Auspice Broad Commodity Excess Return Index (ABCERI)
After starting the year strong, commodities corrected in February leaving the index down on the month and slightly positive on the year. While we believe the long term trajectory appears to still be trending up for commodities, as with other markets it will be important to remain agile and tactical to be successful long term..
The ABCERI lost 2.32% in February after gaining 2.45% in January, holding on to a small gain of 0.07% for the year. While negative on the month, the loss was far less than the peer group which experienced much deeper losses and all remain negative on the year. The strategy illustrated its tactical abilities unloading much of the commodity length in recent months to only hold 25% of the components long. 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 highlight’s 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.
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 February the ABCERI made gains only in Ags after making gains in all 3 of the sectors to start the year.
The strategy is currently positioned long in 3 of the 12 commodities having moved to a flat weights in Gold and Silver during the month.
The petroleum weights remain the same - long Gasoline and Heating Oil while flat Crude Oil and Natural Gas. After a strong January, the petroleum markets sold off aggressively led by Heating Oil and Crude Oil. Natural Gas was slightly higher on the month.
Watch Energy closely for changes in weightings in 2013.
The Metals sector also moved sharply lower. Both of the remaining long positions in Gold and Silver were exited to be flat. The Copper market also moved lower and there continues to be no weighting at this time.
The Ag sector managed to make a small gain on the back of the lone long position in Cotton which moved modestly higher and was the largest contributor of all commodity components. The Grains, which were exited in recent months have continued to correct lower with Wheat the weakest of the three and Soybeans the strongest. Sugar remains without a long weight as it continues to drift lower.
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
The long side of the index is now 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 more broad commodity markets moving lower.
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. Months such as February 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.