To date there has been little discussion about commodity futures within ESG frameworks - neither the Organization for Economic Cooperation and Development (OECD) nor the UN Principles for Responsible Investment (UNPRI) provides comprehensive guidance on commodity futures. We have researched this and will be sharing a comprehensive white paper “Commodity Investing in the Age of ESG and Inflation”. This month’s blog summarizes one of the white paper’s core considerations, that futures offer exposure to commodities with zero environmental impact.
"Inexperienced or impatient investors all too often redeem at the bottom of a manager's drawdown, only to witness the surge in performance thereafter."
We originally wrote “On Sale” in 2017. And at that time, we and other CTAs were indeed, on sale. Do you remember? Probably not. Was it a great opportunity? Arguably, yes. We were further inspired by the seminal paper by fund manager Tom Basso who wrote the paper "When to allocate to a CTA - Buy them on sale". Read More.
In an April 7th Special to the Financial Post “Will The Tech Boom Feed the Commodity Cycle?” Auspice Founder and CIO Tim Pickering described how the link between Big Tech and Commodities is strong and growing stronger (see full article in the April August Blog, here). Notably, Big Tech may be the next big commodity buyer – at a time when supply is increasingly tight and prices are already on the rise. In September we saw what we believe to be the beginning of this long-term driver affect commodity markets. Read More.
Like a kicker in football, Auspice Diversified is a Special Teams player that all portfolios should have. The role is important - it helps win games and in our case, protects portfolios.
As the US market opened on August 5th the flagship Auspice Diversified was up just over 2.5% for the day and month, delivering accretive crisis alpha as it has done so reliably for 18 years. How does this happen? What can you expect from Auspice Diversified and how does it compare to other CTAs during equity selloffs? This month we look at the equity selloff at the beginning of August as a case study to help investors understand how we trade and our “Crisis Alpha” profile. Read More.
This month we provide important context on our recent portfolio expansion of Auspice Diversified, nearly doubling the commodity markets traded with the addition of lower liquidity and lesser correlated markets. Auspice is now at the “sweet spot” where we have the infrastructure to trade a broader, more diverse set of markets. Importantly, we can also provide meaningful exposure to these markets – something our larger peers cannot do. We strongly believe our best years lie ahead of us – but the opportunity is not infinite.
Trend Following managers such as Auspice are widely known for their reliable characteristic of ‘crisis alpha’. In this months blog we explore beyond the established perception of protection and how the characteristics of Trend Following can provide perhaps the opposite of ‘crisis alpha’ - Returns Enhancement. Read more.
Recently we have witnessed a significant uptick in performance chasing as select commodity markets rallied. In our 18-year experience working with investors, we have seen this before, particularly with headline commodity markets. This is not our first rodeo.
Indeed, it is a natural and expected outcome given the volatility and corresponding opportunity in commodities. Read More.
This month's Auspice Blog is the full research article, previously summarized and featured in the April 7th, 2024 Financial Post (here), the March 2024 Auspice Blog (here), and an upcoming publication in the summer edition of the Commodity Insights Digest, a publication of Bayes Business School - City, University of London (U.K.). Read more.
The link between commodities and the overall economy and global stock markets is a bit of a mystery. Rarely made is the link of tech and commodities. They seem juxtaposed at opposites ends of the investment spectrum - new school versus old school: the internet, cloud and artificial intelligence (AI) versus picks, shovels, and drill-bits. However, we believe the link is strong and growing stronger and may be an important factor in the extension of the commodity cycle that started in 2020, only two years into a typical commodity cycle length. Read more.
The pain consumers have felt from inflation is significant. Amid rising food inflation, Kellogg’s CEO suggests poor families should “eat corn flakes for dinner”. These comments, broadly insensitive, speak to the severity of the real inflation consumers are facing, much of which is masked by headline inflation metrics.
There has been a surge in freight rates and the World Container Index. As discussed in the January 2024 Auspice Blog, the number of wars and global conflicts are at the highest levels since WWII. This is likely a key driver in the increase of freight rates, and with the spike just commencing recently in 2024, we likely are on the precipice of higher prices for both raw and manufactured goods. Read more.
The number of wars and global conflicts are at the highest levels since WWII. For people under 80 - a large majority of the world's population - we have never lived in a world with so many different conflicts between countries and amongst non state groups such as terrorists’ cells and drugs cartels.
You might think the world is always violent, wars and conflicts are always happening somewhere. This moment can’t be any special. That would be wrong. Read more.
Following 3 years of strong returns for CTAs, 2023 was a challenging environment for both passive commodity and active CTA/Managed Futures strategies (“CTAs”). Indeed, while a far cry from the drawdowns stocks and bonds experienced in 2022 , all four commodity / CTA benchmark indices finished slightly lower in 2023. Read More.
Following the US Federal Reserve’s rate pause on November 1st, equity markets rallied – the pause considered a welcome relief from further monetary tightening. Indeed, November’s rally is not inconsistent with initial equity market optimism following previous pauses in rate hikes.
What does history tell us about the ensuing months following a rate hike pause and equity market rally? Stock market performance following the last two pauses in rates hikes above 5% may not be what you expected. Read More.
We believe India is emerging as the largest driver of the emerging commodity supercycle; expected to consume significantly as China did in the early 2000s. As an indication of the timeliness, consider Figure 1. As the Indian population grows and demands more goods, India has begun banning exports of many agricultural markets including Wheat, Rice, and Sugar. Read More.
In this month’s blog we highlight the negative equity correlation and “crisis alpha” of the flagship, Auspice Diversified Trust (“ADT”, “Auspice flagship”, “Auspice Diversified”). In September, Auspice Diversified was up 3.4% versus S&P500 down 4.9%. This is consistent with the positive performance Auspice Diversified has delivered historically, over its 17-year track record, when the S&P500 has been negative.
The world has changed since 2020. Quantitative Easing (“QE”) is over, interest rates are no longer pegged at zero, and inflation has normalized closer to the long-term average 3.5% (US CPI) since 1948.
How does one construct a portfolio that can deliver in this environment?
This month we provide a glimpse into the asset class allocation of some of the largest North American pensions and endowments. As demonstrated below, many large institutional investors have 5-10% allocations to commodities and/or Commodity Trading Advisors (CTAs) in the managed futures sector. Read more.
Renewed commodity strength was seen in July many sectors such as agricultural commodities. Auspice expects food prices to follow agricultural prices back up, putting a floor and likely reversal in the recently softening of inflation metrics in some countries. Read more.
In last month's blog “Agflation” we highlighted a number of commodity staples markets breaking out to 10+ year highs. At the same time, in the last twelve months (through May 31st, 2023), commodities have been in a retracement after a strong two-year rally. The long only commodity benchmark indexes BCOM & GSCI have experienced 28% and 31% peak to trough drawdowns respectively (the tactical Auspice Broad Commodity Index has mitigated most of this drawdown and is down just 5% over this one-year period).
We are bullish long term on commodities for many reasons (more here and here). That being said, like all markets, commodities in particular, do not go straight up. Risk management is critical. Importantly, there is a marked difference between resource equities, traditional long-only commodities, and tactical commodity strategies such as those Auspice offers. Read More.
Think inflation is going to continue downwards? Some “food” for thought, in May 2023:
Sugar made ten-year highs.
Robusta coffee futures reached 12-year highs.
Cattle futures made all time record highs.
Orange Juice futures made all time record highs.
On the back of the US banking crisis which created a rapid shift in fixed income markets, the benchmark CTA indexes (BTOP50 and SG CTA) dropped 5 to 6.5% and experienced 7 to 9% peak to trough drawdowns. Some of the most popular CTA ETFs, typically with more concentrated positioning, were down twice as much from peak to trough. Auspice Diversified Trust, our flagship CTA fund, delivered a slight positive result in March, up 0.34%. Read More.