Auspice Broad Commodity Excess Return Index (ABCERI)
Market Review
Commodities continued lower in May with only a few exceptions. While slightly lower on the month the index continues to show the ability to protect the downside and wait for an opportunity to capture gains when markets move in a sustained trend higher. 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.
Index Review
The ABCERI lost 0.55% in May to be off only 1.05% in 2013 despite significant 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 single position change during the month, now holding 3 components or 25% of the possible 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 while protecting capital on those that are making sustained moves lower.
Portfolio Recap:
In May the ABCERI did not make gains in any of the 3 broad sectors. The strategy remains positioned long in Cotton and Natural Gas and added a new long position in Soybeans during the month.
Energy
There were no position changes in energy as the petroleum weights remain flat (Gasoline, Heating Oil and Crude Oil) while long Natural Gas. Natural Gas moved lower on the month against the position for a small negative sector performance.
The Energy sector remains choppy with an overall negative bias to trend in the petroleum components.
Metals
The index remains without a long weight in Metals as much of the sector was lower in May. The sector sell-off was led by Gold and Silver while Copper was modestly higher on the month.
Agriculture
The bulk of the Ag sector loss came from long Cotton which moved significantly lower and will be one to watch closely. A new long position in Soybeans was added and profitable. While Corn rallied modestly, Sugar continued its long term deterioration and without a weighting along with Wheat and Corn.
Outlook
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.
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 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.