Auspice Broad Commodity Excess Return Index (ABCERI)
Commodities were generally lower in April and have remained volatile. The index continues to show the ability to protect on the downside and wait for an opportunity to recover when markets move in a sustained trend higher.
The ABCERI lost 1.42% in April to be off a mere 0.49% in 2013 despite continued commodity pressure. The monthly loss was far less than the peer group and the index continues to outperform. (see table below). The strategy had a few position changes during the month, holding only 2 components or 17% of the basket long at this time.
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.
In April the ABCERI did not make gains in any of the 3 broad sectors. The strategy remains positioned long in Cotton and has added Natural Gas while exiting long positions in Heating Oil and Gasoline. Within the 2 markets held, Natural Gas made gains but were offset by the corrections in the other markets.
The petroleum weights are now all flat after exiting Gasoline and Heating Oil to add to the zero Crude Oil weight. However, the index has moved Natural Gas to a long position for only the second time in 5 years as it has begun to break out higher.
The Energy sector remains choppy with an overall negative bias to trend in the petroleum components.
The index remains without a long weight in Metals after it exited long positions in Gold and Silver in February. The entire sector was sharply lower in April providing the most significant commodity volatility in the asset class.
After selling off, Ags generally moved higher on the month. While some of the Grains moved up, led by Soybeans and Wheat, Corn continued lower. Sugar also continued to drift lower. Cotton remains the lone long position in the sector but was pushed lower for a loss.
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 2 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 broader commodity markets moving lower and remain a store of value.
We believe that the long term outlook for commodities 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 Counsel / 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.