Auspice Broad Commodity Excess Return Index (ABCERI)
After commodities weakened in 2012, leaving the index with a small negative year, they have come roaring back to start 2013. The long term trajectory appears to still be trending up for commodities and it appears that market participants are comfortable that the “Fiscal Cliff” has been averted, and the resulting rally has not been solely focused in equities.
The ABCERI gained 2.45% in January after losing 1.02% in 2012. While the absolute performance was similar to the peer group in 2012, the risk adjusted performance was far superior with a lower standard deviation and drawdown. 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 January the ABCERI made gains in all 3 of the sectors. The attribution was led by performance in Ags, followed by Energies.
The strategy is currently positioned long in 5 of the 12 commodities having moved to a flat weight in Natural Gas and Soybeans during the month.
The petroleum weights remain the same - long Gasoline and Heating Oil while flat Crude Oil. The petroleum markets are again stronger overall ending January whereas Natural Gas was the outlier and weak. As such, the strategy has moved from long to flat weight in Gas.
Watch Energy closely for changes in weightings in 2013.
The index holds the same long positions in Gold and Silver added late in Q3. There continues to be no Copper weighting at this time. The Metals sector made a small gain in January from the long Silver weighting.
The Ag sector was modestly weaker again led by the Grains. Soybeans were exited during January to now be flat the three Grain components. Cotton continued to add value from the long side and was the largest contributor of all commodity components. Sugar remains without a long weight.
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. While the up-trends in commodity were not sustained in 2012, the ABCERI index was able to minimize the downside with low volatility and drawdown and remain a store of value until opportunity presented itself as in January.
The long side of the index is now represented by 5 of the 12 components and has all 3 sectors represented. With careful selection, the strategy has been able to take advantage of those commodities moving higher in January while avoiding losses in those markets moving lower.
We continue to believe that the long term outlook for commodities remains promising and the overall trend is up. However, years like 2012 highlight the importance of risk management and strategy selection as 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.