ABCERI Market Review Q3 2012

Market Review

After the weakness that started in March and extended into Q2, many commodity markets moved higher in Q3.

Index Review

The ABCERI was up 5.88% during Q3 after losing 4.70% in Q2. The quarter ended strong with the index up 0.82% in September. By comparison, the S&P/GSCI ER gained 10.60% in Q3 after losing 12.40% during Q2. The GSCI also ended the quarter with a loss in September of 2.24%. The volatility from Q2 to Q3 highlights that ABCERI provides exposure to up-trends in the commodity markets while mitigating exposure to 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. The ABCERI has continued to outperform most of its peers in 2012 up 4.23% with far less volatility. 

Portfolio Recap


As outlined in a report published by ETF Securities (UK) entitled Global Commodity ETP Quarterly, the Auspice Broad Commodity index remains at the top of the global broad commodity index peer group with both the highest return and lowest volatility. Copies of the report can be obtained by contacting Auspice.

In Q3, the ABCERI gained more than what was lost during Q2. The strongest sector within the index was Agricultural commodities which started to gain momentum in June. Gains were also made in Metals while Energy was down modestly. 


After ending Q2 without any Energy exposure, positions were added steadily in Q3. First, after experiencing one of the longest downtrends in the commodity’s history, Natural Gas was added in July. Gasoline followed in August and Heating Oil was added in September. The index currently remains without a Crude Oil position and this market was the weakest of the sector during September. 


After leaving Q2 without a long exposure, the index added positions to Gold and Silver during September. There is no Copper weighting at this time but this will be one to watch closely. The Metals sector contributed positively to the index in Q3 with these additions.


The Ag sector led the index with gains provided by the Grains during Q3. Each of the Grains added value and remain with long weightings at this time (Corn, Wheat, Soybeans). Most of the gain was made early in the quarter. Sugar was weaker during Q3 while Cotton was modestly stronger - both remain without weights at this time.


It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in sustained up-trends while minimizing risk during downtrends. Q2 illustrated that as commodities moved sharply lower, the index downside was limited versus other broad commodity indices. The erosion in Q2 was more than made up in Q3.

The long side of the index is now represented by 8 of the 12 components and has all 3 sectors represented. This is in sharp contrast to the end of Q2 when only 3 of the 12 components were included. As such the index is now tilted long commodities to take advantage of a potential sustained movement higher in this asset class.

Since publication and calculation by the NYSE (September 2010), the ABCERI remains a better absolute and risk-adjusted way to participate in the commodity markets versus traditional long only commodity indices. Through this period, the ABCERI has gained 11.6% with 13.3% annualized volatility while the S&P/GSCI ER had a lower return at 7.6% with a much higher 20.1% volatility.

We continue to believe that the long term outlook for commodities remains promising but that the downside needs to be managed carefully and in a disciplined manner. 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, pool operator (CTA/CPO) 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.