We thought we would provide some clarity on what we do at Auspice, and why our approach may benefit your portfolio. We have made it clear for years that:
We are a "commodity tilted" manager – We feel this has been a very undervalued area in its price and appreciation for portfolio value for many years.
We are not fundamental discretionary – We are technical and systematic.
We are uncorrelated to commodity indexes (and negatively correlated to equities)(1).
Let’s dive into the "how" and "why".
First - our flagship Auspice Diversified portfolio is commodity tilted (more commodity risk than financial) because the vast commodity sector offers more opportunity for diversification than traditional stock and bond markets. Cotton is not like Crude oil, is not like Canola or Coffee. And commodities tend to be low correlation to the stocks and bonds most investors already have heavy exposure too. At times commodities will go up or down at the same time, but they tend to be less driven by macro factors that often push stock and bonds correlations to one. The opportunity for diversification across sub-sectors (energy, metals, grains, soft commodities) also exists: Just because Silver is rising does not mean Gold is and as such, each asset is looked at based on its merits for risk and reward.
Second - How do we decide which commodities to buy and sell? We don't force long or short exposures to commodities, we are simply open to more commodity risk than financial if and only if the individual commodity meets our criteria for trend and momentum. We have been asked, "Why are you long Crude Oil - is it because of the storage reports?". The quick answer is we are long crude because it is going up, it is trending and has momentum. If the trend turns down, we will go short. Nothing more, nothing less.
Third - are we highly correlated to the long-only commodity indices like GSCI or BCOM? Again, at times it may feel like it - but over the long term we have almost no correlation to the commodity benchmarks. How could that be given Auspice Diversified is commodity tilted to the tune of 60-80%? The answer is simple, we are agnostic to commodities going up or down. As a result, our correlation to other CTA managers is often low (as most are heavily tilted financially) and our results are historically very good at times of "financial crisis" or correction: Commodities like Cotton and Canola are less impacted by global liquidity and crisis events than stocks and bonds.
Lastly - Do we only make returns in commodities? Unequivocally "no". We also trade financial markets (equity indices, currencies and bonds) for increased diversification, but to the tune of 20-40%, rather than 60-80% like most of our competitors. This is significant. Having the large commodity tilt is a significant edge as we demonstrated in 2008 and during Covid Q1 2020. The financial tilt benefitted many large CTAs last decade, but historically CTAs – “Commodity Trading Advisors” – traded more commodities: The opportunity set is larger and more diverse in commodities.
We make no bones about it - we are not stock pickers nor fundamental investors from a decision process perspective. However, this doesn't mean we don't believe in fundamentals. It means that when it comes to executing our investment thesis, we are technical about it. We invest in real physical properties like trend and momentum while considering volatility and risk. Much like the reality of physics - not everyone has a PhD in physics, but most understand physics exist. Moreover, you don't need to understand all the aspects of all the commodity markets to greatly benefit your portfolio, you need a disciplined and experienced manager – a manager that can look beyond the last decade.
With over 25 years of experience in all types of markets, we have you covered.
This blog and statement are referring to our flagship Auspice Diversified. Auspice Broad Commodity does have correlation to broad commodity indexes.
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.