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The Auspice Diversified Program was up 0.60% in April.
Months like April validate two things about our strategy. First, asset class diversification is not only sensible but also it is opportunistic. You really never know when and where opportunities will arise. Second, that being market direction agnostic is a key element to performance and opportunity. Taking advantage of both down and up trends is a beneficial attribute. Both of these things may lead not only to absolute return over time, but also internal portfolio diversification which ultimately creates the non-correlation that investors want and need.
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Similar to last month, the Auspice Diversified Program was profitable in 3 of the 7 sectors traded. However this month, the gains came from different sectors. We made gains in Interest Rates and had a good month in Currencies which had been quiet for many months. Additionally, Grains had a fantastic month after treading water for some time.
Interesting Trades: We exited a long Gasoline trade for a multiple gain on risk after 4 months. We also exited our profitable long position in Nasdaq that was put on in January when the equity markets began to rally.
The 5 year statistics (May 07 - Apr 12) are: annualized return +8.43% with 12.96% volatility. The worst drawdown is 11.35% with an average Margin to Equity ratio of 6.4%. The global equity markets remain down over this same period with 25-30% more volatility. This highlights not only the non-correlation and absolute return characteristics of the strategy, but the lower risk profile from traditional investments due to stringent risk management and downside protection.
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Key Points Regarding our Positions
Energies: After making gains for the last few months, the Energy sector finally pulled back. We exited a long position in Gasoline that was put on in December which very effectively captured the bulk of this trend. However, Crude and Heating Oil, which began to slide in March, continued to do so. We have exited the Crude position but hold Heating Oil. Lastly, despite the rally over the very recent past which has garnered some press, we remain short Natural Gas.
For those with specific interest in this sector alone, please contact Auspice regarding the launch of our Energy focused strategy in collaboration with Pulse Capital Partners. The program went live on the March 1st.
Metals: Metals also struggled in April with our Gold position softening modestly. After exiting Palladium in March it continued to deteriorate highlighting our agile risk management process. Lastly, we took a new short position in Copper. Keep an eye on this sector as it appears to be in flux.
Grains: While Grains have struggled for a number of months and appeared in transition, April presented some opportunity both short and long and was the most profitable sector by far on the month. Both shorts in Corn and Wheat moved lower with the bulk of the gain from Wheat on the short side. Corn fell before regaining at the end of the month. Soybeans continue to lead the pack and we remain long.
Soft Commodities: Softs continued to struggle in April. While modest gains were made holding a short in Coffee and Cotton, the recent short in Lumber moved higher and we covered the position. Orange Juice also experienced significant weakness and we covered our long position to be flat at this time.
Currencies: With the exception of a new long position taken at month end in British Pound, our Currency holdings are the same and the sector was profitable. Our long position in Aussie dollar came back as did the Canadian dollar. The Euro started to move lower again and we remain short. We remain on the sidelines in US Dollar Index, Swiss Franc, and Japanese Yen.
Interest Rates: As was the case in January for Equities, we are happy to eat humble pie and get back on the bus. As such, while we remained long US 10 year Notes, we have added new positions in 30 year Bonds and 5 year Notes. This sector was profitable in April. While it may not seem intuitive that we exited most of this risk recently, only to put it back on, it should be understood that the market opportunities and risks are always evolving and need to be looked at discreetly.
Equity Indices: Equities started to soften during the month and we have made adjustments very quickly. We exited our long position in Nasdaq to capture the bulk of this recent trend. However, we also exited the Nikkei for a small loss. We remain long the strongest of the markets in Russell 2000 and S&P 500, both of which moved against us on the month. Lastly, we initiated a short in the French CAC 40 which was the weakest of the sector. This sector is to be watched carefully.