August Commentary & Performance

Download the commentary here.

The Auspice Diversified Program was down 0.70% in August.

August was highlighted by uptrends in the commodity markets. While we were positioned to take advantage of some of these uptrends in Energy and Grains, further uptrend saw changes to the portfolio in the Metal, Softs and Equity Indices sectors.  As such, while the portfolio was positioned defensively at the end of Q2 (tilted short), we have continued a shift to the long side which was started in July. The uptrends triggered position changes in commodities (Metals, Softs, Energies and Equity Indices) where we have reduced shorts or added new long positions.

The Auspice Diversified Program was profitable in 4 of the 7 sectors traded with largest gains from Energies, Grains and Metals and a small gain from Equities during the month. Concentrated losses in Softs, Interest Rates and Currencies slightly offset these gains for a small loss.

Interesting Trades: Two of the strongest markets during the month were Gasoline and Soybeans. Additionally, while not a massively profitable trade, a short exit in Palladium highlights our ability to be agile in the face of a trend reversal. In this case, we exited the short prior to an extended and sharp upside move. Lastly, we have re-entered Natural Gas short and added a new long in Gold.

The 5 year statistics (Sep 07 - Aug 12) are: +8.99% annualized return with 13.11% volatility. The worst drawdown for the period is 13.93% with an average Margin to Equity ratio of 6.4%. The global equity markets remain down (-1 to -5% annualized) over this same period with 20-35% more volatility and deep drawdowns of 40-55%. Over the long run, the performance of the Auspice Diversified Program highlights not only the non-correlation and absolute return characteristics of the strategy, but the lower risk profile from traditional investments due to stringent risk management and downside protection.

ADDITIONAL REFERENCES

• Advisor.ca article dispels some of the myths regarding managed futures.
• Listen to a podcast interview with  Tim Pickering, President of  Auspice and Michael Covel, a leading author specializing in Managed Futures and trend following.
• For those interested in more ideas about investing in alternatives, please check out the www.amfmblog.com.

Key Points Regarding our Positions

Energies: After covering shorts in many Energy markets in July, the market continued to show strength.  While we remain on the sidelines in Crude and Heating Oil, Gasoline soared making most of the sector gains from the long side. After exiting Natural Gas in July, we have re-entered from the short side on late month weakness.

For those with specific interest in this sector alone, please contact Auspice regarding the launch of our Energy focused strategy in collaboration with Pulse Capital Partners. The program went live on March 2nd. 

Metals: The Metals sector was marginally profitable with some notable position changes. First, we added a new long position in Gold as this market is picking up momentum. We also exited the short in Palladium prior to the aggressive rally that occurred mid month. Lastly, while Copper was profitable from the short side in July, the price rallied against the trend in August.  We remain short Copper despite the recent rally.  This sector is no longer tilted short and will be one to watch for further upside.

Grains: Grains also provided reward in August where we are holding the same positions where we remain on the sidelines in Wheat, but are long Corn and Soybeans. 

Soft Commodities: With the exception of Coffee, the Softs markets followed the rest of commodity rally higher.  While we remain short Cotton, we added a short in the Coffee market on its individual weakness. We are on the sidelines in Lumber and OJ at month end.  This sector was not profitable in August.

Currencies: Currencies were very challenging in August as many markets reversed sharply. We exited our long positions in Japanese Yen and the US Dollar index as well as a short in the Swiss Franc. We have added a Canadian dollar position to the long Aussie dollar position.  We remain short the Euro and remain on the sidelines in the British Pound.

Interest Rates: Rates were challenging in August as they sold off aggressively in the first half of the month only to reverse and head higher in the latter part. We covered some of our long positions defensively in the short end of the curve (US 2 and 5 year Notes) mid month. We remained long 30 year Bonds and US 10 year Notes (since early 2011) and re-entered 5 years at month end.

Equity Indices: After starting to tilt the Equity portion of the portfolio long in July, we have furthered that position slightly in August resulting in a small gain in the sector.  We added the Nasdaq index late in the month while covering our short in the Nikkei. This adds to the existing long positions in Russell 2000 and S&P. We remain on the sidelines in Hong Kong’s Hang Seng and the French CAC 40.

*Returns repesent the performance of the Auspice Managed Futures LP Series 1.

July Commentary & Performance

Download the commentary here.

The Auspice Diversified Program was up 1.17% in July.*

Hail Natural Gas!

July is one of those months that is often a dichotomy. While we are trying to relax, enjoy some summer holidays, our families/ kids etc, the markets are often very challenging. However, this year July provided some great opportunities as the markets normalized and calculated risk was rewarded.

ADDITIONAL REFERENCES

• Advisor.ca article dispels some o fthe mysths regarding managed futures.
• Listen to a podcast interview with Michael Covel, a leading author specializing in Managed Futures and trend following, and Tim Pickering. Tim discusses his background and the unique aspects that make Auspice a Next Generation CTA.
• For those interested in more ideas about investing in alternatives, please check out the www.amfmblog.com.

The traditional equity markets followed the strength in June with somewhat muted gains in July while commodities bounced back aggressively. While the strategy ended June positioned defensively (tilted short), protecting from downside in many commodities and equities, we have started to shift the other way. We have reduced shorts, crystallized some significant gains (see Interesting Trades below), and added new long positions in a number of sectors including Energy, Grains, Soft Commodities, and to a lesser extent in Equity Indices.

As mentioned last month, if you consider the market still at risk and/or are looking for non-correlated diversification from commodity agility, this may be an entry point to consider. We have been shifting our stance from long to short and back again while controlling downside risk and capturing significant trends along the way.

Monthly commentary:

The Auspice Diversified Program was profitable in 4 of the 7 sectors traded with solid gains from Interest Rates, Currencies and Grains and small gains from Metals during the month.
Interesting Trades: We exited two very profitable short trades of note. First, we exited a long standing short in Natural Gas crystallizing remaining gains. We also exited a short trade in Coffee capturing the bulk of a recent move down that started in February.

The 5 year statistics (Aug 07 - Jul 12) are: +8.47% annualized return with 13.20% volatility. The worst drawdown for the period is 13.93% with an average Margin to Equity ratio of 6.4%. The global equity markets remain down (-1 to -5% annualized) over this same period with 20-35% more volatility and deep drawdowns of 40-55%. Over the long run, the performance of the Auspice Diversified Program highlights not only the non-correlation and absolute return characteristics of the strategy, but the lower risk profile from traditional investments due to stringent risk management and downside protection.

Key Points Regarding our Positions

Energies: The move higher in Energies started late in June which included Natural Gas and caused us to lighten up significantly on the short side of Energy. We covered our positions in Crude, Natural Gas and Heating Oil and added a new long position in Gasoline. While by no means a long term trend yet, it is a significant shift from the trend lower experienced since February. While this sector wasn’t profitable in July overall, the shift from short to neutral and long while moving to flat natural gas is notable.

Natural Gas was exited capturing approximately 9.5 times the dollar risk taken in August 2008. The position closes one of the longest trades we have taken in our careers. If you would have told us 10 years ago that it would be in natural gas and from the short side, we wouldn’t have believed it! However, this trade really highlights the non-fundamental trend following approach we take works in volatile markets like natural gas. 

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

Metals: The Metals sector was marginally profitable holding the same positions. Most of the gain came from the short in Copper. In general the Metals sector has been consolidating the last two months and is one to watch for direction soon. This sector remains tilted short at this time.

Grains: Grains provided the bulk of sector gains during the month. While we remain on the sidelines in Wheat, we added a long Corn position to compliment Soybeans. Both were very profitable in July. This sector is now tilted long.

Soft Commodities: We came into the month short all the Softs and have covered all but Cotton. Lumber and OJ were covered into strength for small losses while Coffee was covered returning over 2 times risk taken. Softs were not profitable in July.

Currencies: While Currencies have bore the brunt of various interventions and policy shifts in the last year, July provided a welcome opportunity. Gains were made long the US Dollar Index and Aussie dollar while adding a new long position in Japanese Yen. We remain short the Euro and re-entered a short in Swiss Franc. All were profitable in July. We are on the sidelines in British Pound, and Canadian Dollar.
Interest Rates: Rates were positive in July. We have re-entered long positions in US 2 and 5 year Notes and remain long 30 year Bonds and US 10 year Notes (since early 2011).

Equity Indices: While we left June with some markets short and some long - net neutral, July inspired some changes. First, we covered our short in the CAC 40 and replaced it with a new short in Japan’s Nikkei. While we remain on the sidelines in Hong Kong’s Hang Seng and the Nasdaq, we have added new long positions in the S&P 500 and Russell 2000 markets. As such, we have tilted slightly long with a small loss on repositioning in July.

*Returns repesent the performance of the Auspice Managed Futures LP Series 1.

AMFERI Market Review Q2 2012

Market Review 

While many commonly suggest that CTAs have trouble in periods without trend, we recognize that this is a challenge for most strategies and not a very good explanation. Throughout Q2 and much of 2012, the market has been highlighted by choppy volatility, central bank interventions, and sharp reversals which are indeed difficult times for most managed futures strategies.  In these periods it is often a good result to gain sideways performance and modest pullbacks which are a reality and trade-off in producing non-correlated performance.

Since equity markets moved lower starting in March/April and continued sharply lower in May, the diversification benefits of Managed Futures added value and a measure of reassurance in an otherwise volatile environment. While a negative period of performance does not feel good, it needs to be taken in the context of the overall portfolio and the gains made across all assets. If you consider the market still at risk and/or are looking for non-correlated diversification, this may be an entry point to consider.

Index Review 

The AMFERI was down 0.55% during Q2 and is -1.90% YTD after gaining 8.48% in 2011. By comparison, the S&P DTI (Diversified Trends Indicator Price Return) lost 6.24% during the quarter and -10.24% YTD.

Portfolio Recap:

In Q2, the AMFERI index was profitable in 2 of the 4 sectors, negative in 2 and flat in 1. The weakest sector within the index was Energy which started to soften significantly at the end of Q2. Currencies also remained a challenge.  Sector gains were made in Agricultures led by weakness in Softs and long Interest Rates. Metals were flat on the quarter.

The index is currently positioned defensively, tilted short in 9 of 12 commodity markets, protecting from downside in many commodities.  It is also short 4 of the 9 financial markets all within the currency sector. Interest rates remain long. In total 13 of 21 markets are short.

Energy

While the index added long positions in Crude Oil, Heating Oil and Gasoline in Q4 2011 and early in 2012 which provided gains in Q1, the market softened dramatically in Q2. The index has reversed and gone short in all 3 of those markets. The index remains short Natural Gas since July 2008 despite some of the recent gains.  Natural gas has remained in a downtrend since mid 2008. This sector was not profitable in Q2 providing the bulk of the index loss.

Metals 

The Metals sector is positioned short. The index was long Silver much of Q2 but has now reversed to be short near the end of June. Copper and Gold continue to trend lower remain a short weight.  This sector was not profitable in Q2. 

Agriculture

The Ag sector provided gains led by the weakness in Soft Commodities during Q2.  Cotton, which was shorted midway through 2011 continued to experience weakness in Q2. Sugar was also weaker during Q2 and was a profitable short exposure. While each of the Grains acted in a unique manner and is treated discretely, all have long weightings at the end of Q2. Soybeans remain long since Q1 while Corn and Wheat flipped from short to long during the quarter.   Corn was added at the end of June while Wheat was added at the end of May. Grains were flat on the quarter.

Interest Rates

We remain long interest rate futures across the curve (US 5 and 10 year Notes and 30 year Bonds) although movement higher was modest. This sector was profitable in Q2.

Currencies

Currencies remain very choppy highlighted by short term trend reversals inspired by central bank and policy interventions. While the strategy was profitable holding a short in the Euro and long the US Dollar Index, the other currencies were a challenge.  In May, the Aussie and Canadian dollar which had been long and in uptrend reversed and headed lower. The strategy went short Aussie in May and short Canadian dollar in early June. The long British Pound also pulled back heavily where the index remains long. Lastly, our short in Japanese Yen rallied against the trend and moved higher. As such, it was a challenge in currencies but we have made some adjustments.

Outlook

Managed Futures remains an excellent place to be given the market volatility and risk.   Adding non-correlation and crisis alpha during this time is a responsible thing to do.  The strategy remains non-correlated despite short term periods of challenge.

ABCERI Market Review Q2 2012

Market Review

 Most commodity markets moved lower in Q2 in most cases eroding any gains that were made in Q1. 

Index Review 

The ABCERI was down 4.70% during Q2 after gaining 3.29% in Q1. By comparison, the S&P/GSCI ER lost 12.40% during the quarter.

This highlights that exposure to ABCERI provides exposure to up-trends in the commodity markets while mitigating exposure to the downside.  

The ABCERI does not attempt to simply track the broad commodity markets or predict their direction, but rather aims to capture upward price trends from those commodities that are making sustained moves higher.   While Q2 did not provide sustained upside for commodities, the index effectively limited the downside risk and exposure.  The ABCERI has outperformed most of its peers in 2012 down only 1.56%. The ABCERI index ended Q2 with June up 2.24%. 

Portfolio Recap: 

In Q2 commodities lost some of the ground that was gained in Q1. The weakest sector within the ABCERI index was Energy which started to soften significantly in March.  Metals contributed modestly to the softening while Agricultural commodities (Ags) provided some upside led by the Grain markets. 

Energy 

While the index added long positions in Crude Oil, Heating Oil and Gasoline in Q4 2011 and early in 2012 which provided gains in Q1, the market softened dramatically in Q2.  These position weights were flattened during the quarter and the index is currently waiting for a signal. The index currently remains without a Natural Gas position as well despite some of the recent gains.  Natural gas has remained in a downtrend since mid 2008. 

Metals  

The index held the same position long in Silver much of Q2 but has now exited near the end of June. Copper and Gold continue to trend lower and are still without a long position. After leaving 2011 without any of the metals components, the index is again in the same state. 

Agriculture 

The Ag sector provided modest gains led by the strength in Grains during Q2. While each of the Grains acted in a unique manner and is treated discretely, all have long weightings at this time. Soybeans remain long since Q1 while Corn and Wheat were added during the quarter. Corn was added at the end of June while Wheat was added at the end of May. Cotton, which was exited midway through 2011 continued to experience weakness in Q2 confirming the index zero weight. Lastly, Sugar was also weaker during Q2 and also remains without exposure. 

Outlook 

It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in sustained up-trends while minimizing risk during downtrends. 

After experiencing weakness throughout much of the second half of 2011, the gains made in Q1 were followed by a soft commodity market in Q2.  The long side of the portfolio is now represented by 3 of the 12 components and this is only in the Agriculture sector, specifically Grains.  As such the index is tilted to a defensive stance of capital preservation and only long markets that show specific opportunity. 

Since publication and calculation by the NYSE (September 2010), the ABCERI remains a better absolute and risk-adjusted way to participate in the commodity markets versus traditional long only commodity indices. Through this period, the ABCERI has gained 17.69% with 13.78% annualized volatility while the S&P/GSCI ER had a lower return at 3.84% with a higher 20.59% volatility. 

We continue to believe that the long term outlook for commodities remains promising but that downside like in any asset class, needs to be managed carefully and in a disciplined manner.  As such, strategies linked to the Auspice Broad Commodity Index, which have the benefit of disciplined risk adjusted participation, may continue to outperform the traditional (long only) commodity peer groups with better upside, lower downside and reduced volatility. 

Strategy and Index 

The Auspice Broad Commodity Index aims to capture upward trends in the commodity markets while minimizing risk during downtrends. The index, which is considered to be a “third generation commodity index”, considers both risk and reward.  The index uses a quantitative methodology to track either long or flat positions in a diversified portfolio of 12 commodity futures which cover the Energy, Metal, and Agricultural sectors.

Auspice Indices utilize dynamic risk management to produce superior risk adjusted performance in a variety of market environments. By dynamically managing the volatility of each commodity, Auspice ensures that no one commodity dominates the index thus maximizing the benefits of commodity diversification. Enhanced contract roll optimization further increases performance. On a risk adjusted basis, the Auspice Broad Commodity Total Return Index significantly outperforms its global peers. 

The Broad Commodity index is available in Total and Excess Return versions. The cash return for the total return index will be calculated daily using the 3-month CDOR (Canadian Dealer Offered Rate). The CDOR is the average rate for Canadian bankers' acceptances for specific terms-to-maturity (one year or less), determined daily from a survey on bid-side rates provided by the principal market-makers, including the major Canadian banks. 

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, pool operator (CTA/CPO) 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.​

June Commentary & Performance

Download the commentary here.

The Auspice Diversified Program was down 6.29% in June.

"Good Vol, Bad Vol, Interventions, CTAs fall"

At Auspice we are always very up front that like every investment strategy, there are less ideal periods for our particular strategy. While many commonly suggest that CTAs have trouble in periods without trend, we recognize that this is a challenge for most strategies and not a very good explanation. Like in June, periods of choppy volatility, central bank interventions, and sharp reversals are difficult times for most CTA strategies.  In these times, we need to control the drawdown but not avoid taking calculated risk. We do not apologize for periods of sideways performance and modest pullbacks which are a reality and trade-off in producing non-correlated performance.

In June, many markets that had been falling reversed and moved higher in an abrupt fashion. The strategy is currently positioned defensively (tilted short), protecting from downside in many commodities and equities. Since equity markets moved lower starting in March/April and continued sharply lower in May, the diversification benefits of Managed Futures added value and a measure of reassurance in an otherwise volatile environment. While a negative individual month does not feel good, it needs to be taken in the context of the overall portfolio. If you consider the market still at risk and/or are looking for non-correlated diversification, this may be an entry point to consider.

For those interested, Michael Covel, a leading author specializing in Managed Futures and trend following, interviewed Tim Pickering on his background and the unique aspects that make Auspice a Next Generation CTA. Listen to the podcast through iTunes.

Monthly commentary: 

Most commodity markets rallied right near month end against short positions we hold in many sectors.  The Auspice Diversified Program was profitable in only 1 of the 7 sectors traded with small gains from Metals during the month.

Interesting Trades: We exited a short trade in Wheat which rallied beyond previous highs set at the end of May. As mentioned in the May commentary, we exited the S&P mini futures on June 1 for a small gain since January.

The 5 year statistics (Jul 07 - Jun 12) are: +7.53% annualized return with 13.32% volatility. The worst drawdown for the period is 13.93% with an average Margin to Equity ratio of 6.4%. The global equity markets remain down over this same period with 25-35% more volatility. Over the long run, the performance of the Auspice Diversified Program highlights not only the non-correlation and absolute return characteristics of the strategy, but the lower risk profile from traditional investments due to stringent risk management and downside protection.

Additionally, for those interested in more ideas about investing in alternatives, please check out our blog.

Key Points Regarding our Positions

Energies: Energies moved higher along with many other commodities right at month end with the exception of Natural Gas that moved higher steadily throughout the month.  While we continue to hold our short in Gas, we are not far from an exit point. Keep close watch.  We remain short Crude which was entered at the end of May and added a short in Heating Oil. We are on the sidelines in Gasoline currently. As such, the sector remains tilted short.

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

Metals:  Metals were profitable on the back of a short in Palladium.  Copper was largely sideways where we remain short. We remain flat gold at this time. This sector remains tilted short.

Grains:  We covered the short trade in Wheat that had been in place since September 2011. Wheat had been the weaker of the grains but began moving higher beyond previous highs thus eroding further near term downside potential. As such, we exited with a gain before further deterioration in gains. Corn also moved sharply higher and we cut the short off quickly to prevent further loss. After exiting the Soybeans long position on weakness on June 1, we have re-entered the long side. Soybeans remain the stronger of the grains long term. At month end we are only holding a long position in Soybeans.

Soft Commodities: After great gains from the short side in May, most Softs experienced sharp reversals in June. We remain short OJ, Cotton, and Coffee and have also added Lumber which bucked the trend and moved lower on the month.

Currencies: Currencies continue to suffer from various interventions in global markets and a challenge to find a defined trend.  We remain long the US Dollar Index and took a new long position in Aussie dollar right at month end. We remain short the Euro but covered the short in Swiss Franc to be flat. We are on the sidelines in the others including Yen, British Pound, and Canadian Dollar.

Interest Rates: Rates experienced a small loss on some position changes.  While we remain long 30 year Bonds and US 10 year Notes (since early 2011), we have exited 5 and 2 year Notes.   This sector has been one of the most profitable in recent years and it is affirming to see gains crystallized and risk reduced. 

Equity Indices: After weakening sharply in the last couple months, the Equity market found reason to rally. The positions were tilted short at the end of May and as mentioned above, we exited the remaining long in S&P 500 and Russell 2000 futures right at the beginning of the month.  While the move higher was against our short positions we remain short the CAC 40 in Paris. We covered shorts in the Asian Hang Seng and Nikkei markets. Additionally, we took a new long position in Russell at month end. Consider this sector currently neutral awaiting a direction.

May Commentary & Performance

Download a pdf of the commentary here.

The Auspice Diversified Program was up 1.71% in May.

Upside Opportunity and Downside Protection: While May was challenging for many global markets, equities in particular, some of the sectors that have struggled in recent quarters provided an offset. The result is non-correlated performance at its finest and the exact reason to include managed futures as a core allocation in any portfolio. While we are quick to point out that the results of the program are non-correlated as opposed to negatively correlated, this does allow for times of positive performance as the traditional equity markets are failing. Over time, the correlation is a small negative (-0.10 to -0.30 range), and it comes from months and periods like May, when performance kicks in just at the right time. 

For those interested, Michael Covel, a leading author specializing in Managed Futures and trend following, interviewed Tim Pickering on his background and the unique aspects that make Auspice a Next Generation CTA. Listen to the podcast through iTunes.

Monthly commentary: 

The Auspice Diversified Program was profitable in 3 of the 7 sectors traded. While we again made gains in Interest Rates, excellent gains came from Metals and in particular, Soft Commodities.

Interesting Trades: While the strategy did not exit any specific profitable trades of note, some of the most profitable trades month over month include: short Cotton and Coffee, short Copper, and long interest rate futures. We also exited Gold after we noted in January that we had “ate humble pie” and got back on the long Gold trend that we exited at 2011 year end. However, this uptrend did not develop the same way again and we exited to be flat Gold at this time.

The 5 year statistics (Jun 07 - May 12) are: +8.64% annualized return with 12.97% volatility. The worst drawdown is 11.35% with an average Margin to Equity ratio of 6.4%. The global equity markets remain down over this same period with 25-35% more volatility. Over the long run, the performance of the Auspice Diversified Program highlights not only the non-correlation and absolute return characteristics of the strategy, but the lower risk profile from traditional investments due to stringent risk management and downside protection.

Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com.

Key Points Regarding our Positions

Energies: After exiting long positions in Crude and Gasoline in April, the Energy sector has continued to pull back.  During May we exited a long Heating Oil position to be flat and entered Crude position from the short side. We remain short natural gas (not news anymore!).  The sector was not profitable for us in May.

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

Metals:  After a 3 month hiatus, Metals was a profitable sector. Gains were made primarily from the short side of Copper. We added to the short side in Palladium during May. As mentioned above, we exited Gold to be flat.

Grains: Grains gave back some of their April gains with reversals in Soybeans and Wheat (in opposite directions).   Soybean price reversed and dropped hard while Wheat rallied. At month end we remain unchanged in both markets, long Soybeans and short Wheat. Our short trade in Corn provided some offset to the reversals as it continued to move lower.

Soft Commodities: Softs provided the largest sector gain in May led by rapid deterioration in Cotton and Coffee. Additionally, we have added a new short in Orange Juice while remaining flat Lumber at this time. 

Currencies: Currencies continued to be choppy and have been so for almost a year now. We made a number of position changes and the sector had a modest loss on the month.  We exited the recent new long position taken in British Pound, as well as the long positions in Aussie and Canadian Dollars. We took a new long position in US Dollar Index.  A new short was entered in Swiss Franc and we remain short the Euro. We are on the sidelines in Yen.

Interest Rates: After adding to our long position in April for some modest gains, the move higher in rates was significant. We remain long 30 year Bonds, US 10 year Notes (since early 2011), and 5 year Notes. As of this writing, we have also added 2 year Notes from the long side which is a classic example of trading with the trend regardless of the price.  It appears interest rate futures are excellent antiseptic right now.

Equity Indices: As mentioned last month, this was the sector to watch.  After moving higher January through March, the weakness that started in April accelerated in May. While Nasdaq led the way last month, as of this writing we exited long positions in S&P 500 and Russell 2000 for small losses and are flat all 3 of those markets.  We remain short the French CAC 40 which remains amongst the weakest in the sector and added shorts in the Asian markets, Hang Seng and Nikkei. We continue to monitor trend in this sector closely.

April Commentary & Performance

Download a PDF of this commentary here.

The Auspice Diversified Program was up 0.60% in April.

Months like April validate two things about our strategy. First, asset class diversification is not only sensible but also it is opportunistic. You really never know when and where opportunities will arise. Second, that being market direction agnostic is a key element to performance and opportunity. Taking advantage of both down and up trends is a beneficial attribute. Both of these things may lead not only to absolute return over time, but also internal portfolio diversification which ultimately creates the non-correlation that investors want and need.  

For those interested, Michael Covel, a leading author specializing in Managed Futures and trend following, interviewed Tim Pickering on his background and the unique aspects that make Auspice a Next Generation CTA. Listen to the podcast through iTunes. 

Monthly commentary: 

Similar to last month, the Auspice Diversified Program was profitable in 3 of the 7 sectors traded. However this month, the gains came from different sectors. We made gains in Interest Rates and had a good month in Currencies which had been quiet for many months. Additionally, Grains had a fantastic month after treading water for some time. 

Interesting Trades: We exited a long Gasoline trade for a multiple gain on risk after 4 months. We also exited our profitable long position in Nasdaq that was put on in January when the equity markets began to rally.  

The 5 year statistics (May 07 - Apr 12) are: annualized return +8.43% with 12.96% volatility. The worst drawdown is 11.35% with an average Margin to Equity ratio of 6.4%. The global equity markets remain down over this same period with 25-30% more volatility. This highlights not only the non-correlation and absolute return characteristics of the strategy, but the lower risk profile from traditional investments due to stringent risk management and downside protection. 

Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com. 

Key Points Regarding our Positions

Energies: After making gains for the last few months, the Energy sector finally pulled back. We exited a long position in Gasoline that was put on in December which very effectively captured the bulk of this trend. However, Crude and Heating Oil, which began to slide in March, continued to do so. We have exited the Crude position but hold Heating Oil. Lastly, despite the rally over the very recent past which has garnered some press, we remain short Natural Gas. 

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

Metals: Metals also struggled in April with our Gold position softening modestly. After exiting Palladium in March it continued to deteriorate highlighting our agile risk management process. Lastly, we took a new short position in Copper. Keep an eye on this sector as it appears to be in flux. 

Grains: While Grains have struggled for a number of months and appeared in transition, April presented some opportunity both short and long and was the most profitable sector by far on the month. Both shorts in Corn and Wheat moved lower with the bulk of the gain from Wheat on the short side. Corn fell before regaining at the end of the month. Soybeans continue to lead the pack and we remain long. 

Soft Commodities: Softs continued to struggle in April. While modest gains were made holding a short in Coffee and Cotton, the recent short in Lumber moved higher and we covered the position. Orange Juice also experienced significant weakness and we covered our long position to be flat at this time. 

Currencies: With the exception of a new long position taken at month end in British Pound, our Currency holdings are the same and the sector was profitable. Our long position in Aussie dollar came back as did the Canadian dollar. The Euro started to move lower again and we remain short. We remain on the sidelines in US Dollar Index, Swiss Franc, and Japanese Yen. 

Interest Rates: As was the case in January for Equities, we are happy to eat humble pie and get back on the bus. As such, while we remained long US 10 year Notes, we have added new positions in 30 year Bonds and 5 year Notes. This sector was profitable in April. While it may not seem intuitive that we exited most of this risk recently, only to put it back on, it should be understood that the market opportunities and risks are always evolving and need to be looked at discreetly. 

Equity Indices: Equities started to soften during the month and we have made adjustments very quickly. We exited our long position in Nasdaq to capture the bulk of this recent trend. However, we also exited the Nikkei for a small loss. We remain long the strongest of the markets in Russell 2000 and S&P 500, both of which moved against us on the month. Lastly, we initiated a short in the French CAC 40 which was the weakest of the sector. This sector is to be watched carefully. 

ABCERI Market Review Q1 2012

Q4 2011 allowed for the global equity markets to regain some lost ground. For some like the S&P, it was enough to end up flat on the year. Q1 2012 continued that trend with strength in much of the global equity market. Despite equity markets leading the way, the commodity markets also performed well. 

Index Review for Auspice Broad Commodity Excess Return Index (ABCERI)

The ABCERI was up 3.29% during Q1 after gaining 0.54% in 2011. By comparison, the S&P/GSCI  ER gained 5.87% after losing 1.23% in 2011. This highlights that exposure to ABCERI correlates nicely with the uptrends in the commodity markets while mitigating exposure to the downside. 

The ABCERI does not attempt to simply track the broad commodity markets or predict their direction, but rather aims to capture upward price trends from those commodities that are making sustained moves higher.   During Q1, the index effectively tracked and participated in the upside movement in its commodity components.

Portfolio Recap:

In Q1, commodities gained some of the ground that was lost in the second half of 2011. Given the 2011 downside was mitigated by exiting positions that were moving lower in a sustained fashion, the entire upside was not captured as commodities turned around. This is the short term trade-off that over the long term has provided better absolute and risk adjusted results as described above. 

Energy

After adding long positions during December in Crude Oil and Heating Oil, the petroleum side of the Energy complex continued to trend modestly higher. The strongest gains were made in Gasoline, which was added in January and continued to participate in the upside. The index remains without a Natural Gas position as this market experienced significantly lower prices during the quarter. 

Metals 

After leaving 2011 without any of the metals components long, the index has started to re-enter the market. The index is now long Silver after exiting in Q3 2011. Copper and Gold, which had been trending lower since Q2 2011, were modestly higher in Q1, yet the index remains flat at this moment.

Agriculture

Within the Ag sector, the Grains showed mixed results and this highlights why the index allocates based on individual merit. After exiting Corn during the Q4, the market remained sideways. However, Wheat which was exited at the end of Q1 2011, continued to trend lower and thus the index remains without a weighting there as well. Soybeans has been the strongest of the Grains and added a long position during the quarter. Cotton, which was exited midway through 2011 continues to experience weakness confirming the index zero weight. Lastly, Sugar moved modestly higher in Q1, but also remains without exposure.

Outlook

It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in sustained up-trends while minimizing risk during downtrends.

The index has started to re-enter the commodity markets that show the most strength and opportunity after experiencing weakness throughout much of the second half of 2011.  Positions were added in all 3 sectors during the quarter.  The long side of the portfolio is now represented by 5 of the 12 components and this is split across the 3 sectors of Energy, Metals and Grains with a bias to Energy.  In the face of significant equity market strength and continued global financial concerns, we consider this movement to commodities interesting information. 

Since publication and calculation by the NYSE (September 2010), the ABCERI remains a better absolute and risk-adjusted way to participate in the commodity markets versus traditional long only commodity indices. Through this period, the ABCERI has gained 23.49% with 13.47% annualized volatility while the S&P/GSCI  ER had a lower return at 18.54% with a higher 19.11% volatility.

We continue to believe that the long term outlook for commodities remains promising and this is acknowledged by the recent strength in the face of negative global financial headlines. As such, strategies linked to the Auspice Broad Commodity Index, which have the benefit of disciplined risk adjusted participation, may continue to outperform the traditional (long only) commodity peer groups with better upside, lower downside and reduced volatility.

Strategy and Index

The Auspice Broad Commodity Index aims to capture upward trends in the commodity markets while minimizing risk during downtrends. The index, which is considered to be a “third generation commodity index”, considers both risk and reward.  The index uses a quantitative methodology to track either long or flat positions in a diversified portfolio of 12 commodity futures which cover the Energy, Metal, and Agricultural sectors 
Auspice Indices utilize dynamic risk management to produce superior risk adjusted performance in a variety of market environments. By dynamically managing the volatility of each commodity, Auspice ensures that no one commodity dominates the index thus maximizing the benefits of commodity diversification. Enhanced contract roll optimization further increases performance. On a risk adjusted basis, the Auspice Broad Commodity Total Return Index significantly outperforms its global peers.

The Broad Commodity index is available in Total and Excess Return versions. The cash return for the total return index will be calculated daily using the 3-month CDOR (Canadian Dealer Offered Rate). The CDOR is the average rate for Canadian bankers' acceptances for specific terms-to-maturity (one year or less), determined daily from a survey on bid-side rates provided by the principal market-makers, including the major Canadian banks.

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, pool operator (CTA/CPO) 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.

March Commentary & Performance

The Auspice Diversified Program was down 1.19% in March.

March was one of those months when you are left shaking your head.  It felt like a much better month than the number suggests. Why? Sometimes it hurts to do the right thing. In this case, most of the small loss on the month was due to a pullback in interest rate futures and taking profits in the most profitable sector we have had in the last 12 months.

Monthly commentary:

In March, the Auspice Diversified Program was profitable in 3 of the 7 sectors traded. As in the first two months of the year, the equity market continued to trend up. Energy also provided opportunity to ride the existing trend in natural gas.  Grains were flat on the month.  The most challenging sectors were Interest Rates and Metals.

Interesting Trades: We exited a long standing trade in US 30 year bond futures. This was a great trade and nearly completes profit taking of this sector. We now hold very little interest rate exposure. This is a significant shift in our risk and exposure.

Since full diversification (achieved in June 2007) the annualized return is +8.44% with 13.19% 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 www.amfmblog.com.

Key Points Regarding our Positions

Energies: Energy had a positive month largely on the back of the long standing short trade in natural gas. Natural gas continued its aggressive sell off after a short hiatus in February. Gasoline continued to modestly trend higher and we remain long. However, Crude Oil and Heating Oil were very choppy and trended lower against our outstanding positions. 

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

Metals: Metals moved lower during the month, against our Gold and Palladium positions. As such we exited Palladium before further deterioration but hold Gold. Copper remains sideways and we are waiting for trend direction.

Grains: Grains were a mixed bag and remain in a transition phase. Soybeans continued higher and we entered a new long position. Corn was weak into month end an we entered a new short position. We remain short Wheat which moved sideways on the month. Grains continues to be a sector to watch closely for direction and opportunity.

Soft Commodities: Softs were not profitable in March as Orange Juice gave back some more of the upside and we remain long. We remain short Cotton which is a long term down trend but it moved against the trend during the month. Unfortunately, the gains being short Coffee and a new short in Lumber did not offset these counter trend moves. Patience.

Currencies: Currencies were challenging during the month as overall market choppiness and commodity weakness hurt established trends. We remain long Aussie dollar that followed commodities lower on the month and provided the bulk of the sector loss. Canadian dollar was not as weak on the month but did not help us either. We remain short the Euro which traded lower then back up to close right where it started. We remain on the sidelines in US Dollar Index, Swiss Franc, British Pound, and Japanese Yen.

Interest Rates: Despite Interest rates again being the least profitable sector, all was not lost. We crystallized gains in US 30 year bonds returning over 7 times our initial capital risked. We also exited US 5 year notes, a trade entered in December and not provided the same upside opportunity. We remain long the US 10 Year notes. Interest rates were the most profitable sector over the last 12 months and we have crystallized almost all of this gain. Mission accomplished. 

Equity Indices: Equities were again very profitable as the market grinds higher. We added to the exposure with Nikkei and remain long positions in Russell, S&P 500, and Nasdaq. We are flat the CAC40 Paris and the Hang Seng.

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.

January Commentary & Performance

"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. 

Monthly commentary:

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.

Interesting Trades:

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!"

December Commentary & Performance

The Auspice Diversified Program was down 3.44% in December.

For those that missed our announcement in late November, Auspice was awarded a Silver medal by Morningstar in the category of Best Opportunistic Hedge Fund. 

Monthly Commentary:

We entered December with continued momentum in trends from November, but the month ended up very choppy. While December is often quiet, the continued efforts by government and central bank forces continued to destabilize market trends.  We are optimistic that this will soon pass and that government’s will soon focus on their raison d’être and leave the market to find a path.

The equity markets were very choppy during the month of December. Some indices fought back to flat on the year (S&P 500) but most remained in the red or in significant negative territory (S&P TSX 60 for example).  Regardless, the volatility and risk associated with the equity market remains very high.  As illustrated in the table, while the Auspice strategy had a small loss on the year, the correlation to equity remains very low (to non-existent) in times of similar performance while the volatility is markedly lower. 

Additionally, for those interested in more info and ideas about investing in alternatives, please check out AMFM Blog.

Since full diversification (achieved in June 2007) the annualized return is +8.90% with 13.47% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.

Interesting trades: We exited our long term Gold trade near month end. This position has been long since February 2009, over 1050 days. This change is interesting as it could be a catalyst for other trends and capital flows that create trends. We also saw a shift to short currencies vis-a-vis the USD.

Key Points Regarding our Positions

Energies: Despite overall choppiness, the energy sector was profitable on the month. We took a short position in Crude at mid month as weakness showed up again. However, the trade was short lived as the market bounced back aggressively.  We exited a long Heating Oil position that was entered in October further illustrating the choppiness within Energy. We remain short Natural Gas which was very profitable on the month.   We firmly believe that there is a great opportunity developing in Energy and it has been taken advantage of in the last quarter. For those with specific interest in this sector alone, please contact Auspice regarding the launch of our Energy focused strategy.

Metals:  Gold continued the sell-off that started in November and was exited during the month. This marks one of the longest trades we have ever held and returned approximately 6 times initial capital risked.  We also exited a short position in Palladium with a modest gain.  We remained out of Copper and hold no other Metals positions at this time. This sector was very choppy in December and throughout Q3.

Grains: Our positions remain the same in Grains but were not profitable on the month. We are short Soybeans and Wheat which both bounced back after being very profitable in the direction of trend in November.  We remain flat Corn.

Soft Commodities:  Orange Juice again continued to trend higher and we remain long.  Coffee broke out of its sideways pattern and we took a new short position. Cotton remains sideways which we are not participating at this time. Lumber remains choppy and we have covered our short.

Currencies: Currencies were profitable during December and we only made one change. We added a long position in US Dollar index mid month. As noted last month, we made a number of changes in October and November where there was a shift to short currencies in general. The long US Dollar index during December highlights this shift. At month end, we are short Swiss Franc, British Pound, Canadian Dollar, and the Euro. We are flat Yen and Aussie Dollar.

Interest Rates:  Rates were profitable as we added to the short end of the curve with 5 year notes. We remain long US 10 Year notes and 30 year bonds. 

Equity Indices:  We covered some shorts as the equity market chopped around with little direction. During the month we covered in Hang Seng and Russell 2000 while remaining short in Nikkei.  At month end we are also flat Nasdaq and S&P 500.  This sector is giving some mixed signals, so will be one to watch for direction early in 2012.  

November Commentary & Performance

The Auspice Diversified Program was up 1.07% in November.

For those that missed our announcement last week, Auspice was awarded a Silver medal by Morningstar in the category of Best Opportunistic Hedge Fund. 

Monthly Commentary:

It’s becoming a common theme: November was volatile across many asset classes. As in recent months, November was highlighted by market interventions from governments and central bank forces. For some reason they believe they are having a stabilizing effect and the reality is quite the opposite. During the month, the equity market continued its erratic path. Many markets lost much of the gain made in October only to bounce aggressively in the final days of the month as Euro-zone efforts appeared to provide a magic bullet solution and buoy investor confidence.

Regardless, the equity markets remained down on the month, down in the second half of 2011, and down over the last 5 years. During the month, the Auspice Diversified Program managed to find enough of the prevailing trends to post a decent gain on the month. While this is often challenging to do in these periods of choppy volatility, we take comfort in allocating the appropriate amount of risk across a diverse basket of global asset classes and the widespread opportunity this affords the portfolio beyond the traditional equity and fixed income markets.

Note in the table above the correlation to the equity markets remains very low (to non-existent) in times of similar performance and somewhat negative when outperformance is needed most (08' and the last 4 years!).

Additionally, for those interested in more info and ideas about investing in alternatives, please check out AMFM blog.

Highlights of the month: In November, the Auspice Diversified Program was profitable in 4 of the 7 sectors traded.  

Since full diversification (achieved in June 2007) the annualized return is now +9.9% with 13.4% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.

Interesting trades: While few positions were crystallized on the month, we had very profitable trades in Energy (both long and short) and Grains (short).  We also had success holding long term trades in Rates (long) and Metals (long Gold). 

Key Points Regarding our Positions

Energies: We hold the same positions as in October: we are short Natural Gas and long Heating Oil which was quite profitable. Crude is showing some strength but remains in a wide range over the last 6 months. Keep an eye on it in the near term. 

Metals:  Gold made a modest gain on the month while the rest of the sector was weak. We benefited from the weakness in Palladium and remain out of Copper at this time.

Grains: We took a new short position in Soybeans mid month as this market continues to erode. This complimented our short Wheat trade which combined to be our most profitable part of the portfolio. We remain flat Corn.

Soft Commodities:  Orange Juice continued a modest move higher and we remain long since October.  Cotton and Coffee are somewhat sideways and we are not participating at this time. Lumber remains choppy yet we remain short at month end.

Currencies: After exiting the US Dollar Index and the Yen last month, we also exited long positions in Canadian dollar, Euro, and Aussie dollar during the month. In the case of the Canadian dollar, we also entered a new short alongside the British Pound and Swiss Franc.  This is a fairly significant departure from the prevailing positions and opportunities in the last couple years.

Interest Rates:  Rates were profitable as we remain long the long end of the curve holding US 10 Year notes and 30 year bonds. We hold nothing in the short end of the curve. 

Equity Indices: We added to our short exposure in equities taking positions in Russell 2000 and Nikkei. The same can be said for Hang Seng, however, we exited the short in the violent rally that occurred on November 30th. We remain on the sidelines in Nasdaq and S&P.  While the market has bounced and is net positive in the last 60 days, the trends are tilted down in most of these markets.

October Commentary & Performance

October brought continued volatility across many global asset classes. In particular, the significant equity market weakness of Q3 was partially recouped; while the S&P fell over 15% in Q3, approximately 10% was regained in October. While this may provide some comfort in the short term (band-aid) it continues to raise concerns over the enormous volatility and risk in that asset class. As such, we do not take much comfort in the rebound in any regard and this validates investor need for diversification and non-correlation.

As with the comments last month regarding correlation and periods of appropriate measure, one sometimes feel like asset classes are highly correlated when we are hoping (and wishing) they are not. This is perhaps how it has felt the last few months with our strategy and managed futures more broadly vis-a-vis the equity markets. However, if one considers the correlation over a longer period, we see that the correlation is indeed low.  It is also a bit negative, which is important as well. (For more talks about non-correlation and ways to get it, visit the www.amfmblog.com).

The key is the correlation is low but tilts to negative when the investor needs it most - times of financial crisis (tail risk protection). So - while the last 4 months from July (on an individual basis) may have felt like managed futures were perfectly positively or negatively correlated, the reality is both our strategy and equity are down but importantly the correlation is actually -0.42: a moderate negative.  This is indicative of the portfolio benefit and it is patience that will allow the long term effects to result in our desired goal: absolute returns.  Patience is required.

Highlights of the month: In October, the Auspice Diversified Program was not profitable in any of the 7 sectors traded.  The last time this occurred was in July 2008.  Opportunities often arise (and did in 2008) out of these directionless markets which are significant for the strategy. Out of the chop comes the trend.

Since full diversification (achieved in June 2007) the annualized return is now +9.9% with 13.6% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.
Interesting trades: 

Despite the negative performance, there were a couple of bright spots: We took profits in US 5 year Notes at 5 times initial risk. Also, on the last day of the month we exited a long position in Japanese Yen.

Key Points Regarding our Positions

Energies: Energies struggled as it was choppy and lacking trend (with the exception of natural gas continuing to trend lower). We covered our Crude short during the month and are now flat along with Gasoline. We took a new long position in Heating Oil at month end while remaining short Natural Gas.

Metals:  Gold continued higher after the quick correction at the end of September - none of this changes the long term uptrend. We took a new short in Copper but exited on a stop by month end. Lastly, we are still short Palladium. Keep an eye on this one as it can be an aggressively trending market.

Grains: We remain on the sidelines in both Corn and Soybeans as they currently experience continued consolidation within tight ranges.  We remain short Wheat through its own sideways action during the month.

Soft Commodities:  Like the other sectors, Softs didn't have a positive month. We remain short Lumber and added a new long position in OJ. We remain flat Cotton and Coffee.

Currencies: Currencies remained choppy which in one sense isn't surprising given the global financial stresses and critically, policy interventions. The long Japanese Yen trade was exited profitably on the month. We also exited the recently added US Dollar index length that was noted to be the first shot at USD from the long side in a long time.  As such, we also added long positions in Swiss Franc, Aussie Dollar, Canadian Dollar, and the Euro.

Interest Rates:  We continued to drop short-end rate risk started in August by exiting US 5 year Notes. Great trade.  We remain long the 10 years and 30 years.

Equity Indices: It should be no surprise the Equity Indices were the biggest challenge on the month. The aggressive rebound was counter to the trends lower that have been developing the last 4 months in most markets.  Timing of the short entry late last month in S&P proved poor and we exited quite quickly.  We also covered shorts in CAC 40 (Paris), Hang Seng, and Russell 2000. This leaves us with a single remaining short in the Nikkei. Obviously, Equities are a key sector to monitor as the markets look for clarity and we look for....trend.

September Commentary & Performance

September was a choppy month as we experienced extended weakness and increased volatility across many asset classes. While our performance was negative on the month - the quarterly, year to date, and long term results continue to illustrate the non-correlated benefits of managed futures. Moreover, we continue to provide "event" protection as we experienced in 2008 and so many other times in history.

As measured by the S&P 500, the equity markets experienced one of the worst quarterly performances in history, down over 14%. While managed futures did not provide a perfect offset, the strategy did perform much better -1.52%. This brings up two benefits to adding Managed Futures to a portfolio:

First, Managed futures provides non-correlation to the broad markets, not necessarily negative correlation. If equity markets decline it does not mean that managed futures will be positive. Managed futures have little or no relationship with the returns of the equity markets, although sometimes they do move in the same direction.

Measuring correlations over short periods of time is less valuable as a statistic. Ideally this is measured over a period of years that encompasses many market environments and situations. Over the long term, our correlation to the S&P is -0.26.  It is a non-correlated number that is slightly negative that highlights the benefits that have been achieved during periods of financial stress. 

Second, another goal of managed futures is to provide a benefit during times of significant financial stress, what some describe as "Tail Risks". During this quarter, Auspice Diversified did just that.  If the past is any indication, prolonged weakness could be harnessed very well by the Auspice strategy as the event unfolds and tail risk protection is needed.  

• Q3 2008: -1.15%
• Q4 2008: +20.40%
• Q3 2011: -1.52%
• Q4 2011: ??? 

Click here for an excellent article on Tail Risk protection.

Take comfort in your investment at Auspice and our disciplined approach to the markets. Auspice practices an active risk management and capital allocation model. Thus, we adjust our exposure based on market risk. As with previous times in history, Auspice has actively adjusted risk to remain within our targeted level based on market volatility, liquidity and mark to market gains in the portfolio. All of these things ensure we will continue to crystallize opportunities while remaining appropriately involved in the markets during these opportune yet volatile times.  

Highlights of the month: In September, the Auspice Diversified Program was profitable in 3 of the 7 sectors traded. The profitable sectors included Interest Rates, Equity Indices and Energies. Of the unprofitable sectors, many of them broke their uptrends or turned down substantially on the month. 

Since full diversification (achieved in June 2007) the annualized return is now +11.2% with 13.5% volatility or 25-30% lower volatility than the Equity market. The global equity markets remain negative over this same period.

Interesting trades: During the month, we took profits in the other commodity currency, the Aussie dollar, which had been held since July 2010.  We also took profits in US 2 year Notes, a long trade entered in May 2011. Lastly, we took profits in a long Orange Juice trade that was initiated in September 2010.

Key Points Regarding our Positions

Energies: The Energy markets were weak across the board in September.  We remain short Crude Oil and Natural Gas, both which continued to trend lower. We remain on the sidelines in Heating Oil and Gasoline but are monitoring closely for further signs of deterioration.

Metals: We remain long Gold despite recent weakness as the long term trend remains intact. We entered a new short in Palladium as this market broke down from long term trading ranges helping to affirm the trend lower. We remain on the sideline in Copper at month end but have noted that it is no longer in an uptrend by our definition. The Gold market is the strongest of the sector as it has been for many months. Overall this sector was not profitable on the month. 

Grains: After a couple strong months in the summer, Grains showed significant weakness in September. After taking profits in Soybeans in August, we took another long position.  However, this position was exited quickly in September and we are now flat.  The Corn position we have held since fall of 2010 was also exited right at month end.  The same occurred in Wheat where we additionally got short by month end. This will be a sector to keep an eye on as it is in the transition period which is often hard to interpret on a short term basis.

Soft Commodities: Softs struggled during September. The long term OJ trade was exited profitably.  We tried Cotton from the long side, but the trade was short lived and we covered during the month.  Lumber proved particularly choppy and difficult to establish a trend in, albeit we remain short. Coffee was also very choppy and we exited the long position taken in August. This was another sector in transition.

Currencies: After global currencies took pause vis a vis the US Dollar in August, they fairly universally weakened in September.  To that end, after remaining on the sidelines, we have now taken a long position in the US Dollar Index, the first since early 2010.  We remain long the Japanese Yen, the strongest of the currencies, but have exited the other long positions held in August including Aussie Dollar, British Pound and the Euro. We remain on the sidelines in Swiss Franc and Canadian dollar, both which weakened considerably in September after we took long profits in August.

Interest Rates: Interest Rate futures were a profitable sector again in September.  After reducing risk substantially last month, in September we cut positions in US 2 years and Eurodollars, mitigating short end rate risk as the upside (price) opportunity has been greatly diminished. We hold the same long positions from 5 years out to 30 year T Bonds.

Equities: Lastly, but not least, we were also profitable in the Equity sector on the month.  Global equity markets were again significantly lower in September, dropping anywhere from 6 to 9% on the month.   As at the end of August, we do not hold any long equity positions. Complimenting a short taken in the Japanese Nikkei in August, new short positions were taken in the Russell 2000, and Hong Kong's Hang Seng.  We left the month flat the NASDAQ and the S&P markets but as of this writing have also gone short the S&P.  Stay tuned.

August Commentary & Performance

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...

July Commentary & Performance

We are very happy to report a strong result in the often challenging July summer month of +2.16%. This year, July had similar volatility to previous years along with the added global financial unrest due to US debt issues and a weakening equity market. The resulting erosion of investor confidence and concern over a weakening market gave us pause in June and was capitalized on in July across numerous asset classes. Moreover, it illustrates that the key benefit of managed futures/CTA programs is non-correlation. It is not a strong negative correlation, but more of a low correlation that often produces very good results during times of financial unrest when diversification is most needed.

It should be noted that it is important for investors to remain invested or even add to these types of non-correlated strategies during these times. While an investor's first inclination is to reduce risk (as ours), it should be noted that reducing exposure to programs like Auspice at these times is precisely the wrong thing to do. Non-correlated investments have the ability to protect and benefit the portfolio specifically during these times (often described as "Tail risk protection"). Reducing a position in managed futures actually increases portfolio risk. If one is looking to reduce risk, lower the exposure to directional bets in equities, fixed income and other highly correlated asset classes. These traditional asset classes have been shown to become increasingly correlated in times of financial stress, while managed futures have been shown to provide consistent diversification. Take special note below to our recent changes.

There have been a number of media stories on the benefits of managed futures and one of particular note by Reuters who published an interesting article on Auspice and Managed Futures.

The choppy markets experienced in June did not last. While the equity markets have continued to sell off, even accelerating in certain markets such as the Canadian TSX, most other asset classes provided fantastic opportunity. With the exception of Equities and Energies, we were profitable in all sectors. While equities remained a challenge, the Energy market was just modestly negative. Considering the release of the US SPR (Strategic Petroleum Reserve) in June and the resulting choppiness that results from this type of intervention, we still see fantastic opportunity in this sector as we did in December through April.

Highlights of the month: In July, the Auspice Diversified Program was profitable in 5 of the 7 sectors traded. Profitable sectors included Interest Rates (see commentary below for specific important comments), Currencies, Metals, Grains and Softs. 

Since full diversification (achieved in June 2007) the annualized return is now 12.5% with 13.6% volatility, 25-30% lower volatility than the Equity market. The equity market remains negative over this same period.

Interesting trades: During the month new trades were taken in Heating Oil and Gasoline. In Metals, we added Palladium while in Grains, we added Wheat. Currencies were notable as we covered a short position in the US Dollar Index. However, the most important changes are, as of this writing, we have reduced the risk in the entire interest rate sector (selling long positions in bonds and notes) and have completely exited the equity sector from the long side. 

Key Points Regarding our Positions

Energies: Given the US uses the SPR very infrequently, every 5-10 years, we consider the release in June to be a good thing. It allows us to worry less as it is unlikely to occur again anytime soon. Regardless, the modest pullback in our strategy for Energy in June and July was within expectation and illustrates our disciplined approach to risk and capital allocation.

We remain flat the natural gas market. Note that this market still is in down trend but to reiterate from last month, "the risk reward was no longer in favour of being short at this time". Keep a watch for a breakout from the consolidation of $4.00 - $5.00 that has occurred for most of the year.  We remain flat Crude but took new long positions in Heating Oil and Gasoline. 

We consider this sector to be one of the most opportune going forward after experiencing a few months of pullback and the SPR release.

Metals: After being flat for many months, the Metals market kicked in again and provided  fantastic results. The long term Gold trend moved sharply higher after pausing in May and June. We took a new long position in Palladium late in the month complimenting the position in Copper taken on June 30th. Last month we noted to "Keep an eye on this market to see if the long term trend reignites to the upside" - it would appear this has started to occur.

Grains: Grains provided a positive month after many months of choppy behaviour. While this in itself does not make for a trend, we see this as a positive sign in a sector that has produced great results over the last couple years. We continue to hold long positions in Corn and Soybeans (established positions since 2010). Both of these markets had a strong month. In July we added a long position in Wheat. This sector looks quite opportune.

Soft Commodities: Softs continued to be opportune after having a very good first half of the year.  We are long OJ which had a very good month. We remained out of Lumber into month end despite its overall long term downtrend. We also covered our long position in Cotton for a very small gain. After the very profitable trend up in the second half of 2010, that market appears stuck sideways at the moment. Lastly, we are flat Coffee.
Currencies: Currencies had a good month in July. Most notably, we covered our short in the US Dollar index. The other positions are the same at month end. We remain long the Canadian and Aussie dollars as well as the Euro, the Pound and the Swiss Franc. 

Interest Rates: Interest Rate futures were the most profitable sector in July providing almost half of the gain. Leaving the month we hold the same long positions. Of note: At the time of writing on August 2nd, we have re-sized and reduced risk in this sector, crystallizing significant long term gains made.

Equities: Global Equity markets were again lower in July and very choppy. It would appear there is some acceleration in this recent trend. At month end we continued to hold long positions in S&P, CAC40 (Paris) and the Russell but as of the writing we have sold all equity positions. The trend up would appear to be failing and the risk has increased significantly.

June Commentary & Performance

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. 

December Commodity Commentary and Performance

What a month! December was one of our most opportune months and topped off a very good year for the Diversified Program. Auspice has now been profitable in 9 of the last 12 months. While the global indices also had a good month, Auspice managed to outperform almost all on the month, and many on the year. For example, the S&P was up 6.5% in December and 12.80% in 2010. The TSX didn't fare as well but was up 3.7% in December and 10.9% for the year. The GSCI commodity index made up the bulk of its 2010 performance in December finishing off the year with a 9.0% return. On a 3 year annualized return basis, most equity indices remain negative (S&P -5%, TSX -1.7%) while Auspice continues to outperform at 14.4%.

Key Points regarding our Positions

Energies: As in November, the Energy market made some small gains. From a trend perspective, 3 of the 4 (less natural gas) components are now showing up-trend potential including Gasoline, Heating Oil and Crude Oil. In addition to the Gasoline position taken last month, we took a new position in Heating Oil. A new Crude position was also taken at the beginning of January. We remain short natural gas.While we would describe the trends as preliminary which are notoriously challenging to trade, we will continue to carefully monitor this sector as we believe opportunities are likely forthcoming in this sector. To that end, we are launching an institutional Energy program in early 2011. Please contact Auspice for more information.

Metals: The Metals sector was again the star of the month (and the year) and we remain long Copper, Gold, and Palladium. This sector remains in a solid up-trend. At the beginning of December we reduced the risk and resized positions (took some profits).

Grains: Grains also had a fantastic month. We remain long Soybeans and Corn and added a long Wheat position as well. 

Soft Commodities: Softs had a decent month. We remain long Coffee and Orange Juice, both have been profitable. We re-entered the Cotton market after exiting very profitably in November. The current position is small given the volatility in that market. Lastly, the short entered in Lumber last month was covered. This market was a challenge to trade given the lack of trend in 2010.

Currencies: The currency sector was also profitable in December. We took new positions in Swiss Franc (Long) and Yen. We remain flat in US Dollar index, Euro and British Pounds. We remain long solid up-trends in the "commodity currencies", Aussie and Canadian Dollars. Interest Rates: Interest Rates were the only down sector in December despite being the second most profitable on the year. We exited the remaining long 10 and 30 years. Both were profitable long term trades which returned approximately 4 times risk taken. We re-entered a long position in the Eurodollars in the short end of the curve late in the month.

Equities: Equities produced the third highest gain in December as the global markets rallied. We remain long the majority of the sector with the exception of Japan's Nikkei which we are currently flat. This sector remains risky and volatile.