April 2013 Auspice Managed Futures Index Commentary

Auspice Managed Futures Excess Return Index (AMFERI)

Market Review 

The AMFERI had a great April as volatility picked up in both financial and commodity sectors alike. While across all global assets, much of the opportunity came from the equity markets, an area not included in this strategy, the index continued to find tactical value in less obvious places. The month was dominated by the Metals market. The portfolio composition and agility is a central feature of the strategy and its intention to provide non-correlation to institutional and retail equity biased portfolios.

As seen in the next table, the performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.

After a period of challenge for many managed futures strategies, the index is off to a strong start in 2013 making back a significant part of the recent modest drawdown. Pullbacks happen within all strategies; however with managed futures such drawdowns can be an opportune time for investors. Investors should consider the drawdown history of their preferred strategy and gain expectations for potential payoff on recovery and extension. 

For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis to the right.

SYNOPISIS OF DRAWDOWN ANALYSIS

 

Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley).

 

Please contact us at info@auspicecapital.com for the complete analysis.

 

Index Review  

The AMFERI was up 2.27% in April and is up 3.95% (table below) in 2013, outperforming a number of investable and non-investable CTA indices highlighted in the table. 

Portfolio Recap: 

In April the index was up in 1 of the 5 sectors. The strongest sector was Metal. The top performing components within the index were shorts in Gold, Silver and Copper complimented by Corn, Crude and Sugar. Long gains were made in Natural Gas. The most challenging sector was Ags after having a very strong March on the short side. The index is currently positioned short in 10 of 12 commodity markets and a number of positions changed intra-month. The index is also tilted long in the financial markets with 5 of the 9 components holding a long weight. Within Financials, Currencies remain a balanced short and long (3 and 3). Interest rates components are mixed with a move to long in 2 of the 3 markets as the price trend pushed higher.

In April the index was up in 1 of the 5 sectors. The strongest sector was Metal. The top performing components within the index were shorts in Gold, Silver and Copper complimented by Corn, Crude and Sugar. Long gains were made in Natural Gas. The most challenging sector was Ags after having a very strong March on the short side. The index is currently positioned short in 10 of 12 commodity markets and a number of positions changed intra-month. The index is also tilted long in the financial markets with 5 of the 9 components holding a long weight. Within Financials, Currencies remain a balanced short and long (3 and 3). Interest rates components are mixed with a move to long in 2 of the 3 markets as the price trend pushed higher.

Energy

The petroleum weights have now tilted short – as we have added short positions in Gasoline and Heating Oil while holding short Crude Oil. The index has also moved Natural Gas to a long position for only the second time in 5 years. This was a month of transition for the Energy Sector and the sector was a negative contributor on the month.

The Energy sector remains choppy with an overall negative bias to trend in the petroleum components.

Metals

The Metals sector remains short and benefitted from the significant weakness in Gold and Silver and to a lesser degree Copper. All metals bounced back at month end but remained sharply lower.  

Agriculture

While Ags did very well on the short side in March, most markets corrected in April. Grains moved higher with the exception of Corn and Sugar which continued to drift lower. Cotton remains the lone long position in the sector but was pushed lower for a loss.

Interest Rates

After recently moving all components to take advantage of higher interest rates (short bonds), 2 of the 3 markets have gone long. This is on the back of strong renewed momentum higher in rate futures. The index switched both US 5 year and 10 year Notes to long while remaining short 30 year long bonds. There was a small loss from this sector as positions transitioned on the higher price movement.

Currencies  

Currencies were flat in April and position weights remain the same. Small gains were made remaining short the Japanese Yen and long the Euro. Most other markets lacked significant short term trend and we remain positioned with the long term trend. We are long Aussie dollar and US Dollar Index while short the British Pound and the Canadian dollar at this time. 

Outlook 

The AMFERI was up in Q1 and had a strong start to 2013 alongside the equity market despite a lack of equity exposure in the portfolio. Consider this fact as one looks for opportunities to reduce portfolio risk given the traditional markets have performed well in the last couple of years.

While the broad equity market ended higher in April, the sharp sell-off and correction highlight the volatility and risk of the sector. Not all equity markets were up. Many equity markets, including small caps and country specific markets like Canada were lower on the month. While we don’t have crystal ball, consider ways to protect the portfolio as cracks start to appear. Managed Futures and the AMFERI are a good way to add non-correlation and portfolio protection, while still having absolute return from tactical exposures as we saw in April through our shorts in Metals. 


Strategy and Index  

The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return). 

About the Index Provider  

Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.  Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US.

Auspice’s core expertise is managing risk and designing and executing systematic trading strategies. Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

The petroleum weights have now tilted short – as we have added short positions in Gasoline and Heating Oil while holding short Crude Oil. The index has also moved Natural Gas to a long position for only the second time in 5 years. This was a month of transition for the Energy Sector and the sector was a negative contributor on the month.

The Energy sector remains choppy with an overall negative bias to trend in the petroleum components.

Metals

The Metals sector remains short and benefitted from the significant weakness in Gold and Silver and to a lesser degree Copper. All metals bounced back at month end but remained sharply lower.  

Agriculture

While Ags did very well on the short side in March, most markets corrected in April. Grains moved higher with the exception of Corn and Sugar which continued to drift lower. Cotton remains the lone long position in the sector but was pushed lower for a loss.

Interest Rates

After recently moving all components to take advantage of higher interest rates (short bonds), 2 of the 3 markets have gone long. This is on the back of strong renewed momentum higher in rate futures. The index switched both US 5 year and 10 year Notes to long while remaining short 30 year long bonds. There was a small loss from this sector as positions transitioned on the higher price movement.

Currencies  

Currencies were flat in April and position weights remain the same. Small gains were made remaining short the Japanese Yen and long the Euro. Most other markets lacked significant short term trend and we remain positioned with the long term trend. We are long Aussie dollar and US Dollar Index while short the British Pound and the Canadian dollar at this time. 

Outlook 

The AMFERI was up in Q1 and had a strong start to 2013 alongside the equity market despite a lack of equity exposure in the portfolio. Consider this fact as one looks for opportunities to reduce portfolio risk given the traditional markets have performed well in the last couple of years.

While the broad equity market ended higher in April, the sharp sell-off and correction highlight the volatility and risk of the sector. Not all equity markets were up. Many equity markets, including small caps and country specific markets like Canada were lower on the month. While we don’t have crystal ball, consider ways to protect the portfolio as cracks start to appear. Managed Futures and the AMFERI are a good way to add non-correlation and portfolio protection, while still having absolute return from tactical exposures as we saw in April through our shorts in Metals. 


Strategy and Index  

The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return). 

About the Index Provider  

Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.  Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US.

Auspice’s core expertise is managing risk and designing and executing systematic trading strategies. Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

April 2013 Auspice Broad Commodity Index Commentary

Auspice Broad Commodity Excess Return Index (ABCERI)

Market Review

Commodities were generally lower in April and have remained volatile. The index continues to show the ability to protect on the downside and wait for an opportunity to recover when markets move in a sustained trend higher.

Index Review

The ABCERI lost 1.42% in April to be off a mere 0.49% in 2013 despite continued commodity pressure. The monthly loss was far less than the peer group and the index continues to outperform. (see table below). The strategy had a few position changes during the month, holding only 2 components or 17% of the basket long at this time.

Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk adjusted measures. The following table highlights the strategies ability to capture the upside while limiting 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.

Portfolio Recap:

In April the ABCERI did not make gains in any of the 3 broad sectors. The strategy remains positioned long in Cotton and has added Natural Gas while exiting long positions in Heating Oil and Gasoline. Within the 2 markets held, Natural Gas made gains but were offset by the corrections in the other markets.

Energy

The petroleum weights are now all flat after exiting Gasoline and Heating Oil to add to the zero Crude Oil weight.  However, the index has moved Natural Gas to a long position for only the second time in 5 years as it has begun to break out higher.

The Energy sector remains choppy with an overall negative bias to trend in the petroleum components.

Metals

The index remains without a long weight in Metals after it exited long positions in Gold and Silver in February. The entire sector was sharply lower in April providing the most significant commodity volatility in the asset class.

Agriculture

After selling off, Ags generally moved higher on the month. While some of the Grains moved up, led by Soybeans and Wheat, Corn continued lower. Sugar also continued to drift lower. Cotton remains the lone long position in the sector but was pushed lower for a loss.

Outlook

It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in up-trends while minimizing risk during downtrends. It is the continued goal of the ABCERI index strategy to minimize the downside with low volatility and drawdown and remain a store of value until upside opportunity presents itself.

The long side of the index is represented by 2 of the 12 components and has 2 of the 3 broad sectors represented. With careful selection, the strategy has been able to take advantage of those commodities moving higher while avoiding excessive losses in the broader commodity markets moving lower and remain a store of value.

We believe that the long term outlook for commodities remains promising and the overall trend is up. However, given the path is not a straight line, a tactical and risk management oriented approach will be most effective. The price movements so far in 2013 are important reminders of the agility required for long term success and the best risk adjusted result. 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 (CTA) and National Futures Association (NFA) member in the US. Auspice’s core expertise is managing risk and designing and executing systematic trading strategies.

Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

April 2013 Auspice Diversified Program Commentary

Download the Commentary here.

The Auspice Diversified Program was up 0.99% in April. 

Note: We have streamlined the monthly commentary. If you are looking for any additional info please contact Auspice. Feedback is welcome.

  • Global markets were volatile in April with US equities falling hard only to bounce back and end the month strongly. Canadian equities ended weak. 
  • Commodities were volatile:
  • Most gains were made on the short side. 
  • Grains rallied hard off their bottom.
  • Energies sold off before rallying at month end to make back some gains. Natural gas was stronger on the month.
  • Softs were mixed with strong moves in either direction. 
  • Interest rates were strong and pushed to all times highs. 

Broadly, the markets were not only volatile but have shown signs of trend. We are participating in markets that we have previously reduced risk in like equities and interest rates. While commodities have been challenging in the last year or so, there are trends developing for those able to be agile and agnostic to direction. Commodities remain a focus given the opportunities to capture trend.

REQUEST A FREE CME  BROCHURE

If you are interested in a new brochure from the CME discussing the diversification benefits of Managed Futures, please contact us.

Save the Date! 

For those in western Canada, please save June 4/5/6 for a CME sponsored event on managed futures that Auspice has been invited to participate in. There are limited seating so please contact Auspice if you have interest.

Sectors and Trades:

  • Profitable in 3 of the 7 sectors traded.  
  • Gains were led by Equities and Interest Rates in addition to Metals. 
  • Most challenging sectors were in Energies and Grains due to sharp reversals intra-month. 
  • While the bulk of the positions are in the financial markets, the open equity risk is evenly split between commodity and financial markets.
  • Largest portfolio gain came from Gold on the short side. Copper was also a large contributor. 
  • Japanese Yen short coupled with long the Nikkei index continues to provide benefit and were the strongest performers in their respective sectors.

Key Points Regarding our Positions

Energies:

  • Petroleum based energy sold off aggressively to bounce back somewhat at month end.
  • We entered a new short in Crude while exiting a long Gasoline position prior to the sell-off.
  • We have covered our NatGas short and remain on the sideline in Heating Oil.
  • Very choppy sector with Natural Gas showing potential for a breakout higher.

Metals: 

  • As in March, the sector performed very well, prices dropped significantly.
  • A new short was taken in Gold at the beginning of the month and was top performer in the portfolio.
  • Short Copper was second most significant portfolio contribution. 
  • Exited a long position in Palladium early in the month as metals broke down.

ADDITIONAL REFERENCES

  • A recent article in Advisors Edge dispels some of the myths regarding Managed Futures.
  • 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. Listento the podcast through iTunes.
  • Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com.

    Grains:

    • Like energies, Grains were whipsawed after weakness ending March and was followed by a rally in April.
    • After exiting Corn at the end of March, we exited Soybeans early in April.
    • Short Wheat position has been held. 

    Soft Commodities: 

    • Gains from short Coffee and long Orange Juice (a coincidental pairing!)
    • Exited a long position in Lumber prior to the market collapsing.
    • Cotton still long but slightly off on the month.

    Currencies: 

    • Currencies continue to be choppy with the best trends coming from the Japanese Yen (lower) and Canadian Dollar (higher).
    • Exited both the British pound (short) and Swiss Franc (short) during the month. Exited long US Dollar index.
    • No Euro position at this time.
    • Remain long Aussie dollar despite a choppy month.
    • Currency is overdue for trending behavior, however still quite choppy.

    Interest Rates: 

    • Added long positions in 2 year notes and US Long Bonds.

    Equity Indices: 

    • We are still on this train after reducing risk in February, adding in March, held positions in April.
    • Strongest was the Nikkei followed by the Nasdaq. 
    • Not all equities were higher as the Russell 2000 was off as was the Canadian market.
    • Even within the equity momentum, being tactile and agile is key.
    • Petroleum based energy sold off aggressively to bounce back somewhat at month end.
    • We entered a new short in Crude while exiting a long Gasoline position prior to the sell-off.
    • We have covered our NatGas short and remain on the sideline in Heating Oil.
    • Very choppy sector with Natural Gas showing potential for a breakout higher.

    Metals: 

    • As in March, the sector performed very well, prices dropped significantly.
    • A new short was taken in Gold at the beginning of the month and was top performer in the portfolio.
    • Short Copper was second most significant portfolio contribution. 
    • Exited a long position in Palladium early in the month as metals broke down.

    ADDITIONAL REFERENCES

    • A recent article in Advisors Edge dispels some of the myths regarding Managed Futures.
    • 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. Listento the podcast through iTunes.
    • Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com.

      Grains:

      • Like energies, Grains were whipsawed after weakness ending March and was followed by a rally in April.
      • After exiting Corn at the end of March, we exited Soybeans early in April.
      • Short Wheat position has been held. 

      Soft Commodities: 

      • Gains from short Coffee and long Orange Juice (a coincidental pairing!)
      • Exited a long position in Lumber prior to the market collapsing.
      • Cotton still long but slightly off on the month.

      Currencies: 

      • Currencies continue to be choppy with the best trends coming from the Japanese Yen (lower) and Canadian Dollar (higher).
      • Exited both the British pound (short) and Swiss Franc (short) during the month. Exited long US Dollar index.
      • No Euro position at this time.
      • Remain long Aussie dollar despite a choppy month.
      • Currency is overdue for trending behavior, however still quite choppy.

      Interest Rates: 

      • Added long positions in 2 year notes and US Long Bonds.

      Equity Indices: 

      • We are still on this train after reducing risk in February, adding in March, held positions in April.
      • Strongest was the Nikkei followed by the Nasdaq. 
      • Not all equities were higher as the Russell 2000 was off as was the Canadian market.
      • Even within the equity momentum, being tactile and agile is key.

      March 2013 Auspice Broad Commodity Index Commentary

      Auspice Broad Commodity Excess Return Index (ABCERI)

      Market Review

      Commodities ended off the quarter higher after starting off choppy and volatile. While volatility has come back to some degree, the index was positive in March for a net gain. The month again highlighted the agile and tactical nature of the index in participating in those commodities with sustained trends higher. While most of the classic equity markets are dominating the asset flows and have remained strong, commodities have most recently appeared to be acting in a non-correlated fashion.

      Index Review

      The ABCERI gained 0.87% in March after holding on to a small gain of 0.07% at the end of February. The monthly gain exceeded much of the peer group and performed better than all on the quarter. (see table below). The strategy did not change components during the month, holding 25% of the components long.

       

      Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk adjusted measures. The following table highlights the strategies ability to capture the upside while limiting the downside.

      As outlined in a report published by ETF Securities (UK) entitled Global Commodity ETP Quarterly, the Auspice Broad Commodity index remains at the top of the global broad commodity index peer group with both the highest return and lowest volatility. Copies of the report can be obtained by contacting Auspice.

      INDEPENDENT REPORT

      Portfolio Recap:

      In March the ABCERI made gains in 2 of the 3 sectors including Ags and Energy. The strategy is currently positioned long in only 3 of the 12 commodities.

      Energy

      The petroleum weights remain the same - long Gasoline and Heating Oil while flat Crude Oil and Natural Gas. Energy has traded strongly higher and lower in the first quarter and March saw a bit of normalization to this behavior. While the index remains flat WTI Crude Oil, some of the sector movement higher was captured by Heating Oil and specifically Gasoline. The sector is currently flat Natural Gas which remains on the upper end of a price channel since April 2012.

      Metals

      The index is without a long weight in Metals after it exited long positions in Gold and Silver in February. During March, Gold traded modestly higher while Copper and Silver moved sharply lower and thus beneficial to avoid.

      Agriculture

      While much of the Ag sector moved lower in March, the sole long position in Cotton was very profitable. Both the Grains and Sugar markets dropped sharply at month end to the index’s benefit.

      Outlook

      It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in up-trends while minimizing risk during downtrends. It is the continued goal of the ABCERI index strategy to minimize the downside with low volatility and drawdown and remain a store of value until upside opportunity presents itself.

      The long side of the index remains represented by 3 of the 12 components and has 2 of the 3 broad sectors represented. With careful selection, the strategy has been able to take advantage of those commodities moving higher while avoiding excessive losses in the broader commodity markets moving lower.

      We believe that the long term outlook for commodities remains promising and the overall trend is up. However, given the path is not a straight line, a tactical and risk management oriented approach will be most effective. Months such as March are important reminders of the agility required for long term success and the best risk adjusted result. 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 (CTA) and National Futures Association (NFA) member in the US. Auspice’s core expertise is managing risk and designing and executing systematic trading strategies.

      Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

      Commodities ended off the quarter higher after starting off choppy and volatile. While volatility has come back to some degree, the index was positive in March for a net gain. The month again highlighted the agile and tactical nature of the index in participating in those commodities with sustained trends higher. While most of the classic equity markets are dominating the asset flows and have remained strong, commodities have most recently appeared to be acting in a non-correlated fashion.

      Index Review

      The ABCERI gained 0.87% in March after holding on to a small gain of 0.07% at the end of February. The monthly gain exceeded much of the peer group and performed better than all on the quarter. (see table below). The strategy did not change components during the month, holding 25% of the components long.


      Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk adjusted measures. The following table highlights the strategies ability to capture the upside while limiting the downside.


      As outlined in a report published by ETF Securities (UK) entitled Global Commodity ETP Quarterly, the Auspice Broad Commodity index remains at the top of the global broad commodity index peer group with both the highest return and lowest volatility. Copies of the report can be obtained by contacting Auspice.

      INDEPENDENT REPORT

      Portfolio Recap:

      In March the ABCERI made gains in 2 of the 3 sectors including Ags and Energy. The strategy is currently positioned long in only 3 of the 12 commodities.

      Energy


      The petroleum weights remain the same - long Gasoline and Heating Oil while flat Crude Oil and Natural Gas. Energy has traded strongly higher and lower in the first quarter and March saw a bit of normalization to this behavior. While the index remains flat WTI Crude Oil, some of the sector movement higher was captured by Heating Oil and specifically Gasoline. The sector is currently flat Natural Gas which remains on the upper end of a price channel since April 2012.

      Metals

      The index is without a long weight in Metals after it exited long positions in Gold and Silver in February. During March, Gold traded modestly higher while Copper and Silver moved sharply lower and thus beneficial to avoid.

      Agriculture

      While much of the Ag sector moved lower in March, the sole long position in Cotton was very profitable. Both the Grains and Sugar markets dropped sharply at month end to the index’s benefit.

      Outlook

      It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in up-trends while minimizing risk during downtrends. It is the continued goal of the ABCERI index strategy to minimize the downside with low volatility and drawdown and remain a store of value until upside opportunity presents itself.

      The long side of the index remains represented by 3 of the 12 components and has 2 of the 3 broad sectors represented. With careful selection, the strategy has been able to take advantage of those commodities moving higher while avoiding excessive losses in the broader commodity markets moving lower.

      We believe that the long term outlook for commodities remains promising and the overall trend is up. However, given the path is not a straight line, a tactical and risk management oriented approach will be most effective. Months such as March are important reminders of the agility required for long term success and the best risk adjusted result. 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 (CTA) and National Futures Association (NFA) member in the US. Auspice’s core expertise is managing risk and designing and executing systematic trading strategies.

      Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

      March 2013 Auspice Diversified Program Commentary

      Download the Commentary here.

      The Auspice Diversified Program was up 0.28% in March.

      The strategy was successful in navigating the choppy global markets in March. Within most sectors, agility was an asset as there was deviation in long and short direction.Broadly, we are experiencing a choppy commodity market and a strong but risky equity market. To be effective, it is important to take a tactical approach coupled with stringent risk management. Discipline provides comfort in this environment and hopefully illustrates a significant benefit as trends develop. Most recently, we highlighted in February that we cut equity risk but remained long the strongest markets which has continued to benefit the portfolio while reducing the risk.

      REQUEST A FREE CME  BROCHURE

      If you are interested in a new brochure from the CME discussing the diversification benefits of Managed Futures, please contact us.

      Within commodities, we are participating in some good trades both short and long. Outperformers are identified and are held, such as long Cotton. Short opportunities were also beneficial as experienced with Copper. The portfolio further benefitted from long Palladium and short Wheat positions.

      The key to the strategy remains being tactical and agile with the overriding goal of capital preservation. At some point, there will be a shift as equities have been good for a long time, the interest rate trade has been captured already and commodity has underperformed for some time. While we are unable to know how or when, we know things won’t stay the same and in that movement comes volatility and opportunity. Patience is important while other areas of the portfolio are doing well.

      The 5 year statistics (Apr 08 - Mar 13) are: +1.37% annualized return with 11.01% volatility while the 6 year annualized is 4.54%. The worst drawdown for the period was 20.96% with an average Margin to Equity ratio of 6.20%. It should be noted that during this 5 year period, Auspice Diversified remains ahead of the benchmark industry index. The Newedge CTA index is +1.21% annualized over the same period.
      Most global equity markets remain down to small positive (-2% to +3% annualized range) with 35-50% more volatility and deeper drawdowns of 40-55%. For example, the TSX60 is -1.46% annualized for the period with over 44% drawdown.

      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 versus traditional investments due to our attention to risk management and downside protection.

      Interesting Trades: 

      The Auspice Diversified Program was profitable in 4 of the 7 sectors traded. It has been a few months since the gains came from a majority of the sectors and this is positive to see. Moreover, gains came from both commodity and financial sectors. Gains came from Metals and Softs complimented by Equity Indices and Currencies. The strongest sector was Metals followed by Equity indices even though we had reduced risk and crystallized some of the gains in February.

      • Strongest commodity gains holding long Cotton and Palladium while short Wheat, Copper and Coffee.
      • Equity markets made gains long on reduced exposure.
      • Japanese Yen short coupled with long the Nikkei index continues to provide benefit.
      • We have exited the strong part of the Grain market in Soybeans and held the short in Wheat for a solid gain.

      Key Points Regarding our Positions 

      Energies: The sector was not profitable led by aggressive corrections higher after the opposite occurred in February (lower). The month started weak causing us to cover our long position in Heating Oil which largely traded sideways thereafter. The strength was in WTI Crude and we covered our short while continuing to hold a long position in Gasoline which underperformed Crude. We remain short Natural Gas which is still currently in an established range from 2012. Despite media attention, the Natural Gas market is close to a shift but not quite there yet. Natural Gas has $1-$2 potential from here both up and down.

      ADDITIONAL REFERENCES

      • A recent article in Advisors Edge dispels some of the myths regarding Managed Futures.
      • 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.
      • Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com.

        For those with specific interest in this sector, please contact Auspice regarding the Auspice Energy Program.

        Metals: After a challenging 6 months, Metals were the star of the portfolio. Gains were made from both long Palladium and short Copper. We remain on the sidelines in Gold at this time.

        Grains: Grains were negative on the month on the back of a long position in Soybeans and a brief long position in Corn. Both positions were exited as the market collapsed at month end while the Wheat short already in place partially offset this shift in exposure. Grains are an example of a sector with disparate trends and positions that often highlight transition. Keep a close eye here.

        Soft Commodities: The Softs sector was positive on the month from existing and new positions. The short Coffee trade moved lower while we added new long positions in OJ and Cotton. Lumber has been a tough market to trade but we have taken a position on strength. The Softs sector is another example of a sector with disparate risks and unique opportunities.

        Currencies: After a choppy few months, the currencies sector was profitable on existing positions and some new trades. While the US Dollar continued higher vis-à-vis currencies, some individual markets have shown renewed trend. We have added a short in the Swiss Franc while adding a new long position in the Aussie dollar. We continue to be short the Japanese Yen and British Pound. Of note the Aussie Dollar, with its often associated commodity tilt, was quite strong and beyond that of the Canadian dollar.

        Interest Rates: We continue to hold a modest amount of risk in rates via long positions in US 5 and 10 year Notes. The sector was slightly off on the month primarily on the late month entry in 5 years.

        Equities: After reducing risk and crystallizing gains in this very profitable sector over the last 6 months, the sector continues to perform. While we cut the weakest of the markets in the Hang Seng in February, we have added Nasdaq during early March. We will highlight intra month changes in risk if and as it arises and continue to adjust to best capture this opportunity.

         

         

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

         

        Futures trading is speculative and is not suitable for all customers.  Past results is not necessarily indicative of future results. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offense to claim otherwise. 

        March 2013 Auspice Managed Futures Index Commentary

        Auspice Managed Futures Excess Return Index (AMFERI)

        Market Review 

        The AMFERI was positive in March while the markets remain dominated by the equity asset class and its sustained move higher. The month March was generally good for trend following and managed futures strategies. As in recent months where the bulk of opportunity came from the equity markets, an area not included in this index, the index continued to find value in less obvious places – predominantly tactical long and shorts in commodities. This agility is a central feature of the strategy and its intention to provide non-correlation to equity biased portfolios.

        As seen in the next table, the performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.

        After softening in 2012, the strategy has started to make gains again. Pullbacks happen within all strategies; however with managed futures such drawdowns can be an opportune time for investors. Investors should consider the drawdown history of their preferred strategy and gain expectations for potential payoff on recovery and extension.

        For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis to the right.

        SYNOPISIS OF DRAWDOWN ANALYSIS

        Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley).

        Please contact us at info@auspicecapital.com for the complete analysis.

        Index Review  

        The AMFERI was up 1.01% in March with a quiet month in terms of position changes after a number were made in February. The index was up 1.65% in Q1 (table below), outperforming the investable CTA indices highlighted in the table.

        Portfolio Recap: 

        In March the index was up in 3 of the 5 sectors. The strongest sector was Ags. The top performing components within the index were shorts in Corn, Wheat, Soybeans, and Sugar in addition to a long weight in Cotton. Outside of Ags, long Gasoline was also a strong performer. The most challenging sector was Energies as an aggressive correction higher occurred after the opposite situation in February. Minor gains were also made in the Currency and Metals sectors. The index is currently positioned short in 9 of 12 commodity markets, holding positions since the end of February. The index is also tilted short in the financial markets with 6 of the 9 components holding a short weight. Within Financials, Currencies have a balanced short and long (3 and 3). Interest rates components remain all short.

        Energy

        The petroleum weights remain the same - long Gasoline and Heating Oil while short Crude Oil and Natural Gas. Unfortunately the long weights did not offset the shorts on the month as Crude and Natural Gas price gains outperformed the long weightings.

        Energy has traded strongly higher and lower in the first quarter and March saw a bit of normalization to this behavior. While the index remains short WTI Crude Oil, some of the sector movement higher which was captured by positions in Heating Oil and specifically Gasoline. The sector is currently short Natural Gas which remains on the upper end of a price channel since April 2012.

        Metals

        The Metals sector is short and benefitted from the significant weakness in Copper and to a lesser degree Silver. Gold was modestly higher offsetting the Copper short for a small sector gain. It is curious that despite the equity market strength and the chatter around economic fundamentals, the reality is the Copper trend remains down.  

        Agriculture

        The Ag sector was the star of the month and highlights the tactical nature of the strategy even within a simingly correlated sector like Ag. Gains were made primarily on the back of short weights (Grains and Sugar) and adding to a solid gain from the lone long position in Cotton which bucked the sector trend and rallied significantly higher.

        Interest Rates

        The index is now tilted to take advantage of higher interest rates (short bonds). There was a small loss from this sector as prices rose during the month.

        Currencies  

        Currencies made modest sector gains in March. Position weights have not changed since February and thus make the Currency sector evenly balanced long and short. Gains were primarily made on the long side in Aussie dollar and US Dollar Index as those markets moved higher. However, small gains were also made short the Japanese Yen and British Pound. The index remains long the Euro and short the Canadian dollar at this time.

        Outlook  

        The AMFERI was up in Q1 alongside the equity market despite a lack of equity exposure in the portfolio. Consider this fact as one looks for opportunities to reduce risk given the traditional markets have performed well in the last couple of years.

        While we don’t know the direction of the traditional equity and fixed income markets, what investors need is an insurance policy that will pay off at times when the inevitable pullbacks occur. In our opinion, AMFERI is better than insurance in that it also has a good chance of making money when you need it the most and at least not losing much, at other times. Overall, your total portfolio has less risk and more chance of making money over the long term by adding a non correlated investment. You wouldn't drive a car without insurance and you shouldn't invest without it either.

        Strategy and Index  

        The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return). 

        About the Index Provider  

        Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.  Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US.

        Auspice’s core expertise is managing risk and designing and executing systematic trading strategies. Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

        February 2013 Auspice Diversified Program Commentary

        Download the Commentary here.

        The Auspice Diversified Program was down 2.23% in February.

        While the last couple months provided good opportunity, February was challenging and a time to play defense. During February, we cut risk in all long equity positions and exited some markets entirely. While we are still long, this is to say that we believe the probability of keeping our equity gains is diminishing and reducing our risk and crystallizing some of the gains is prudent. 

        SYNOPISIS OF DRAWDOWN ANALYSIS

        Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley). 

        We also exited long positions in some commodities and currencies. Commodities were notably weak on the month making up over 75% of the loss. However, it should be noted that by being agile and protecting capital, the strategy outperformed long commodity indices, many of which were down 4-6% (Ex GSCI down 4.39%). We are optimistic commodities may provide opportune trends in the near future and corrections like this are a normal part of our strategy. In the meantime, we focus on risk management and the overriding goal of capital preservation.

        While we don’t know the direction of the traditional equity and fixed income markets, what investors need is an insurance policy that will pay off at times when the inevitable pullbacks occur. In our opinion, Auspice Diversified Program is better than insurance in that it also has a good chance of making money when you need it most and  at least not losing much, at other times. Overall, your total portfolio has less risk and more chance of making money over the long term by adding a non correlated investment.  You wouldn't drive a car without insurance and you shouldn't invest without it either. 

        For those interested in an updated copy of an analysis of the drawdown and recovery periods for Auspice Diversified, please contact Auspice. A quick synopsis can be obtained here (right), which highlights the environment and the opportunity. The current environment is an opportune time to be adding to this type of an investment.

        Interesting Trades: 

        The Auspice Diversified Program was profitable in 1 of the 7 sectors traded and flat in 1 other. Although, the strongest market was Equity indices, we reduced risk and crystallized some of the gains as the risk/reward of staying in this trade has shifted. After a strong start to the year, commodities and commodity related currencies also lost momentum in February.

        • Risk reduction in all long equity index positions including S&P, Russell 2000, Nikkei, CAC 40 Paris and exited Hang Seng completely crystallizing this uptrend gain. 
        • Profitably exited long position in Aussie dollar.
        • Reduced risk in other currencies including Swiss Franc and Euro. 

        The 5 year statistics (Mar 08 - Feb 13) are: +0.96% annualized return with 11.05% volatility. The worst drawdown for the period is 20.96% with an average Margin to Equity ratio of 6.21%. It should be noted that during this 5 year period, Auspice Diversified remains ahead of the benchmark industry index. The Newedge CTA index is +0.88% annualized over the same period.

        Most global equity markets remain down to small positive (-2% to +3% annualized range) with 35-50% more volatility and deeper 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 versus traditional investments due to stringent risk management and downside protection.  
        The close parity in returns of the equity markets and Auspice strategy represents an excellent entry point historically, and the team at Auspice is investing at this time. 

         

        Key Points Regarding our Positions 

        Energies: The sector was not profitable led by aggressive corrections lower in Gasoline and Heating Oil.  Crude had been on the sidelines but we entered a short position during the month which offset and participated in some of the move down. We remain short Natural Gas but this did not provide much help during the month. This continued choppy behavior is challenging, and the sector is long overdue for trending behavior.

        For those with specific interest in this sector, please contact Auspice regarding the launch of our Energy focused strategy. The program went live on March 2nd, 2012.

        Metals: Metals were universally weak in February. While we remain long Palladium and flat Gold, we have added a new short in Copper.  This sector has been choppy and we are testing for direction and opportunity either way.

        ADDITIONAL REFERENCES

        • A recent article in Advisors Edge dispels some of the myths regarding Managed Futures.
        • 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.
        • Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com.

          Grains: Grains were negative on the month and a couple positions were changed. While still holding a long position in the stronger Soybeans market, we have exited Corn to be flat and entered a new short in Wheat. By our definition, with the exception of Wheat, the Grains remain in long-term  up trend.

          Soft Commodities: The Softs sector was negative on the month. We re-entered a short in Coffee for a gain while exited a re-entry in Lumber from the long side for a loss. This position was quickly stopped out as it eroded alongside commodities in general. Cotton was the strongest in the sector, and we are close to a newlong position.

          Currencies: The Currencies sector largely reversed aggressively lower vis-à-vis the US Dollar but we managed to exit our long Aussie dollar position profitably.  We also exited long positions in Swiss Franc and the Euro while holding short in Japanese Yen. We have added a new short in the British Pound.  We remain on the sidelines in the Canadian Dollar which was also weak alongside its commodity currency counterparts. We have taken a new long position in the US Dollar Index in the wake of this transition to US strength. 

          Interest Rates: After January’s big shift in Interest Rates, where we  exited all long positions and completely crystallize the multi-year gains made in this sector, we have added new long positions in 5 and 10 year Notes.  This sector was flat on the month. 

          Equity Indices: Risk was reduced in the long equity markets which have been very profitable over the last 4 months.  During February we reduced long positions in the S&P, Russell 2000, Nikkei, CAC 40 Paris and exited Hang Seng completely. We have remained flat the Nasdaq since October 9th, 2012. This market has not moved higher with the other global equity benchmarks. Equity sector was profitable in February. 

          While we do not aim to call tops in markets, we believe in selling assets where we believe the probability of keeping our gains is diminishing.  As with any disciplined asset allocation strategy, we move to sell overvalued assets when the risk is out-sized. In this case, equities fall in this category and reducing our risk and crystallizing some of the gains is prudent.

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

          Most global equity markets remain down to small positive (-2% to +3% annualized range) with 35-50% more volatility and deeper 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 versus traditional investments due to stringent risk management and downside protection.  
          The close parity in returns of the equity markets and Auspice strategy represents an excellent entry point historically, and the team at Auspice is investing at this time. 

          February 2013 Auspice Broad Commodity Index Commentary

          Auspice Broad Commodity Excess Return Index (ABCERI)

          Market Review

          After starting the year strong, commodities corrected in February leaving the index down on the month and slightly positive on the year. While we believe the long term trajectory appears to still be trending up for commodities, as with other markets it will be important to remain agile and tactical to be successful long term..

          Index Review

          The ABCERI lost 2.32% in February after gaining 2.45% in January, holding on to a small gain of 0.07% for the year. While negative on the month, the loss was far less than the peer group which experienced much deeper losses and all remain negative on the year. The strategy illustrated its tactical abilities unloading much of the commodity length in recent months to only hold 25% of the components long. Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk adjusted measures. The following table highlight’s the strategies ability to capture the upside while limiting 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.

          As outlined in a report published by ETF Securities (UK) entitled Global Commodity ETP Quarterly, the Auspice Broad Commodity index remains at the top of the global broad commodity index peer group with both the highest return and lowest volatility. Copies of the report can be obtained by contacting Auspice.

          INDEPENDENT REPORT

          Portfolio Recap:

          In February the ABCERI made gains only in Ags after making gains in all 3 of the sectors to start the year.

          The strategy is currently positioned long in 3 of the 12 commodities having moved to a flat weights in Gold and Silver during the month.

          Energy

          The petroleum weights remain the same - long Gasoline and Heating Oil while flat Crude Oil and Natural Gas. After a strong January, the petroleum markets sold off aggressively led by Heating Oil and Crude Oil. Natural Gas was slightly higher on the month.

          Watch Energy closely for changes in weightings in 2013.

          Metals

          The Metals sector also moved sharply lower. Both of the remaining long positions in Gold and Silver were exited to be flat. The Copper market also moved lower and there continues to be no weighting at this time.

          Agriculture

          The Ag sector managed to make a small gain on the back of the lone long position in Cotton which moved modestly higher and was the largest contributor of all commodity components. The Grains, which were exited in recent months have continued to correct lower with Wheat the weakest of the three and Soybeans the strongest. Sugar remains without a long weight as it continues to drift lower.

          Outlook

          It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in up-trends while minimizing risk during downtrends. It is the continued goal of the ABCERI index strategy to minimize the downside with low volatility and drawdown and remain a store of value until upside opportunity
          presents itself. 

          The long side of the index is now represented by 3 of the 12 components and has 2 of the 3 broad sectors represented. With careful selection, the strategy has been able to take advantage of those commodities moving higher while avoiding excessive losses in the more broad commodity markets moving lower.

          We believe that the long term outlook for commodities remains promising and the overall trend is up. However, given the path is not a straight line, a tactical and risk management oriented approach will be most effective. Months such as February are important reminders of the agility required for long term success and the best risk adjusted result. 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 (CTA) and National Futures Association (NFA) member in the US. Auspice’s core expertise is managing risk and designing and executing systematic trading strategies.

          Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

          February 2013 Auspice Managed Futures Index Commentary

          Auspice Managed Futures Excess Return Index (AMFERI)

          Market Review 

          While February was generally a challenging month for trend following and managed futures strategies, the AMFERI was positive. As in recent months where the bulk of opportunity came from the equity markets, an area not included in this index, the index found value in less obvious places – shorts in commodities and currencies. This agility is a central feature of the strategy and its intention to provide non-correlation to equity biased portfolios.

          The performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.

          Pullbacks happen within all strategies; however with managed futures such drawdowns can be an opportune time for investors. Investors should consider the drawdown history of their preferred strategy and gain expectations for potential payoff on recovery and extension.

          For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis to the right.

          SYNOPISIS OF DRAWDOWN ANALYSIS

          Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley).

          Please contact us at info@auspicecapital.com for the complete analysis.

          Index Review  

          The AMFERI was up 0.55% in February and was highlighted by a number of position changes further highlighting the period of transition.

          Portfolio Recap: 

          In February the index was up in 2 of the 5 sectors. The strongest sector was Ags followed by Currencies. The top performing component included Corn, Wheat, Crude Oil, British Pound. and the Canadian Dollar – all from the short side. The most challenging sector was in Metals as widespread weakness had the index move from tilted long to short across the sector. Commodities had a positive attribution led primarily by short Ags which outpaced the performance in Metals and Energies both which were down on the back of long positions.

          The Currency sector also was positive on the month led by the short in British Pound and the Canadian Dollar. The US Dollar shifted direction and outperformed most global currencies on a move higher.

          The index is currently positioned short in 9 of 12 commodity markets, having flipped to short in Gold and Silver in February. The index is tilted short in the financial markets with 6 of the 9 components holding a short weight. Within Financials, Currencies have now balanced short and long (3 and 3) with adding a long weight in the US Dollar Index weight during the month. Interest rates components remain all short.

          Energy

          The petroleum weights remain the same - long Gasoline and Heating Oil while short Crude Oil and Natural Gas. After a strong January, the petroleum markets sold off aggressively led by Heating Oil and Crude Oil. Natural Gas was slightly higher on the month.

          Metals

          The Metals sector also moved sharply lower. Both of the remaining long positions in Gold and Silver were moved to shorts. The Copper market also moved lower and benefitted from the sell-off but did not offset the Gold and Silver attribution prior to the shift to short weights.  

          Agriculture

          The Ag sector made great gains primarily on the back of short weights in addition to a small gain from the lone long position in Cotton which moved modestly higher. The Grains, which were tilted short in recent months have continued to correct lower with Wheat the weakest of the three. Sugar remains short as it continues to drift lower. All Ag components, short and long were profitable during February.

          Interest Rates

          After a big shift in January from a multi-year long position, the index is now tilted to take advantage of higher interest rates (short bonds). There was a small loss from this sector as prices rose during the month.

          Currencies  

          Currencies made modest sector gains in February. Most gains were made on the short side as the US dollar outperformed most markets. The index has now shifted to a long weight in the US Dollar Index. This makes the Currency sector evenly balanced long and short. Currently short British Pound, Canadian Dollar, and the Japanese Yen. Long positions in Euro and Aussie dollar complimented by the new US Dollar Index weight. The Euro and Aussie dollar were both weak but remain long at this time.

          Outlook  

          While we don’t know the direction of the traditional equity and fixed income markets, what investors need is an insurance policy that will pay off at times when the inevitable pullbacks occur. In our opinion, AMFERI is better than insurance in that it also has a good chance of making money when you need it the most and at least not losing much, at other times. Overall, your total portfolio has less risk and more chance of making money over the long term by adding a non correlated investment. You wouldn't drive a car without insurance and you shouldn't invest without it either.

          Strategy and Index  

          The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return). 

          About the Index Provider  

          Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.  Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US.

          Auspice’s core expertise is managing risk and designing and executing systematic trading strategies. Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

          January 2013 Auspice Broad Commodity Index Commentary

          Auspice Broad Commodity Excess Return Index (ABCERI)

          Market Review

          After commodities weakened in 2012, leaving the index with a small negative year, they have come roaring back to start 2013. The long term trajectory appears to still be trending up for commodities and it appears that market participants are comfortable that the “Fiscal Cliff” has been averted, and the resulting rally has not been solely focused in equities.

          Index Review

          The ABCERI gained 2.45% in January after losing 1.02% in 2012. While the absolute performance was similar to the peer group in 2012, the risk adjusted performance was far superior with a lower standard deviation and drawdown. Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk adjusted measures. The following table highlight’s the strategies ability to capture the upside while limiting 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.

          As outlined in a report published by ETF Securities (UK) entitled Global Commodity ETP Quarterly, the Auspice Broad Commodity index remains at the top of the global broad commodity index peer group with both the highest return and lowest volatility. Copies of the report can be obtained by contacting Auspice.

          INDEPENDENT REPORT

          Portfolio Recap:

          In January the ABCERI made gains in all 3 of the sectors. The attribution was led by performance in Ags, followed by Energies.

          The strategy is currently positioned long in 5 of the 12 commodities having moved to a flat weight in Natural Gas and Soybeans during the month.

          Energy

          The petroleum weights remain the same - long Gasoline and Heating Oil while flat Crude Oil. The petroleum markets are again stronger overall ending January whereas Natural Gas was the outlier and weak. As such, the strategy has moved from long to flat weight in Gas.

          Watch Energy closely for changes in weightings in 2013.

          Metals

          The index holds the same long positions in Gold and Silver added late in Q3. There continues to be no Copper weighting at this time. The Metals sector made a small gain in January from the long Silver weighting.

          Agriculture

          The Ag sector was modestly weaker again led by the Grains. Soybeans were exited during January to now be flat the three Grain components. Cotton continued to add value from the long side and was the largest contributor of all commodity components. Sugar remains without a long weight.

          Outlook

          It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in up-trends while minimizing risk during downtrends. While the up-trends in commodity were not sustained in 2012, the ABCERI index was able to minimize the downside with low volatility and drawdown and remain a store of value until opportunity presented itself as in January.

          The long side of the index is now represented by 5 of the 12 components and has all 3 sectors represented. With careful selection, the strategy has been able to take advantage of those commodities moving higher in January while avoiding losses in those markets moving lower.

          We continue to believe that the long term outlook for commodities remains promising and the overall trend is up. However, years like 2012 highlight the importance of risk management and strategy selection as the downside 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.

          January 2013 Auspice Managed Futures Index Commentary

          Auspice Managed Futures Excess Return Index (AMFERI)

          Market Review 

          January was a mixed month for trend following and managed futures strategies. The AMFERI was slightly positive in a month where the bulk of opportunity came from the equity markets, an area not included in this index. This is a central feature of the strategy and its intention to provide non-correlation to equity biased portfolios. 

          As such while it appears that market participants are comfortable that the “Fiscal Cliff” has been averted, resulting in an equity rally, the goal of the index remains to follow sustainable trends across multiple assets. Moreover, it is important to point out that while policy and central bank intervention have caused overall choppiness in the diverse global macro sectors represented within the index, this is not always the case. 

          While the strategy results may slightly lag in moments of times of singular equity sector performance, the opportunity to provide non-correlation and payoff is possible given the strategy's disparate assets and non correlated performance over the long term. 

          The performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.

          As previously highlighted, pullbacks happen within all strategies; however with managed futures such drawdowns can be an opportune time for investors. Investors should consider the drawdown history of their preferred strategy and gain expectations for potential payoff on recovery and extension. 

          SYNOPISIS OF DRAWDOWN ANALYSIS

          Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley).

          Please contact us at info@auspicecapital.com for the complete analysis.

          For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis to the right.

          Index Review  

          The AMFERI was up 0.08% in January and was highlighted by a number of position changes further highlighting the period of transition.

          Portfolio Recap: 

          In January the index was up in 2 of the 5 sectors. The strongest sector was Energy followed by Currencies. 

          The most challenging sector was in Interest rates as the strategy moved to short Interest Rate futures across the curve (US 5, 10 year Notes and 30 year Bonds). While negative in attribution on the month, this crystallized significant long term gains. 

          Commodities had a positive attribution led by Energies with Metals and Ags down slightly.

          The Currency sector also was positive on the month led by the short in Japanese Yen and Long Euro. 

          The index is currently positioned long in 5 of 12 commodity markets, having flipped to short in Natural Gas and Soybeans in January. The index is now tilted short in the financial markets with 7 of the 9 components holding a short weight.  Within Financials, Currencies have now tilted short adding short British Pound and Canadian Dollar weights during the month. Interest rates components are now all short.  

          Energy

          The weights remain the same - long Gasoline and Heating Oil, short Crude Oil. The petroleum markets are again stronger overall ending January whereas Natural Gas was the outlier and weak.  

          While the strategy flipped to a long weight in Natural Gas in July 2012 then crystallizing a very profitable short trade, this trend did not extend, As such, the strategy has taken on a new short here.

          Metals

          The index holds the same long positions in Gold and Silver as ending 2012 while remaining short Copper.  The Metals sector has lacked trend commitment for some time although Silver was profitable on the month. 

          Agriculture

          The Ag sector was modestly weaker again led by the Grains. Soybeans were exited during January to now be short the three Grain components. Cotton continued to add value from the long side and was the largest contributor of all components (both financial and commodity).  Sugar has continued weak during the month the index remains short for a gain.

          Interest Rates

          Within this sector, the index is now tilted to take advantage of higher interest rates (short bonds). Long positions had been in place since May 2011 and the bulk of the last 5 years as interest rates fell and have remained low. The sector has been a very profitable weighting for the strategy that has now been crystallized.

          Currencies  

          As in December, Currencies made sector gains in January. The most significant gain came from the short in Japanese Yen complimented by the long Euro weight. Small gains came from long Aussie and short US Dollar Index. The strategy changed to short weight in both the Canadian Dollar and British Pound both which made new lows on the month.

          Outlook  

          Patience: It is important to recognize the value of the managed futures sector is to provide long term absolute return, asset diversification and non-correlation. Given the overall market environment has been very good, especially the performance of the traditional equity and fixed income sectors in the last couple years, Managed Futures remains an excellent addition to diversify an investment portfolio. You wouldn’t drive a car without insurance, and you should remain committed to low cost and transparent ways to get managed futures exposure as well. 

          Strategy and Index  

          The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return). 

          About the Index Provider  

          Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.  Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US.

          Auspice’s core expertise is managing risk and designing and executing systematic trading strategies. Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

          January Commentary & Performance

          Download the Commentary here.

          The Auspice Diversified Program was up 0.40% in January.

          January continued to provide opportunity in a number of sectors and not just in the obvious Equity market as participants appear to be comfortable that the “Fiscal Cliff” has been averted. While we are not sure about that thesis, we are happy to follow the trends that can be generated by policy. Moreover, it is important to point out that policy and central bank intervention does not always cause the choppiness that we have experienced over the past few years. Historically, trend can be inspired by these “decisions” and if agile enough, captured which remains the goal at Auspice. During the month, this theme was illustrated as we crystallized positions in both Interest Rates futures and Lumber.

          SYNOPISIS OF DRAWDOWN ANALYSIS

          Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley). 

          For those interested in a copy of an analysis of the drawdown and recovery periods for Auspice Diversified, please contact Auspice. A quick synopsis can be obtained here (right), which highlights the environment and the opportunity. The current environment is an opportune time to be adding to this type of an investment.

          The Auspice Diversified Program was profitable in 3 of the 7 sectors traded. The strongest market was Equity indices as equities shot up in January closely followed by Energies and to a small degree Grains.

          Interesting Trades: 

          • Crystallized long US 10 year Notes held since March 2011 at 10x risk.
          • Crystallized long Lumber trade held since October 2012 at over 3x risk.
          • New long in Heating Oil while exited short in Crude Oil on Energy strength outside of Natural Gas.
          • Continued gains from short Japanese Yen while being long the Nikkei stock index.
          • Exited long in Gold and entered a new long in Palladium.
          • New long in Corn.

          The 5 year statistics (Feb 08 - Jan 13) are: +4.22% annualized return with 12.75% volatility. The worst drawdown for the period is 20.12% with an average Margin to Equity ratio of 6.27%. It should be noted that during this 5 year period, Auspice Diversified remains ahead of the benchmark industry index. The Newedge CTA index is +1.81% annualized over the same period.

          The global equity markets remain down to small positive (-5% to +2% annualized range) over this same period with 20-35% more volatility and deeper 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 vs. traditional investments due to stringent risk management and downside protection.

          Key Points Regarding our Positions 

          Energies: The sector was profitable led by long positions in Gasoline and new long in Heating Oil. We exited our short in Crude Oil to be flat. Crude and Natural Gas remains laggards in this sector but are ones to watch very closely. Energy is long overdue for trending behavior.

          For those with specific interest in this sector, please contact Auspice regarding the launch of our Energy focused strategy. The program went live on March 2nd, 2012.

          Metals:  Metals have continued to be choppy with Gold and Copper lacking trend for some time. We remain out of Copper and exited Gold in January. However, after similar choppy action, Palladium was added and moved sharply higher during the month. Always one to be aware of, this market can provide explosive trends that we have been successful in capturing in the past.

          ADDITIONAL REFERENCES

          • A recent article in Advisors Edge dispels some of the myths regarding Managed Futures.
          • 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. Listento the podcast through iTunes.
          • Additionally, for those interested in more ideas about investing in alternatives, please check out www.amfmblog.com.

            Grains: Grains eked out a small gain after getting beat up since last summer, While Wheat continued this path much of the month, Soybeans and Corn are stronger at month end. We have added a new long position in Corn. By our definition, with the exception of Wheat, the Grains remain in up trend.

            Soft Commodities: The Softs sector was negative on the month primarily on profits taken in long term successful trades. We exited the Coffee short for a small gain, and exited the long Lumber position for a solid win. Cotton has continued to show strength and has potential in the short term for a long trade while OJ remains choppy and uninspired.

            Currencies: The Currencies sector had some great gains but was offset by losses as we changed direction in certain markets. Gains were led by trades we hold short in Japanese Yen and long Aussie dollar. However, we exited the long positions in British Pound, Canadian Dollar, and Swiss Franc. The Euro was added late in the month as this market shows strength and was immediately profitable. We remain on the sidelines in US Dollar index.

            Interest Rates: Big shift in Interest Rates as we exited both US 30 years Bonds and 10 year Notes. The 10 year is one of the best trades in recent years returning 10 times the capital risked, We are not holding any rate positions at this time.

            Equity Indices: The star of the month was the Equity sector which has been profitable the last 3 months. The sector moved higher led by continued gains domestically in the S&P and Russell in addition to the Japanese Nikkei index, CAC 40 and Hang Seng. After the first of the month, the Nasdaq did not follow the same trajectory.

            As mentioned on the opening statement, we are happy to jump on these Equity trends whether we believe in them or not. However, most critical is the ability to crystallize the gains and capture the trends as change.

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

            December Commentary & Performance

            Download the Commentary here.

            The Auspice Diversified Program was up 0.81% in December.

            After a period of pullback in the portfolio since June, the Diversified program has started to find opportunity once again. There have been a number of factors we can guess may have caused the “risk on” and “risk off” market behavior in 2012: speculation re China’s growth, the US election, the so called “Fiscal Cliff”, and many others. While each of these things may have contributed to choppy market action, there have been gains made and trends captured. Financial markets have been opportune this quarter and perhaps show a sign that markets are starting to normalize. Now that the “Fiscal Cliff” is behind us, we anticipate the disparate asset classes that provide the unique opportunity in managed futures (and trend following in general) will yet again show their diversification benefits.  After a particularly challenging September to November, the commodity portion of the portfolio brought more opportunity in December, 

            As mentioned last month, we would also like to point out that Auspice is currently buying into the strategy at the corporate/manager level. We believe this is a very opportune time for investment similar to what we experienced in mid 2007. Our investment is thus increasing from our previous commitment as we take advantage of the current opportunity. 

            Many market participants also agree that the timing is favourable. Assets have grown at Auspice and in a recent article regarding institutional investors (check out our blog post here), it was highlighted that:

            • "Year on year, more investors are adding CTAs to their portfolios of alternative asset funds in order to tap into this diversified liquid source of alpha.
            • “….more assets have gone to CTAs than any other hedge fund strategies since 2008.”

            For those interested in a copy of an analysis of the drawdown and recovery periods for Auspice Diversified, please contact Auspice. A quick synopsis can be obtained here (below), which highlights the environment and the opportunity. The current environment is an opportune time to be adding to this type of an investment.

            SYNOPISIS OF DRAWDOWN ANALYSIS

            Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley). 

            The Auspice Diversified Program was profitable in 4 of the 7 sectors traded. Gains were made in 2 of the financial markets, Currencies and Equity Indices as well as 2 of the Commodity sectors: Energies and Softs. 

            Interesting Trades: 

            • Generally holding profitable trades into end of month.
            • Natural Gas short benefited the portfolio significantly.
            • The long Lumber position has continued to benefit the portfolio.
            • Gains from short Japanese Yen while being long the Nikkei stock index.
            • Gains in short Coffee.

            The 5 year statistics (Jan 08 - Dec 12) are: +5.27% annualized return with 12.95% volatility. The worst drawdown for the period is 20.12% with an average Margin to Equity ratio of 6.3%. It should be noted that during this 5 year period, Auspice Diversified remains ahead of the benchmark industry index. The Newedge CTA index is +1.82% annualized over the same period.

            The global equity markets remain flat to down (0 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 versus traditional investments due to stringent risk management and downside protection.

            Key Points Regarding our Positions

            Energies: The sector was profitable while Energy rallied into month end after initial weakness and choppy action. Natural Gas  was an island to provide gains as our short paid off.  At month end we remained short Crude and flat Heating Oil but took a long position in Gasoline mid month.  Sector to be watched closely.

            For those with specific interest in this sector, please contact Auspice regarding the launch of our Energy focused strategy in collaboration with Pulse Capital Partners of New York. The program went live on March 2nd, 2012.

            Metals:  Metals struggled in December as the sector weakened early before a late year partial recovery. At month end, we were on the sidelines in Copper and Palladium while holding Gold. Palladium is stronger than the other markets and was added on the first day of the new year from the long side.

            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.

              Grains: Grains were the most challenging in December and produced a loss.  After trying Wheat from the long side in November, we covered quickly, a good thing as this market collapsed in December, The same story presented itself in Soybeans in December where we added a long position only to stop out. The long position in Corn was also covered and we are holding no Grain length at month end. 

              Soft Commodities: The Softs sector had a great month after a challenging period recently led by the long position in Lumber and short in Coffee. We have reduced some of the risk in Lumber near month end crystallizing some of this gain. Cotton continued to be strong against a short entered at the start of the November and we have exited. We are on the sidelines in OJ which is acting very choppy at the moment. 

              Currencies: The Currencies sector was profitable led by the short taken in Japanese Yen last month.  We added a long position in the British Pound early in the month which was profitable as the market appears excited about the new Bank of England Governor in Canada’s Mark Carney as mentioned last month. Swiss Franc was also added from the long side and profitable. We remain long the Aussie and Canadian dollar positions. We have exited our short Euro position and are on the sidelines in the US Dollar Index. 

              Interest Rates: The Interest Rates sector was not  profitable in December on the back of existing long  positions in  5 and 10 year  US Notes as well as 30 year US Bonds. Of particular note we have exited the 5 years in December and the 30 years in the first days of 2013 to only hold the 10 years. 

              Equity Indices: Lastly, we were again profitable in the Equity sector led by an explosive breakout higher in the Japanese Nikkei index.  At the end of November it looked like this sector was faltering, however we are happy to eat humble pie and jump back on as the opportunity presented itself. During December we added (from long side) and were profitable in Nikkei and Hang Seng. We continue to hold long positions in the French CAC 40, the Russell 2000, all of which were profitable



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

              Q4 and 2012 yearly summary AMFERI

              Market Review 

              While it has been a challenging quarter and year in the managed futures sector, the AMFERI has managed to remain low volatility and drawdown relative to its peers and the overall equity market while outperforming many.

              As the equity and fixed income markets have performed well in the last few years, the managed futures sector has been challenged by the market environment. 

              First there are a number of factors that have caused the “risk on” and “risk off” market behavior in 2012: speculation re China growth, the US election, the so called “Fiscal Cliff”, and many others. While each of these things may have contributed to choppy market action (as opposed to volatile and headed in a particular direction), there have been gains made and trends captured.  Financial markets have been opportune this quarter and perhaps show a sign that markets are starting to normalize. Now that the “Fiscal Cliff” is behind us, we anticipate the disparate asset classes that provide the unique opportunity in managed futures will yet again show their diversification benefits. 

              As a result, managed futures remain an important sector to include in a portfolio and this is being recognized by many.  In a recent article regarding institutional investors (highlighted on our blog here), it was highlighted that:

              • "Year on year, more investors are adding CTAs (managed futures) to their portfolios of alternative asset funds in order to tap into this diversified liquid source of alpha.
              • “….more assets have gone to CTAs than any other hedge fund strategies since 2008.”

              The performance of AMFERI versus both investable and non-investable managed futures indices has been good. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.

              As previously highlighted, pullbacks happen within all strategies; however with managed futures such drawdowns can be an opportune time for investors. Investors should consider the drawdown history of their preferred strategy and gain expectations for potential payoff on recovery and extension.

              SYNOPISIS OF DRAWDOWN ANALYSIS

              Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley).

              Please contact us at info@auspicecapital.com for the complete analysis.

              For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis at below.

              Index Review 

              The AMFERI was down 1.38% in December for a loss of 3.92% in Q4 and a loss of 7.45% YTD after it gained 8.48% in 2011. The worst drawdown was 8.38%. By comparison the S&P DTI ER was down 11.26% with a worst drawdown of 11.09%. The strategy continues to have a non- correlation to the stock market: +0.12 to S&P500 in 2012, while slightly negative longer term, -0.28 over 5 year highlighting the crisis protection performance.

              Portfolio Recap:

              In December and throughout Q4, the strongest sectors were the Financials led by Currencies.

              The most challenging sectors were in commodities with Metals and Ags providing the bulk of the index softening. The index is currently positioned long in 7 of 12 commodity markets, having flipped to short in Corn and Wheat late in December. The index also remains tilted long in financial markets with 7 of the 9 components holding a long weight.  Within Financials, Currencies have now tilted long adding a long Euro weight during the quarter. Interest rates components remain all long. 

              Energy

              After adding Energy commodities steadily in Q3, there were no changes in Q4. The index ended the quarter long Natural Gas, Gasoline, and Heating Oil and short Crude Oil.  After lacking direction and overall softer during the quarter, the year ended with the petroleum markets slightly stronger. Natural Gas was the outlier and weak. Watch for changes in weightings early in the New Year as clouds lift from the US election and the “Fiscal Cliff”.

              Metals 

              The index holds the same long positions in Gold and Silver added late in Q3 while remaining short Copper.  The Metals sector was soft in Q4 for the majority of the overall index loss with Copper not able to offset the downside in Gold and Silver.

              Agriculture

              The Ag sector struggled led by the Grains during Q4. The index exited long weightings in Wheat and Corn during the quarter to minimize further downside and participate in the trend lower from the short side. The index remains long Soybeans. The weakest of the Grains was Wheat which after flipping to a short weight actually helped get the Ags to a positive return in December alone. Sugar was weaker during Q4 and the index remains short for a gain while Cotton was modestly stronger and added a long weight early in the quarter.

              Interest Rates

              The Index remains long Interest Rate futures across the curve (US 5, 10 year Notes and 30 year Bonds) and was near flat performance in Q4.

              Currencies

              Currencies led sector gains in December and during the quarter. The most significant gain came from the short in Japanese Yen. Other gains came from long British Pound and short US Dollar Index.  The sector is now long Aussie, Canadian Dollar, Euro and British Pound while short Yen, Euro and the US Dollar Index.

              Outlook

              Given the overall market environment, especially the performance of the traditional sectors over the last couple years, Managed Futures remains an excellent addition to diversify an investment portfolio. While the choppy environment and high sector correlation of the last 2 years has been a challenge for the strategy, it is within expectation and should be expected in order to provide the long term benefits of absolute return, asset diversification, and non-correlation. The AMFERI remains an excellent way to get non-correlated performance and crisis protection in a transparent and liquid way. 

              Strategy and Index

              The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return).

              About the Index Provider 

              Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk. 

              Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor, pool operator (CTA) and National Futures Association (NFA) member in the US.  Auspice’s core expertise is managing risk and designing and executing systematic trading strategies.

              Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.

              Q4 and 2012 yearly summary ABCERI

              Market Review

              After making solid gains in Q3, the commodity markets weakened significantly in Q4. While the long term trajectory appears to still be trending up for commodities in general, there have been a number of factors we can guess have caused the “risk on” and “risk off” market behavior in commodities: speculation re China growth slowdown, the US election, the so called “Fiscal Cliff”, and many others. These factors may have contributed to the choppy market action in Q4.

              Index Review 

              After gaining 5.88% during Q3, the ABCERI was off 5.03% in Q4. By comparison, the S&P/GSCI ER lost 3.30% while the DJ UBS ER index lost 6.35%. Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk measures.The following table highlight’s the strategies ability to capture the upside while limiting the downside.

              As outlined in a report published by ETF Securities (UK) entitled Global Commodity ETP Quarterly, the Auspice Broad Commodity index remains at the top of the global broad commodity index peer group with both the highest return and lowest volatility. Copies of the report can be obtained by contacting Auspice.

              INDEPENDENT REPORT

              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. The ABCERI has continued to outperform most of its peers in 2012 down 1.02% with far less volatility.

              Portfolio Recap:

              In Q4, the ABCERI preserved a small portion of the Q3 gain. All 3 of the sectors gave back during this period with the most challenge coming from Metals and Ags. 

              Energy

              After adding Energy commodities steadily in Q3, there were no changes in Q4. The index ended the quarter long Natural Gas, Gasoline, and Heating Oil.  The index currently remains without a Crude Oil position.  The year ended with the petroleum markets stronger and Natural Gas weaker. Watch for changes in weightings early in the new year as clouds lift from the US election and the “Fiscal Cliff”.

              Metals 

              The index holds the same long positions in Gold and Silver added late in Q3.  There continues to be no Copper weighting at this time. The Metals sector was soft in Q4 for the majority of the overall index loss.

              Agriculture

              The Ag sector struggled led by the Grains during Q4. The index exited weightings in Wheat and Corn during the quarter to minimize further downside while holding Soybeans. The weakest of the Grains was Wheat. Sugar was weaker during Q4 and the index remains without a weight while Cotton was modestly stronger and added a long weight early in the quarter.

              Outlook

              It is not the stated goal of Auspice, nor the ABCERI to predict future market direction, but rather participate in up-trends while minimizing risk during downtrends. Q2 and Q4 illustrated that as commodities moved sharply lower, the index downside was limited versus other broad commodity indices. Moreover, the erosion in Q2 was more than made up in Q3 as up-trends appeared. While the up-trends in commodity were not sustained in 2012, the ABCERI index was able to minimize the downside with low volatility and drawdown. .

              The long side of the index is now represented by 7 of the 12 components and has all 3 sectors represented. This is in sharp contrast to the end of Q2 when only 3 of the 12 components were included. As such the index is now tilted long commodities to take advantage of a potential sustained movement higher in this asset class.

              We continue to believe that the long term outlook for commodities remains promising and the overall trend is up. However, years like 2012 highlight the importance of risk management and strategy selection as the downside 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) 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.

              November Commentary & Performance

              Download the commentary here.

              The Auspice Diversified Program was down 2.38% in November.

              While experiencing a loss on the portfolio, the gains made came from a part of the market that has been challenged for some time. The volatility in the market and flipping between “risk on” and “risk off” has been centred in the financial sectors for some time now. Gains in the portfolio from trends came precisely from these sectors – Interest Rates, Currencies, and Equity Indices. It has been since early 2011 that these 3 sectors lined up to all provide trend opportunity by our definition.

              The commodity portion of the portfolio remained challenging to capture trends with markets generally dropping in the first half before partially recovering later in month.

              Of special note, we would also like to point out that Auspice is currently buying into the strategy at the corporate/manager level. We believe this is a very opportune time for investment similar to what we experienced in mid 2007. Our investment is thus increasing from our previous commitment as we take advantage of the current drawdown opportunity.

              For those interested in more commentary on timing in the CTA/managed futures sector, we would highlight a couple posts on our blog. The first is entitled “The opportunity in CTA/Managed Futures drawdowns” which is a great article that revisits a classic analysis by a legendary trend trader, Tom Basso.

              As an extension to that research, For those interested in a copy of an analysis of the drawdown and recovery periods for Auspice Diversified, please contact Auspice. A quick synopsis can be obtained here (top text), which highlights the environment and the opportunity. The current environment is an opportune time to be adding to this type of an investment.

              SYNOPISIS OF DRAWDOWN ANALYSIS

              Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley). 

              The Auspice Diversified Program was profitable in 3 of the 7 sectors traded. Gains were made in the 3 financial markets, Interest Rates, Currencies, and Equity Indices. The 4 Commodity sectors had net losses led by weakness in the Grains and Softs.

              Interesting Trades: 

              • Exited a profitable short trade in Copper that was entered in October.
              • The long Lumber position has continued to benefit the portfolio.
              • Covered a long Wheat position that was only on for a few days. The wheat market remains very tight and range bound.

              The 5 year statistics (Dec 07 - Nov 12) are: +5.58% annualized return with 12.98% volatility. The worst drawdown for the period is 20.12% with an average Margin to Equity ratio of 6.3%. It should be noted that during this 5 year period, Auspice Diversified remains ahead of the benchmark industry index. The benchmark Newedge CTA index is +2.00% annualized over the same period.

              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 versus traditional investments due to stringent risk management and downside protection.

              Key Points Regarding our Positions

              Energies: Energy was choppy largely trading sideways. We remain short Crude, flat Heating Oil and Gasoline. Natural Gas provided a wild ride extending weakness started in mid October before rallying mid month only to sell off at month end. Unfortunately, this caused us to enter a new short in gas and exit before re-entering at month end. As such we leave the month with a short tilt in energy.

              For those with specific interest in this sector, please contact Auspice regarding the launch of our Energy focused strategy in collaboration with Pulse Capital Partners of New York. The program went live on March 2nd, 2012.

              Metals:  Metals were mixed with Gold sideways but Copper and Palladium sharply higher. While we remain long Gold, the Copper short was covered into this strength for a small gain. We remain on the sidelines in Palladium. As mentioned last month, we felt a move was overdue and this should be an opportune sector soon.

              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.

                Grains: Grains started the month off weak led by Soybeans. We covered our Soybeans position for a small gain and hold the long Corn position. Wheat was entered long and quickly exited as the sector weakness was developing.

                Soft Commodities: The Softs sector was challenging with markets moving sharply with an upwards bias. Lumber was sharply higher and we are long. Cotton was also strong against a new short entered at the start of the month. We are holding at the moment. OJ was also strong and we covered our short. Coffee on the other hand was weak where we are short for a solid portfolio gain.  

                Currencies: Solid gains made in currencies with only one portfolio change on the month. We remain long the strongest markets in Aussie and Canadian dollar positions. We are short the Euro and have added a new short in the Yen. We are on the sidelines in the Swiss Franc Dollar Index, and British Pound. Perhaps the new Bank of England Governor (Mark Carney of the Bank of Canada) will be able to inject some life into the Pound. 

                Interest Rates: The Interest Rates sector was profitable in November on the back of existing and new long positions. We have now added 5 year Notes and 30 year Bonds to our long standing position in US 10 years, held since early 2011.

                Equity Indices: Lastly, we were also profitable the Equity sector where the market traded lower following the US election before gaining back some ground at month end. After noting last month we were holding one of the strongest markets in the Hang Seng, we have now taken profits. The Hang Seng adds to our flat positions in the Nasdaq and the Nikkei. We continue to hold long positions in the French CAC 40, the Russell 2000, and the S&P 500 with significantly reduced exposure since the summer. While the sector has not eroded completely, the stronger markets have softened significantly in the last 2 months. It appears additional upside momentum has been lost and we are happy to crystallize gains in this sector.



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

                October Commentary & Performance

                Download the commentary here.

                October continued to be a challenging environment for trend following strategies. While the common reasons for this are obvious: a lack of pervasive trends or moves against established trends, we are experiencing other interesting market behavior. The volatility in the market has been very choppy flipping between “risk on” and “risk off” environments as opposed to volatile and headed in a particular direction. Moreover, we are experiencing high correlation between the diverse asset classes. 

                SYNOPISIS OF DRAWDOWN ANALYSIS

                Managed Futures is typically a difficult strategy to time because of the non-correlated performance that results from the widespread diversification of market sectors covered. One of the best ways to consider an entry point is through an understanding of drawdowns over time. Pullbacks occur in every strategy, however given transparency of the returns, it is intuitive to analyze the character of the pullbacks and subsequent gains with managed futures. These pullbacks generally represent an opportunity from which trends develop and extend. Furthermore, the time to make new gains is often quicker than the length of the pullback (peak to valley). 

                All of these things have combined recently to cause a challenging environment for the strategy but here is the key thing: this is not uncommon. This has happened historically many times. We most recently experienced this environment in 2006 into late 2007. In this case we were in a similar situation where the equity market had been strong, peaking in October 2007. Performance was a challenge in almost all sectors covered leading to a performance low in the summer of 2007 (August specifically). Out of that period, the strategy gained significantly: 60% from August 2007 to February 2009 while the equity markets moved lower: TSX60 down 38.2% and the S&P dropped 50%. While we do not imply that things will unfold exactly the same, the set-up is very similar, right down to the US election and the equity markets strength beginning to wobble.

                For those interested in a copy of an analysis of the drawdown and recovery periods for Auspice Diversified, please contact Auspice. A quick synopsis can be obtained here, which highlights the environment and the opportunity. This is the exact environment to be holding or adding to this type of an investment.

                The Auspice Diversified Program was not profitable in any of the 7 sectors traded. The last time this occurred was in July 2007 right before the strategy began a rally up to March 2009. 

                Interesting Trades: 

                • Exited a profitable short trade in Cotton that was entered in February.
                • Crystallized gains in Gasoline as the rally showed signs of softening.
                • Exited a long position in the Nasdaq equity index.
                • Covered a Lumber short that was only on for a few days. This was a great move as the lumber market has moved substantially higher and we are now long.

                The 5 year statistics (Nov 07 - Oct 12) are: +5.63% annualized return with 12.97% volatility. The worst drawdown for the period is 18.18% with an average Margin to Equity ratio of  6.3%. 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 vs. traditional investments due to stringent risk management and downside protection.

                Key Points Regarding our Positions

                Energies: As was the case last month, with the exception of Natural Gas, Energies were weak dominated by Crude and Heating Oil. While Heating Oil mustered up a rally in the first part of the month, it followed Crude and Gasoline lower in the last half. We are still short Crude and flat Heat. Natural Gas was sideways and we remain on the sidelines at the moment. Keep a close watch here as we are seeing signs of upside potential.  Lastly, we covered the long trade in Gasoline initiated in July for a gain. 

                For those with specific interest in this sector, 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:  Metals were universally weak. While we remained on the sidelines in Palladium, we re-entered a short in Copper. This market has been trading a tight range, drifting lower since early 2011. We think a sharper move is overdue.  We continue to hold Gold and despite the pullback in October, it looks strong overall.

                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.

                  Grains: Grains were weak across the board in October and we did not make any position changes.  We are holding the same long positions in the strongest part of the Grains sector: Corn and Soybeans. Wheat continues to consolidate since July and we remain flat.

                  Soft Commodities: The Softs sector was active as we repositioned responding to trend validation. As mentioned above, we covered a brief short in Lumber and went long near month end. This will be one to watch alongside the US storm rebuilding efforts. We crystallized a profitable Cotton short and added new shorts in both OJ and Coffee. 

                  Currencies: This sector continues to be challenging highlighting the risk on risk off environment. We remain long the strongest markets in Aussie and Canadian dollar positions but exited a short lived long British Pound position. We continue to be short the Euro but covered the short in the US Dollar Index. We remain on the sidelines in the Yen and Swiss Franc although both a have a slight upwards bias at this time. 

                  Interest Rates: While only producing a small loss on the month, the Interest Rates sector was weaker (higher rates). This is a sector that has been very profitable from the long side for a number of years and we have crystallized most of the gains. We are only holding US 10years, unchanged from September.

                  Equity Indices: Lastly, we made some changes in the Equity index sector.  While most of the global sector was weak, we managed to own one of the stronger markets in Hong Kong’s Hang Seng added early in the month. While we continue to hold long positions in the French CAC 40, the Russell 2000, and the S&P 500, we have begun to reduce risk elsewhere. We have exited the Nasdaq and we are also flat the Nikkei at month end. It appears some of the upside momentum has been lost and we are monitoring this closely.

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

                  AMFERI Market Review Q3 2012

                  Market Review

                  The index has shifted to a long stance in the commodity and financial markets since the end of Q2. The index experienced a small loss in September of -0.22% and the quarter -1.68% while the equity markets were very strong. In general, Q3 and the year has been a challenging one for managed futures as the market has been dominated by a few core trends amidst general choppiness and market interventions. The results of the index remain non-correlated relative to traditional asset classes.  

                  Index Review 

                  The AMFERI was down 0.22%% in September for a loss of 1.68% in Q3. The index is down 3.68% YTD after gaining 8.48% in 2011. 

                  Portfolio Recap

                  In Q3, the AMFERI index was profitable in 2 of the 5 sectors and negative in 3. The weakest sector within the index was Energy followed by Metals while the strongest was the Agriculture. Interest Rates provided a small gain while Currencies provided a small loss. 

                  The index is currently positioned long in commodities, tilted long in 8 of 12 commodity markets adding 5 new long commodity weights during the quarter. The index is tilted long in financial markets with 7 of the 9 components holding a long weight. 

                  Energy 

                  The Energy sector has shifted from completely short ending Q2 to adding long positions steadily in Q3.  First, after experiencing one of the longest downtrends in the commodity history, Natural Gas went long in July.  Gasoline followed in August and Heating Oil went long in September. The index is currently short Crude Oil position and this market was the weakest of the sector during September. 

                  Metals  

                  After leaving Q2 short, the index has shifted to long positions in Gold and Silver during September.  The index is still short Copper at this time but this will be one to watch.   

                  Agriculture 

                  The Ag sector led the index with gains provided by the Grains during Q3. Each of the Grains added value and remain with long weightings at this time (Corn, Wheat, Soybeans). Most of the gain was made early in the quarter. Sugar was weaker during Q3 and contributed to the sector performance from the short side while Cotton was modestly stronger for a small loss. 

                  Interest Rates 

                  The Index remains long Interest Rate futures across the curve (US 5,10 year Notes and 30 year Bonds). This sector was profitable in Q3.  

                  Currencies 

                  Currencies provided a small loss in Q3 as many of these markets changed position during the quarter and were generally choppy and in transition.   The index moved from short to long in the Aussie and Canadian Dollars as well as the Japanese Yen.  Significant gains were again made from the long weight in British Pound while the Euro short was not profitable but held.  Lastly, the index moved to a short in the US Dollar index as the Dollar showed weakness through the latter half of the quarter. 

                  Outlook 

                  Managed Futures remains an excellent place to be given the current market volatility and risk.  While the recent performance has been slightly negative, the correlation to traditional markets remains low. The AMFERI remains an excellent defensive place to get non-correlated performance and crisis protection.   

                  Strategy and Index 

                  The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 exchange traded futures which cover the energy, metal, agricultural, interest rate, and currency sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available as either a total return index (includes a collateral return) or as an excess return index (no collateral return). 

                  About the Index Provider  

                  Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.  

                  Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Counsel / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor, 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. 

                  September Commentary & Performance

                  Download the commentary here.

                  The Auspice Diversified Program was down 3.64% in September.

                  September was a challenging month with strong moves against the established trends. The month was in contrast to the shift that started Q3 that reduced the defensive stance (shorts) and added long positions in many sectors including Energy, Grains, Metals, and Equity Indices.  

                  While we experienced a number of positive trades, these were outweighed by the “risk off” stance that occurred quickly in Grains, Rates and Energies. Most of the trends and positions in these sectors remain intact. The commodity side of the market remains strong overall as indicated by the global long commodity indices that recently showed strength. 

                  The Auspice Diversified Program was profitable in only 1 of the 7 sectors traded with a gain from Metals. The Equities and Softs sectors were near flat. The most challenging sectors were Energies, Interest Rates, Currencies and Grains.

                  Interesting Trades: 

                  • Reduced long Interest rates exposure – exited US 30 year bonds locking in gains.
                  • Exited short Copper trade profitably locking in gains. 
                  • Added exposure to Equity Indices as they remain strong.
                  • Commodity currencies are strong while Euro and USD are weak.
                  • Gold leads commodities higher and has broken out to the upside.  We are long.
                  • Exited Natural Gas short, added Crude short and continue to hold Gasoline long as energy has been volatile.

                  The 5 year statistics (Oct 07 - Sep 12) are: +6.96% annualized return with 13.05% volatility. The worst drawdown for the period is 16.68% 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 vs. traditional investments due to stringent risk management and downside protection.

                  Key Points Regarding our Positions

                  Energies: With the exception of Natural Gas, Energies were weak dominated by Crude and Heating Oil. We have added a new short to Crude but remain long the strongest part of the sector with Gasoline. The recent new short in Natural Gas has been covered and is now flat. Natural gas is going through transition and should be monitored very closely for opportunity and risk.

                  For those with specific interest in this sector, 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 profitable with some interesting position gains and changes. The long Gold position that we added in August made great gains during the month. The Gold trade offset losses in a new long position in Palladium that was short lived. Palladium started to fall sharply along with many commodities at mid month and we covered quickly. Lastly, we covered our long standing short in Copper to lock in a gain. At month end, Gold is the only long position within the Metals sector. 

                  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.

                  Grains: We are holding the same long positions in the strongest part of the Grains sector: Corn and Soybeans. While both of these markets sold off during the month, we are holding the positions as the long term trend remains intact. Wheat remains the laggard and we are flat at this time.

                  Soft Commodities: As within August, with the exception of Coffee, the Softs markets followed the rest of commodity market – this time it was lower.  While we remain short Cotton, we added a short in Lumber near month end.  The Coffee market that was shorted in August was covered. We are on the sidelines with OJ at month end.  The sector was near flat in September.

                  Currencies: We have added to the long Aussie and Canadian dollar positions with a British Pound position.  We tried the Japanese Yen from the long side but there was little follow through and we reduced the risk. We continue to be short the Euro and added a short in the US Dollar Index. Swiss Franc remains flat. Despite the commodity weakness during the month, it appears that “commodity currencies” are in favor. 

                  Interest Rates: Rates were choppy again as they were in August and we have further reduced the long side risk. We exited US 30 year bonds to only hold a position in US 10 year Notes. This is a big shift from the long exposure that we have profitably held in this sector for the last couple years.

                  Equity Indices: We continued to add to the long side of the Equity index market in September adding a position in the French CAC 40.  This adds to the Russell 2000, S&P 500 and Nasdaq positions already held.  The Asian markets remain weaker and we remain flat the Nikkei. We briefly put on a short position in the Hong Kong Hang Seng, but covered quickly as this market showed strength after the first week of the month. At the moment, the Equity sector remains strong in general.

                   

                   

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

                  ABCERI Market Review Q3 2012

                  Market Review

                  After the weakness that started in March and extended into Q2, many commodity markets moved higher in Q3.

                  Index Review

                  The ABCERI was up 5.88% during Q3 after losing 4.70% in Q2. The quarter ended strong with the index up 0.82% in September. By comparison, the S&P/GSCI ER gained 10.60% in Q3 after losing 12.40% during Q2. The GSCI also ended the quarter with a loss in September of 2.24%. The volatility from Q2 to Q3 highlights that 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. The ABCERI has continued to outperform most of its peers in 2012 up 4.23% with far less volatility. 

                  Portfolio Recap

                  INDEPENDENT REPORT

                  As outlined in a report published by ETF Securities (UK) entitled Global Commodity ETP Quarterly, the Auspice Broad Commodity index remains at the top of the global broad commodity index peer group with both the highest return and lowest volatility. Copies of the report can be obtained by contacting Auspice.

                  In Q3, the ABCERI gained more than what was lost during Q2. The strongest sector within the index was Agricultural commodities which started to gain momentum in June. Gains were also made in Metals while Energy was down modestly. 

                  Energy

                  After ending Q2 without any Energy exposure, positions were added steadily in Q3. First, after experiencing one of the longest downtrends in the commodity’s history, Natural Gas was added in July. Gasoline followed in August and Heating Oil was added in September. The index currently remains without a Crude Oil position and this market was the weakest of the sector during September. 

                  Metals

                  After leaving Q2 without a long exposure, the index added positions to Gold and Silver during September. There is no Copper weighting at this time but this will be one to watch closely. The Metals sector contributed positively to the index in Q3 with these additions.

                  Agriculture

                  The Ag sector led the index with gains provided by the Grains during Q3. Each of the Grains added value and remain with long weightings at this time (Corn, Wheat, Soybeans). Most of the gain was made early in the quarter. Sugar was weaker during Q3 while Cotton was modestly stronger - both remain without weights at this time.

                  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. Q2 illustrated that as commodities moved sharply lower, the index downside was limited versus other broad commodity indices. The erosion in Q2 was more than made up in Q3.

                  The long side of the index is now represented by 8 of the 12 components and has all 3 sectors represented. This is in sharp contrast to the end of Q2 when only 3 of the 12 components were included. As such the index is now tilted long commodities to take advantage of a potential sustained movement higher in this asset class.

                  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 11.6% with 13.3% annualized volatility while the S&P/GSCI ER had a lower return at 7.6% with a much higher 20.1% volatility.

                  We continue to believe that the long term outlook for commodities remains promising but that the downside 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.