Auspice Broad Commodity Excess Return Index (ABCERI)
After commodities generally moved lower in the first half of 2013, July provided a correction higher in a number of markets. Commodities were generally stronger on the month led by Energy and Metals while Ags continued to be weak. However, even within sectors, remaining agile and tactical was important as individual markets like Natural Gas (lower) and Cotton (higher) bucked their sector trends. While the index softened slightly on the month, it continues to show the ability to protect the downside. Tactical position shifts are made based on individual component merit as opposed to sector generalities which continues to lead to better performance over tradition long commodity index approaches.
The ABCERI lost 0.11% in July to be off only 1.42% in 2013 despite significant commodity pressure. The index continues to outperform (see table below) most of the comparable indices on the year. The strategy continues to hold 3 components or 25% of the possible basket.
Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk adjusted measures. The following table highlights the strategies ability to capture the upside while limiting the downside.
The ABCERI does not attempt to simply track the broad commodity markets or predict their direction, but rather aims to capture upward price trends from those commodities that are making sustained moves higher while protecting capital on those that are making sustained moves lower.
In July, the ABCERI made gains in 1 of the 3 broad sectors. The strategy made gains in Energy which was offset by the loss in Ags. There are no Metals holdings at this time.
By avoiding corrections against short trend positions, the Energy sector managed to make gains in July.
The energy markets continued to correct against the established trends with a sharp and quick move higher in Crude Oil, Heating Oil and Gasoline. Natural Gas started the month higher as well before reversing sharply at month end to make new period lows. While the index does not have a weight in Gasoline or Heating Oil, the Crude move was substantial enough to change the trend and the index went long early in the month for a solid gain. Similarly but in the opposite direction, the Natural Gas market broke down at month end which resulted in an exit to be flat.
The index remains without a long weight in Metals although the component markets rallied in July. The rally was led by Gold with Silver and Copper showing much less conviction. No positions weight changes at this time.
The Ag sector was negative in July as overall Grains weakness pulled Soybeans lower. The index remains without positions in Corn, Wheat and Sugar all of which trended lower. The long position in Cotton provided gains and partially offset the correction in Soybeans.
It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in up-trends while minimizing risk during downtrends. It is the continued goal of the ABCERI index strategy to minimize the downside with low volatility and drawdown and remain a store of value until upside opportunity presents itself.
The long side of the index is represented by 3 of the 12 components and has 2 of the 3 broad sectors represented. With careful selection, the strategy has been able to take advantage of those commodities moving higher while avoiding excessive losses in the markets moving lower and remain a store of value despite significant sector weakness.We believe that the long term outlook for commodities has not changed and remains promising and the overall trend is up. However, given the path is not a straight line, a tactical and risk management oriented approach will be most effective. The price movements so far in 2013 are important reminders of the agility required for long term success and the best risk adjusted result. As such, strategies linked to the Auspice Broad Commodity Index, which have the benefit of disciplined risk adjusted participation, may continue to outperform the traditional (long only) commodity peer groups with better upside, lower downside and reduced volatility.
Strategy and Index
The Auspice Broad Commodity Index aims to capture upward trends in the commodity markets while minimizing risk during downtrends. The index, which is considered to be a “third generation commodity index”, considers both risk and reward. The index uses a quantitative methodology to track either long or flat positions in a diversified portfolio of 12 commodity futures which cover the Energy, Metal, and Agricultural sectors.
Auspice Indices utilize dynamic risk management to produce superior risk adjusted performance in a variety of market environments. By dynamically managing the volatility of each commodity, Auspice ensures that no one commodity dominates the index thus maximizing the benefits of commodity diversification. Enhanced contract roll optimization further increases performance. On a risk adjusted basis, the Auspice Broad Commodity Total Return Index significantly outperforms its global peers.
The Broad Commodity index is available in Total and Excess Return versions. The cash return for the total return index will be calculated daily using the 3-month CDOR (Canadian Dealer Offered Rate). The CDOR is the average rate for Canadian bankers' acceptances for specific terms-to-maturity (one year or less), determined daily from a survey on bid-side rates provided by the principal market-makers, including the major Canadian banks.
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.