February Commentary & Performance

The Auspice Diversified Program was down 1.11% in February.

"Blame Caesar!"

I know you are thinking I am going to say something about the looming European sovereign debt crisis, but I am not. And those that understand how we invest would never expect us to use a fundamental excuse.The truth is simple; a single extra day in the month, Feb 29th.Julius Caesar had a piece of that one.

It was a lacklustre month in general with a flat result to Feb 28th. With various central bank ramblings, the knee jerk reaction caused market dislocation and we gave back about 100bps on the day; the 29th day. The humour of it all is that it all came back on March 1st. Ha!

Why belabour this point? It’s simple and important:

Returns don't fit into the nice boxes that investors typically want.  They shouldn’t be expected to move wildly positive or negative every year, every month, or every day. The experience from Feb 29th was within our expectations for volatility and the 29th was just another day. But the important reality is we are starting to gain momentum again in key trends. A wide expanse of opportunities across multiple assets is providing the potential for investment gains.

Monthly commentary:

After significant outperformance in January versus many CTAs (See link to Market Wizards list), we gave back 1.1% in February.  This further highlights the important point about CTAs made last month - we are not all doing the same thing. Most CTAs were down in January and it appears some were up in February. However, net of the 2 months, Auspice Diversified has outperformed most of the CTA indices.

In February, the Auspice Diversified Program was profitable in 2 of the 7 sectors traded. As in January, the equity market continued to trend up. This is not yet a long term trend, but one that we are willing to participate in. Energy is the most profitable sector during the month and over the last few months. The most challenging sectors were Interest Rates and Currencies.

Since full diversification (achieved in June 2007) the annualized return is +8.87% with 13.27% volatility. This remains 25-30% lower volatility than the Equity market with a low negative correlation. The global equity markets remain down over this same period which sounds like a broken record.

Additionally, for those interested in ideas about investing in alternatives, please check outAMFM Blog.

Interesting Trades:

While we did not completely exit any of our profitable trades in Energy or Equities, some of the markets were standout opportunities to stay in the trend.  In Energy, biggest gains came from Gasoline and Heating Oil. In Equities, the S&P and Nasdaq were the stars.

Key Points Regarding our Positions

Energies:  Energy had another fantastic month.  While Natural Gas took a hiatus from selling off, we remain short. We took a long position in Crude Oil to compliment the long position in Heating Oil and Gasoline both of which moved sharply higher.  This sector has provided great opportunity since late fall. 

For those with specific interest in this sector alone, please contact Auspice regarding the launch of our Energy focused strategy. The program went live on the March 1st.

Metals: We remain long Gold and added Palladium during the month.  While Palladium had a slight upwards trend, the other metals were largely sideways. Keep an eye on Copper as it is at a transition point.

Grains: Grains did not show much life with the exception of Soybeans.   We remain short Wheat, flat Corn but covered our Soybean short on the back of a strong push higher. As last month, this sector is a mixed bag and one to watch for direction soon.

Soft Commodities:  Softs were not profitable in February as Orange Juice gave back some of the upside and we remain long.  We re-entered a Coffee short early in the month and the market did continue to trend lower. We also entered a new short in Cotton.  We are flat Lumber at this time but it is one to watch.

Currencies: Currencies were not as active as January but still provided changes in positioning.  We remain long the Aussie dollar and short the Euro. Overall currency strength vis-a-vis the US Dollar had us exit our shorts in British Pound as well as Canadian Dollar. In the case of CAD, we also went long at month end. Lastly, we stopped out of a long position in Japanese Yen early in the month. This was fortuitous as the market dropped dramatically from that point. We remain on the sidelines in US Dollar Index and Swiss Franc.  It would appear that there is some strength to the commodity currencies which makes sense given the strength in Energy specifically.

Interest Rates:  Rates were the least profitable with most pulling back on the month. We remain long the US 5 and 10 Year notes and 30 year bonds but exited the short end of the curve on 2 year notes. 

Equity Indices:  Equities were very profitable as the market continued its upward movement started in January. This caused us to cover our one remaining short in the sector with Japan's Nikkei.   We remain long positions in Russell, S&P 500, and Nasdaq, all of which were initiated in January. We are flat the CAC40 Paris and the Hang Seng.