In fact, judging the risk in the market suggests that I should hold fast if not add to my position for the following reasons: US Debt Ceiling, tapering monetary stimulus and increasing interest rate and commodity underperforance for the last few years. You may have your own reasons.
As shown in the table, while the strategy is in drawdown, the long term performance and benefit of Crisis Alpha has been significant leading to a higher annualized performance, lower volatility and lower drawdowns vs. traditional equity markets. Time will tell what will bring about the next crisis; however Managed Futures has proven to be of long term benefit.
Sectors and Trades:
- Equity markets provided the only sector gain for the portfolio.
- Have exited most short Rates positions and only hold a long position in Eurodollars.
- Most profitable positions were long Nasdaq, short Corn, long British Pound, short Wheat.
- Exited short Sugar profitably and flipped the position long.
- A very profitable long term short in Wheat was exited crystallizing a significant gain.
- Biggest losses came from long Energies and Soybeans.
Key Points Regarding our Positions
- Markets moved against long positions in all petroleum products including WTI and Brent Crude, Heating Oil and Gasoline, which we exited before significant further price deterioration. Gasoline dropped another 7% after we exited and Heating Oil another 3%. We exited Brent and WTI profitably.
- Exited short Natural Gas for a small loss. Remains choppy.
- Currently, we are only holding a long position in Gas Oil.
- Both Precious and Industrial Metals were very weak and our single long position in Silver moved against us. We exited the trade for a small loss.
- Grains were weak and moved against both our tactical long positions (Soybeans) and not quite offset by the shorts (Corn and Wheat).
- Exited short Wheat trade late in the month for a great long term gain of 6 times risk (Feb. 13).
- We remain long a profitable short in Corn.
- We exited an unprofitable long Soybean trade but remain long Soymeal.
- Small loss in the Softs sector as we exited short Sugar position profitably and entered a new long position.
- Remain short a profitable trade in Coffee.
- New short OJ as trend continues down.
- New long position in Lumber.
- Small loss in the sector despite initiating a very profitable long position in the British Pound.
- Exited both shorts in Canadian and Aussie dollars on aggressive mid-month rallies while adding new long positions in the Euro and Swiss Franc. Remaining flat the Yen.
- Currencies were very strong versus the USD.
- Small loss in the sector as the market rallied sharply higher and we exited existing short positions in (UK) Gilts, US 30 Year Bonds and 10 Year Notes.
- We exited a profitable long position in Eurodollar and re-entered the trade for a small offset in the short end.
- The only Rates position is currently long in the short end, Eurodollars.
- The equity sector provided us a small gain in September while the sector moved sharply higher during the month given most of the equity exposure was exited in August.
- This sector has been profitable for us in 2013 but very choppy the last 4 months and our positions have been tactical and defensive.
- We still hold a long position in the Nasdaq which was the greatest contributor to the sector.
- We have added new long positions in: S&P 500, Hang Seng, DJ Euro Stoxx and S&P TSX 60.
- Added a new short VIX position.