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The Auspice Diversified Program was up 0.28% in March.
The strategy was successful in navigating the choppy global markets in March. Within most sectors, agility was an asset as there was deviation in long and short direction.Broadly, we are experiencing a choppy commodity market and a strong but risky equity market. To be effective, it is important to take a tactical approach coupled with stringent risk management. Discipline provides comfort in this environment and hopefully illustrates a significant benefit as trends develop. Most recently, we highlighted in February that we cut equity risk but remained long the strongest markets which has continued to benefit the portfolio while reducing the risk.
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Within commodities, we are participating in some good trades both short and long. Outperformers are identified and are held, such as long Cotton. Short opportunities were also beneficial as experienced with Copper. The portfolio further benefitted from long Palladium and short Wheat positions.
The key to the strategy remains being tactical and agile with the overriding goal of capital preservation. At some point, there will be a shift as equities have been good for a long time, the interest rate trade has been captured already and commodity has underperformed for some time. While we are unable to know how or when, we know things won’t stay the same and in that movement comes volatility and opportunity. Patience is important while other areas of the portfolio are doing well.
The 5 year statistics (Apr 08 - Mar 13) are: +1.37% annualized return with 11.01% volatility while the 6 year annualized is 4.54%. The worst drawdown for the period was 20.96% with an average Margin to Equity ratio of 6.20%. It should be noted that during this 5 year period, Auspice Diversified remains ahead of the benchmark industry index. The Newedge CTA index is +1.21% annualized over the same period.
Most global equity markets remain down to small positive (-2% to +3% annualized range) with 35-50% more volatility and deeper drawdowns of 40-55%. For example, the TSX60 is -1.46% annualized for the period with over 44% drawdown.
Over the long run, the performance of the Auspice Diversified Program highlights not only the non-correlation and absolute return characteristics of the strategy, but the lower risk profile versus traditional investments due to our attention to risk management and downside protection.
The Auspice Diversified Program was profitable in 4 of the 7 sectors traded. It has been a few months since the gains came from a majority of the sectors and this is positive to see. Moreover, gains came from both commodity and financial sectors. Gains came from Metals and Softs complimented by Equity Indices and Currencies. The strongest sector was Metals followed by Equity indices even though we had reduced risk and crystallized some of the gains in February.
- Strongest commodity gains holding long Cotton and Palladium while short Wheat, Copper and Coffee.
- Equity markets made gains long on reduced exposure.
- Japanese Yen short coupled with long the Nikkei index continues to provide benefit.
- We have exited the strong part of the Grain market in Soybeans and held the short in Wheat for a solid gain.
Key Points Regarding our Positions
Energies: The sector was not profitable led by aggressive corrections higher after the opposite occurred in February (lower). The month started weak causing us to cover our long position in Heating Oil which largely traded sideways thereafter. The strength was in WTI Crude and we covered our short while continuing to hold a long position in Gasoline which underperformed Crude. We remain short Natural Gas which is still currently in an established range from 2012. Despite media attention, the Natural Gas market is close to a shift but not quite there yet. Natural Gas has $1-$2 potential from here both up and down.
- A recent article in Advisors Edge dispels some of the myths regarding Managed Futures.
- For those interested, Michael Covel, a leading author specializing in Managed Futures and trend following, interviewed Tim Pickering on his background and the unique aspects that make Auspice a Next Generation CTA. Listen to the podcast through iTunes.
- Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com.
For those with specific interest in this sector, please contact Auspice regarding the Auspice Energy Program.
Metals: After a challenging 6 months, Metals were the star of the portfolio. Gains were made from both long Palladium and short Copper. We remain on the sidelines in Gold at this time.
Grains: Grains were negative on the month on the back of a long position in Soybeans and a brief long position in Corn. Both positions were exited as the market collapsed at month end while the Wheat short already in place partially offset this shift in exposure. Grains are an example of a sector with disparate trends and positions that often highlight transition. Keep a close eye here.
Soft Commodities: The Softs sector was positive on the month from existing and new positions. The short Coffee trade moved lower while we added new long positions in OJ and Cotton. Lumber has been a tough market to trade but we have taken a position on strength. The Softs sector is another example of a sector with disparate risks and unique opportunities.
Currencies: After a choppy few months, the currencies sector was profitable on existing positions and some new trades. While the US Dollar continued higher vis-à-vis currencies, some individual markets have shown renewed trend. We have added a short in the Swiss Franc while adding a new long position in the Aussie dollar. We continue to be short the Japanese Yen and British Pound. Of note the Aussie Dollar, with its often associated commodity tilt, was quite strong and beyond that of the Canadian dollar.
Interest Rates: We continue to hold a modest amount of risk in rates via long positions in US 5 and 10 year Notes. The sector was slightly off on the month primarily on the late month entry in 5 years.
Equities: After reducing risk and crystallizing gains in this very profitable sector over the last 6 months, the sector continues to perform. While we cut the weakest of the markets in the Hang Seng in February, we have added Nasdaq during early March. We will highlight intra month changes in risk if and as it arises and continue to adjust to best capture this opportunity.
*Returns represent the performance of the Auspice Managed Futures LP Series 1.
Futures trading is speculative and is not suitable for all customers. Past results is not necessarily indicative of future results. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offense to claim otherwise.