Auspice Managed Futures Excess Return Index (AMFERI)
Market Review
While February was generally a challenging month for trend following and managed futures strategies, the AMFERI was positive. As in recent months where the bulk of opportunity came from the equity markets, an area not included in this index, the index found value in less obvious places – shorts in commodities and currencies. This agility is a central feature of the strategy and its intention to provide non-correlation to equity biased portfolios.
The performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.
Pullbacks happen within all strategies; however with managed futures such drawdowns can be an opportune time for investors. Investors should consider the drawdown history of their preferred strategy and gain expectations for potential payoff on recovery and extension.
For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis to the right.
SYNOPISIS OF DRAWDOWN ANALYSIS
Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley).
Please contact us at info@auspicecapital.com for the complete analysis.
Index Review
The AMFERI was up 0.55% in February and was highlighted by a number of position changes further highlighting the period of transition.
Portfolio Recap:
In February the index was up in 2 of the 5 sectors. The strongest sector was Ags followed by Currencies. The top performing component included Corn, Wheat, Crude Oil, British Pound. and the Canadian Dollar – all from the short side. The most challenging sector was in Metals as widespread weakness had the index move from tilted long to short across the sector. Commodities had a positive attribution led primarily by short Ags which outpaced the performance in Metals and Energies both which were down on the back of long positions.
The Currency sector also was positive on the month led by the short in British Pound and the Canadian Dollar. The US Dollar shifted direction and outperformed most global currencies on a move higher.
The index is currently positioned short in 9 of 12 commodity markets, having flipped to short in Gold and Silver in February. The index is tilted short in the financial markets with 6 of the 9 components holding a short weight. Within Financials, Currencies have now balanced short and long (3 and 3) with adding a long weight in the US Dollar Index weight during the month. Interest rates components remain all short.
Energy
The petroleum weights remain the same - long Gasoline and Heating Oil while short Crude Oil and Natural Gas. After a strong January, the petroleum markets sold off aggressively led by Heating Oil and Crude Oil. Natural Gas was slightly higher on the month.
Metals
The Metals sector also moved sharply lower. Both of the remaining long positions in Gold and Silver were moved to shorts. The Copper market also moved lower and benefitted from the sell-off but did not offset the Gold and Silver attribution prior to the shift to short weights.
Agriculture
The Ag sector made great gains primarily on the back of short weights in addition to a small gain from the lone long position in Cotton which moved modestly higher. The Grains, which were tilted short in recent months have continued to correct lower with Wheat the weakest of the three. Sugar remains short as it continues to drift lower. All Ag components, short and long were profitable during February.
Interest Rates
After a big shift in January from a multi-year long position, the index is now tilted to take advantage of higher interest rates (short bonds). There was a small loss from this sector as prices rose during the month.
Currencies
Currencies made modest sector gains in February. Most gains were made on the short side as the US dollar outperformed most markets. The index has now shifted to a long weight in the US Dollar Index. This makes the Currency sector evenly balanced long and short. Currently short British Pound, Canadian Dollar, and the Japanese Yen. Long positions in Euro and Aussie dollar complimented by the new US Dollar Index weight. The Euro and Aussie dollar were both weak but remain long at this time.
Outlook
While we don’t know the direction of the traditional equity and fixed income markets, what investors need is an insurance policy that will pay off at times when the inevitable pullbacks occur. In our opinion, AMFERI is better than insurance in that it also has a good chance of making money when you need it the most and at least not losing much, at other times. Overall, your total portfolio has less risk and more chance of making money over the long term by adding a non correlated investment. You wouldn't drive a car without insurance and you shouldn't invest without it either.
Strategy and Index
The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return).
About the Index Provider
Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk. Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US.
Auspice’s core expertise is managing risk and designing and executing systematic trading strategies. Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.