August was a choppy month with a number of long term trends ending and short term reversals occuring. Overall, we are happy with our positive performance over the July and August period vs. global equity markets. Many equity markets are down 4-8% over this 2 month period. In times of equity market unrest, Managed Futures often provides non correlation and this was the case in this most recent period.
As mentioned last month, it is important for investors to remain invested or even add to these types of non-correlated strategies during these times. As such, we are seeing significant interest and flows into non-correlated strategies including the Auspice Diversified. To this end, there have been a number of media stories on the benefits of non-correlation during August. Opalesque recently published this article on Auspice.
Highlights of the month: In August, the Auspice Diversified Program was profitable in 2 of the 7 sectors traded. The profitable sectors included Interest Rates and Grains. We completely exited all remaining Equity index exposure at the beginning of the month and reduced our risk in Interest rate futures (long).
Since full diversification (achieved in June 2007) the annualized return is now +12.0% with 13.5% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.
Interesting trades: Two trades highlight our ability to crystallize long term trends: We took profits in Swiss Franc returning 14 times originally risked capital. We also took profits in Soybeans at over 4 times risked capital. Additionally, we crystallized long term uptrends in the Russell, and S&P indices and Wheat market. Yet the month was also dominated by a number of trades that resulted in small short term losses. As a result of the choppy nature of the markets small losses occurred in Nasdaq, Heating Oil, Gasoline, Palladium and Copper positions. During the month new trades were taken in Crude Oil and Natural gas from the short side. We also started to take short positions in Equity indices starting with Japan's Nikkei. We also added a short in Lumber and a long position in Eurodollars (short term interest rates).
Key Points Regarding our Positions
Energies: Energy had a choppy month. The new long positions taken recently in Heating Oil and Gasoline were exited quite quickly. Additionally, we took short positions in Crude Oil and Natural Gas during the month as both markets broke below previous trading range floors. Despite the challenge recently, we consider this sector to be one of the most opportune going forward after experiencing a few months of pullback.
Metals: We remain long Gold which despite some choppy behaviour, remains a great long term trend. Recent long positions in Palladium and Copper were exited during the month.
Grains: Grains had another great month. We took profits in Soybeans early in the month as the market broke down significantly, but by month end took another long position. Despite the reversal we feel good about crystallizing mark to market (paper) gains. We remain long the Corn and Wheat markets. This sector is performing very well despite a choppy month.
Soft Commodities: Softs provided mixed opportunity. We continue to hold a long position in Orange Juice and we remain flat the Cotton market. However, we took new positions by shorting Lumber and going long Coffee. Coffee is one to watch as we participated in a great long trend from mid 2010 to May of 2011 exiting before it sold off significantly until early August. We have re-entered this market as the long term trend up remains intact.
Currencies: Currency trends took pause vis a vis the US Dollar (that we exited our short in last month). The sector was highlighted by an outstanding example of trend capture in Swiss Franc. The long position, established on Dec 30, 2010, was exited on August 11th before selling off considerably. The trade returned over 14x the original risked amount. We also exited our long position in Canadian dollar that was established in October 2010. We remain flat the US Dollar Index but continue to hold long positions in Yen, Aussie Dollar, British Pound and the Euro.
Interest Rates: Interest Rate futures were the most profitable sector again in August. This occurred despite reducing the risk significantly in the sector early in the month. We hold the same long positions across the sector in reduced risk manner.
Equities: Global Equity markets were again lower in August and again very volatile. The remaining long position held at the end of July was exited in the first days of August (this included S&P, CAC40 (Paris) and the Russell). S&P and Russell were profitable trades. We leave the month flat the Equity indices with the exception of a new short taken in the Japanese Nikkei. Many of the long term uptrends are now shifting which may bring about new short positions in the near future. Stay tuned...