Timing markets and strategies
Timing things is hard. Like timing when to cross a busy road (just ask any gopher). We have a visual on the situation and there are no invisible cars. We have all the information we need to make the decision and time on our side.
In the markets, even though we have many visuals (charts, prices, advice, commentary etc.), we surely do not have all the information. We are playing blind because we can’t see a lot of what is driving the market. Moreover, markets are affected by many things we cannot see like fundamental factors, crowd behavior and hype along with hope, greed or panic.
Timing a particular investment strategy that participates in the markets is arguably even harder. Yet, investors have got used to trying to do this in investment strategies - and perhaps it can work in some areas. If the strategy is highly correlated to equity (as the bulk of investment strategies are) or fixed income, it is indeed possible. For example, if you are trying to time a long biased fund manager in equities or bonds, you have a fighting chance given interest rate movements and equity cycles are visible.
But what about a strategy that has no correlation to equity, fixed income or anything else While adding this type of non-correlated investment may be beneficial for portfolio diversification, when do you add it?
This is even more complicated if you are trying to time a strategy that is designed to time and capture market trends, up or down, across many asset types including sectors as diverse as commodities. What do you gauge it on?
We often have investors trying to time when to invest with us or other similar managers saying they want to add us at the ideal time - for example when non-correlated returns are most needed (loosely translates to when equity is falling). That is super challenging given the emotional aspects of investing. It’s like buying insurance after the house is on fire – i.e. a little too late.
The solution? Don’t try to time non-correlated strategies – it is a poor use of time. Build a better portfolio by finding the right mix of assets, strategies, and risk diversifiers. Perhaps over weighting at times when one fears the overall portfolio risk is too far tilted to a certain asset classes performance (i.e equities) or underweight after the non-correlated strategy has done exceptionally well.
Play in traffic if you must. Just don’t do it blind.
But, don’t try to time the timer.
Disclaimer
IMPORTANT DISCLAIMERS AND NOTES
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 offence to claim otherwise.
COMPARABLE INDICES
Auspice Managed Futures Excess Return Index (AMFERI): The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The strategy focuses on Momentum and Term Structure strategies and uses a quantitative methodology to track either long or short positions in a diversified portfolio of 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 in total return (collateralized) and excess (non-collateralized) return versions.
Returns for Auspice Managed Futures Excess Return Index (AMFERI) represent returns calculated and published by the NYSE. The index does not have commissions, management/incentive fees, or operating expenses.
The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Price Return data is used (not including dividends).
60-40 Portfolio: 60% investment in SPY (S&P 500), 40% investment in IEF (intermediate-term US Treasuries), rebalanced monthly.
QUALIFIED INVESTORS
For U.S. investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to Qualified Eligible Persons “QEP’s” as defined by CFTC Regulation 4.7.
For Canadian investors, any reference to the Auspice Diversified Strategy or Program, “ADP”, is only available to “Accredited Investors” as defined by CSA NI 45-106.