A colleague recently asked me, as we were talking about the energy industry, "what is the opposite of love?” Given the struggle and lack of performance in recent years, my immediate thought was people either love something, or they hate it. This is observable in many aspects of life: I hate this football team; but I love this one. I hate this politician; I love that politician (Not!). And while it feels like people hate the energy industry right now, he disagreed, and his response had me thinking about this ever since.
While most people talk in these extreme terms, perhaps for dramatic effect, the reality is most people act in a far less committed way. Most commonly they just accept or ignore the way things are. They are indifferent. This, my friend suggested, is the opposite of love.
For the stock markets, the bull market we are in has been called the "most hated bull market in history" by some. Not without merit. While the scare in 2018 had investors withdraw $200 billion to end the year*, it is estimated only $198 billion came back in 2019 despite the market roaring back, posting one of the strongest results in history. This brings the S&P500 (total return) to 8.8% annualized since 2007, even including the 50% plus pullback in 2008. Incredible. What’s to hate?
I don't think people hate it at all. At worst they may be feeling they missed out on an opportunity if they didn't participate. Perhaps, the constant fear mongering that the markets will inevitably correct, constantly bombarding investors has made investors numb to it. And they have become indifferent.
But here is the scary part. While no one knows when it will happen. It is inevitable that the markets will correct. That is normal behavior. If your exposure is only to the stock market and other correlated investments, you are at risk. While diversifying into other things make sense, do they help when the market drops? Indifference to this reality can be very unpleasant indeed.
Fortunately, the remedy to indifference is quite simple – it’s action.
It’s up to the Energy industry to take action to get the right message out about the industry with respect to climate, environmental and its positive contribution.
It is up to you to vote in a democratic society. It is up to you as an investor to make sure your portfolio is protected from inevitable downturns - so you can worry less and just enjoy life.
Can you possibly do better than the incredible S&P 500 returns? Yes.
Hypothetically, if you added 20% of a Diversified Managed Futures strategy (like the one Auspice manages) to the S&P 500 in 2007, you not only have a slightly better annualized return at over 9%, and a better risk-adjusted return as measured by a better Sharpe ratio. Moreover, that 50% pullback is now 35%, and volatility has dropped by 24% (on a relative basis). Better returns, and a reduction in risk.
Don't be indifferent.
We are happy to discuss diversification and products that may help your portfolio. Give us a call.
*per the Investment Company Institute regarding mutual and exchange-traded funds
Disclaimer below
IMPORTANT DISCLAIMERS AND NOTES
Futures trading is speculative and is not suitable for all customers. Past results are 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.
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.