ABCERI Market Review Q1 2012

Q4 2011 allowed for the global equity markets to regain some lost ground. For some like the S&P, it was enough to end up flat on the year. Q1 2012 continued that trend with strength in much of the global equity market. Despite equity markets leading the way, the commodity markets also performed well. 

Index Review for Auspice Broad Commodity Excess Return Index (ABCERI)

The ABCERI was up 3.29% during Q1 after gaining 0.54% in 2011. By comparison, the S&P/GSCI  ER gained 5.87% after losing 1.23% in 2011. This highlights that exposure to ABCERI correlates nicely with the uptrends 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.   During Q1, the index effectively tracked and participated in the upside movement in its commodity components.

Portfolio Recap:

In Q1, commodities gained some of the ground that was lost in the second half of 2011. Given the 2011 downside was mitigated by exiting positions that were moving lower in a sustained fashion, the entire upside was not captured as commodities turned around. This is the short term trade-off that over the long term has provided better absolute and risk adjusted results as described above. 


After adding long positions during December in Crude Oil and Heating Oil, the petroleum side of the Energy complex continued to trend modestly higher. The strongest gains were made in Gasoline, which was added in January and continued to participate in the upside. The index remains without a Natural Gas position as this market experienced significantly lower prices during the quarter. 


After leaving 2011 without any of the metals components long, the index has started to re-enter the market. The index is now long Silver after exiting in Q3 2011. Copper and Gold, which had been trending lower since Q2 2011, were modestly higher in Q1, yet the index remains flat at this moment.


Within the Ag sector, the Grains showed mixed results and this highlights why the index allocates based on individual merit. After exiting Corn during the Q4, the market remained sideways. However, Wheat which was exited at the end of Q1 2011, continued to trend lower and thus the index remains without a weighting there as well. Soybeans has been the strongest of the Grains and added a long position during the quarter. Cotton, which was exited midway through 2011 continues to experience weakness confirming the index zero weight. Lastly, Sugar moved modestly higher in Q1, but also remains without exposure.


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.

The index has started to re-enter the commodity markets that show the most strength and opportunity after experiencing weakness throughout much of the second half of 2011.  Positions were added in all 3 sectors during the quarter.  The long side of the portfolio is now represented by 5 of the 12 components and this is split across the 3 sectors of Energy, Metals and Grains with a bias to Energy.  In the face of significant equity market strength and continued global financial concerns, we consider this movement to commodities interesting information. 

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 23.49% with 13.47% annualized volatility while the S&P/GSCI  ER had a lower return at 18.54% with a higher 19.11% volatility.

We continue to believe that the long term outlook for commodities remains promising and this is acknowledged by the recent strength in the face of negative global financial headlines. 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.