As a whole, the first 2 quarters of 2011 provided decent opportunity for the Auspice strategies. Of the 7 sectors traded, we were positive in 4. This includes Energies, Soft Commodities, Currencies and Interest Rates. This left Equities and Grains not working as well. We can attribute the volatile and choppy equity markets for the challenge in that sector. This was similar in Grains where the markets appear to be pausing from opportune trends. The Metals market was flat on the half after providing fantastic gains over the last year. Keep an eye on this sector for direction. Global markets were choppy in June. As the equity markets started to retrace, it seems the other asset classes also became nervous. The equity markets continued to be volatile throughout the month after selling off aggressively and then partially bouncing back at month end. The global commodity markets fell on the month as well.
The choppy activity throughout June and May tests portfolio diversification and risk management. While we gave back a bit on the month, we managed to preserve a positive gain on the quarter and the year. Overall we are happy with the positive and low volatility performance of the strategy in first half of 2011.
Since full diversification (achieved in June 2007) the annualized return is now 12.2% with 13.8% volatility, 30% lower volatility than the Equity market. The equity market remains down over this same period.
Highlights of the month: In June, the Auspice Diversified Program was profitable in 1 of the 7 sectors traded, flat in 2 and down in 4. Gains were made in Currencies while we were flat in Metals and Softs. The most challenging markets were Equities, Energies, Interest Rates and Grains of which Energies and Interest Rates have done well year to date.
Interesting trades: We covered our long term natural gas short and took a long position in Copper. We also exited our long position in Eurodollars (short term interest rate futures).
Key Points Regarding our Positions
Energies: First things first: after being short Natural Gas since August 2008, we covered the final remaining short position. This trade was over 1000 days long and gave a fantastic return. Currently, we are flat the natural gas market which has been in a tight consolidative pattern since the beginning of the year. To be clear, by our definition natural gas is still in a down trend. However, the risk reward was no longer in favor of being short. To give some idea, sustained price action over $5.00 may turn this trend up. Keep your eye on this one throughout the summer as things can change quickly in natural gas.
Overall, the Energy market continued to give back some of the gains made in early 2011. To reiterate, after a long dry period, Energy had been very profitable since December 2010. This correction is healthy. Other than natural gas, we took profits in the remaining Heating Oil trade which gave a reasonable return.
Metals: The Metals sector was again flat on the month as we continue to hold the long term Gold trend which moved sideways on the month. We remain flat in Palladium but took a long position in Copper at month end. Keep an eye on this market to see if the long term trend reignites to the upside.
Grains: Grains were not profitable on the month as we continue to hold long positions in Corn and Soybeans (established positions since 2010). We remain on the sidelines in Wheat which is in long term uptrend but moved sharply lower in June. This sector appears to be in transition and one to watch closely.
Soft Commodities: Softs were flat on the month. We covered our short in Lumber for a small gain and remain long Cotton and Orange Juice.
Currencies: Currencies have provided great results in the first half of the year and had a good month after correcting in April. As with last month, we have not closed any positions after adding a long position in the Japanese Yen in May. We remain long the Canadian and Aussie dollars as well as the Euro, the Pound and the Swiss Franc. We continue to be short the US Dollar index.
Interest Rates: Interest Rate futures corrected lower and were not profitable on the month. Of note we covered our long position in Eurodollars in the short end of the curve. This sector has been very profitable in 2011.
Equities: Global Equity markets were again lower on the month and quite volatile. We continue to hold long positions in S&P, CAC40 (Paris) and the Russell of which the Russell 2000 (small cap index) definitely looks the strongest. We remain on the sidelines in the Hang Seng, Nasdaq, and Nikkei.