Auspice Managed Futures Excess Return Index (AMFERI)
Market Review
The AMFERI has closed the first half of 2013 with a very strong performance gaining 3.09% in June. While much of the global market focus has been on the outperforming Equity sector, the strategy has tactically found opportunity both short and long and across a diverse basket of assets., both commodity and financial. After years of strong gains in Interest Rates (long price, short yield), this sector has gone through transition and has only recently provided opportunity to participate in new trends. While much of the monthly gains have come from being short, the tactical and agile approach employed is proving itself in absolute return and risk management. The strategy is adapting to the market condition and opportunity in an agnostic fashion that continues to provide non-correlated results, specifically when they are needed most.
As seen in the next table, the performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.
While it is impossible to predict the future, it is important to note that the strong performance by the AMFERI in the first half of 2013 and specifically as the traditional markets correct, is a feature that benefits all portfolios. For it is not just non-correlation, but added performance 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 to the below.
SYNOPISIS OF DRAWDOWN 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).
lease contact us at info@auspicecapital.com for the complete analysis.
Index Review
The AMFERI was up 6.01% in Q2 to be up 7.75% in 2013, outperforming a number of investable and non-investable CTA indices.(Highlighted in the table below) 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.
Portfolio Recap:
In June the index was up in 4 of the 5 sectors. Gains were made primarily from short positions in both commodities and financial markets. The strongest sector was again Metals. The top performing components within the index were shorts in Gold and Silver complimented by shorts in Wheat, Corn and a long exposure in Cotton. The most challenging sector was Energy. The index is currently positioned short in 9 of 12 commodity markets. The index has further tilted short in the financial markets with 7 of the 9 components holding a short weight. Currencies remain positioned short versus the USD.
Energy
The energy markets corrected against the established trends in Crude and Heating Oil while Gasoline was slightly lower in the direction of trend for a small gain. There were no position changes in Energy as the petroleum weights remain short (Gasoline, Heating Oil and Crude Oil while long Natural Gas). Natural Gas moved sharply lower on the month against the long position. Energy was the most challenging of the sectors for the Index.
Metals
Metals was the strongest performing sector as the index remains short and again benefitted from across the board weakness. The strategy is short weights in Gold, Silver and Copper.
Agriculture
Ags were also large contributors to the strategy gains in June. While the long position in Soybeans was a modest drag, Grains, Wheat and Corn continue to benefit from the trend lower . Meanwhile, a small gain from the long term price deterioration in Sugar and a gain from Cotton also helped the performance from the long side.
Interest Rates
Rates have been challenging in 2013 as the markets gyrate looking for long term direction. The strategy has shifted from long to short a number of times, common during transition in trends while often at the short term expense of return. This choppy price action and position changing has a cost but can be viewed as tactical jockeying while disciplined trend following and risk management is employed. The components have moved back to be tilted short to take advantage of higher interest rates (short bonds) in 2 of the 3 markets as the momentum shifted to lower bond prices. The index switched to short both US 5 year Notes and 30 year long bonds while currently remaining long 10 year Notes.
Currencies
Currencies were modestly profitable despite a choppy and challenging month. Currencies reversed direction a number of times versus the US Dollar and the index benefited from the robust trend filter which avoided trading in and out of the chop. We are holding the same positions: short Aussie dollar in addition to existing shorts in Yen, Canadian dollar, British Pound. The index remains long US Dollar Index and the Euro.
Outlook
The AMFERI has made gains in 2013 alongside the equity market despite the specific lack of equity exposure in the portfolio. In fact there is a negative correlation to the markets despite both being positive on the year. As the equity markets have begun to correct in June, the AMFERI has had a very strong performance with approximately half the volatility of the Equity sector year to date. Consider the non-correlated performance of the index as one looks for opportunities to reduce portfolio risk given the traditional markets have performed well in the last couple of years.
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.