"Hold the course and eat humble pie!" The month of January was about the simplicity of trend following: stay long what is going up, stay short what is going down and get back on trends that start to move again.
The Auspice Diversified Program was up 2.41% in January.
Mixed results amongst CTAs for January highlights that not all managed futures or trend following strategies are the same. Individual managed futures strategies can provide significant diversification even within their respective genre.
2012 is off to a strong start with many of the trends that had been developing in the fall getting back on track. As mentioned last month, trends naturally develop when governments and central banks are not involved in the capital markets. There were some surprise opportunities which we participated through trading a diversified basket of markets and sectors.
After being one of the most of erratic of sectors in 2011 and specifically in December, the Equity markets found an up ward path in most markets. While we would not classify this as a pervasive long term trend, it was one that we are able to participate in.
In January, the Auspice Diversified Program was profitable in 6 of the 7 sectors traded. The only lagging sector was the Currencies which gave back gains after being profitable in December. The biggest gains were made in Softs and Energy.
Since full diversification (achieved in June 2007) the annualized return is +9.29% with 13.36% 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.
Additionally, for those interested in ideas about investing in alternatives, please check out AMFM Blog.
Short natural gas and long OJ: We remain short natural gas which dropped significantly in January. Other than a short period in 2011, we have been short this market since August 2008. The other great trade was long OJ during the month. Lastly, we re-entered Gold from the long side.
Key Points Regarding our Positions
Energies: Energy had a great month. The biggest gain came again from our short natural gas position. This remains one of our most profitable and long term trades. We re-entered a long position in Heating Oil during the month which showed some upside strength. We also remain long Gasoline which had a strong month higher. We continue to remain flat Crude for the time being.
For those with specific interest in this sector alone, please contact Auspice regarding the launch of our Energy focused strategy.
Metals: After exiting Gold right at year end, we have re-entered the long side of the market. We are comfortable with these decisions as they highlight our ability to capture trends in the face of changing risk. We are also humble enough to get back on a train as it starts to move again. We remain flat the other metals at this time.
Grains: Our positions remain the same in Grains and were slightly profitable on the month. We are short Soybeans and Wheat and flat Corn. Keep close watch of this sector as it has lacked direction and is due for trend.
Soft Commodities: Softs were the most profitable sector on the back of OJ which exploded higher during the month. We exited the Coffee short that was taken in December. We remain on the sidelines in Lumber and Cotton as both lack direction at this time.
Currencies: Currencies provided a lot of trade activity during the month. This is not a big surprise given the overall choppiness due to ongoing turmoil in the European markets. As such, we exited the long US Dollar Index entered in December. We also exited our short in Swiss Franc. We have taken new long positions in Japanese Yen and Aussie Dollar with Aussie leading a strong push higher. We remain short the Euro, British Pound and Canadian Dollar at month end.
Interest Rates: Rates were profitable as we added to the short end of the curve with 2 year notes. We remain long the US 5 and 10 Year notes and 30 year bonds.
Equity Indices: Equities were marginally profitable as we entered markets from the long side and only hold one market short at this time. We took new long positions in Russell, S&P 500, and Nasdaq. We remain short the Nikkei at this time and flat the CAC40 Paris and the Hang Seng.
We are optimistic about opportunities in 2012. "The glass of orange juice is definitely more than half full!"