Publication Date: October 4th, 2023
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.
Per Figure 1 below, we have sorted the worst equity months and the corresponding performance of the Auspice flagship. On the left, on S&P500 down months, the average is -4.0%. Not only is ADT positive on average overall, the gain increases with larger S&P500 selloffs. For example, S&P500 down months over 5% produced average ADT gains of 1.5% on a monthly basis.
Figure 1: Average Performance of Auspice Diversified Trust During Up and Down Months for the S&P500.
The returns for Auspice Diversified Trust ("ADT") are “net” (including management and performance fees, interest and expenses). Returns represent the performance for Auspice Managed Futures LP Series 1 (2% mgmt, 20% performance) including and ending November 2019. From this point, returns represent the performance for Auspice Diversified Trust Series X (1% mgmt, 15% performance) which started in July 2014. Source: Bloomberg and Auspice Investment Operations as at September 30th, 2023. You cannot invest directly in an index.
On right, we sorted positive S&P500 months. In this case, the average ADT return is also positive and there is no similar relationship. We believe the relationship (or negative correlation) on down months to be the result of two factors that can often occur during equity selloffs:
"Risk-off" sentiment takes place across global markets and prices move quickly by large magnitudes. These are particularly good opportunities for ‘short’ positioned trend-following in economically sensitive commodities.
Large upwards moves in economically sensitive commodity markets (such as energies) or interest rates weigh on equities as economic growth is expected to be impacted negatively. These are particularly good opportunities for capturing ‘long’ trend-following in commodities.
This relationship of strong performance during equity selloffs is often referred to as “Crisis Alpha” and is further evident in long-term analysis of trend following managers (CTAs) such as Auspice. The BTOP50 CTA index is the longest standing CTA benchmark index with live performance dating back to 1987. In the worst 15 quarters for the S&P500 since 1987, the average performance is -15.15% versus +5.50% for the BTOP50 CTA. See Figure 2 below.
Figure 2: BTOP50 CTA Performance During Worst 15 S&P500 Quarters.
Source: Bloomberg and Auspice Investment Operations as at September 30th, 2023. You cannot invest directly in an index.
If we look at multi-month selloffs since the inception of Auspice Diversified (2007) you will note the fund has not only delivered strong performance during large equity selloffs but has also outperformed the BTOP50 CTA index at these key times. See Figure 3 below.
Figure 3: Auspice Diversified Trust “Crisis Alpha” Since Inception.
The returns for Auspice Diversified Trust ("ADT") are “net” (including management and performance fees, interest and expenses). Returns represent the performance for Auspice Managed Futures LP Series 1 (2% mgmt, 20% performance) including and ending November 2019. From this point, returns represent the performance for Auspice Diversified Trust Series X (1% mgmt, 15% performance) which started in July 2014. Source: Bloomberg and Auspice Investment Operations as at September 30th, 2023. You cannot invest directly in an index.
In equity “up” markets, as noted in Figure 1, that ADT performance is sightly positive with no clear relationship between the magnitude of the up month and ADT performance. We believe this to be explained by our commodity focus and the absence of the two above noted factors.
Today however, we believe that up commodity months, rather than up equity months, should be a consideration for an investor. We believe there is ample evidence that we have entered a new commodity supercycle. Per Figure 4 below, commodities outperformed equities by a wide margin in the last supercycle – from 1970 to 2007. Given the recent commodity bear market ended in 2019 there is a less insightful data set of “up” commodity months and corresponding ADT performance. However, if Auspice Diversified Trust performance from 2020 to 2022 is any indication (ADT +44.4% vs S&P500 18.8% and MSCI World 10.4% cumulative) the opportunity is substantial.
Figure 4: Commodities Versus Equities Since 1970.
Source: Auspice Investment Operations and Bloomberg, as at August 31st, 2023. You cannot invest directly in an index.
For information about the Auspice product suite and how we can help, email us today at info@auspicecapital.com.
DEFINITIONS
BENCHMARK DESCRIPTIONS
The BTOP50 seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The largest investable trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50. For 2023 there are 20 CTA funds in the Barclay BTOP50 Index. The BTOP 50 is the most comparable index for Auspice Diversified Trust, however there are significant differences, such as the average exposure to commodity futures (versus financial futures), and average trade length. Reference to the BTOP50 benchmark does not imply that Auspice Diversified Trust will achieve similar performance.
The S&P500 is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P500 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). As an index, the S&P500 does not include any management or performance fees, which is not the same basis as the fund’s return. There is a low degree of similarity between the S&P500 and Auspice Diversified Trust. As a main benchmark for US equity performance its inclusion is typically used to illustrate how Auspice Diversified Trust is notably different from US equities, an important consideration for portfolio managers and investors alike.
The (MSCI) World Index, Morgan Stanley Capital International, is designed to measure equity market performance large and mid-cap equity performance across 23 developed markets countries, covering approximately 85% of the free float-adjusted market capitalization in each. This index offers a broad global equity benchmark, without emerging markets exposure. As an index, the MSCI World does not include any management or performance fees, which is not the same basis as the fund’s return. There is a low degree of similarity between the MSCI World and Auspice Diversified Trust. As a main benchmark for global equity performance its inclusion is typically used to illustrate how Auspice Diversified Trust is notably different from global equities, an important consideration for portfolio managers and investors alike.
The S&P Goldman Sachs Commodity Excess Return Index (“S&P GSCI ER”), is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The Total Return version (“S&P GSCI TR”) includes the return on cash. As an index, the GSCI does not include any management or performance fees, which is not the same basis as the fund’s return. Like Auspice Diversified, it provides exposure to a number of commodities. There are significant differences however. Importantly, the GSCI index is passive, concentrated in energy, and 100% commodities. Auspice Diversified Trust is active long and short, diversified equally across seven sectors, and also trades financial futures. Reference to the GSCI benchmark does not imply that Auspice Diversified Trust will achieve similar performance.
The S&P/TSX 60 (“TSX 60”) Index is a stock market index of 60 large companies listed on the Toronto Stock Exchange. Maintained by the Canadian S&P Index Committee, a unit of Standard & Poor’s, it exposes the investor to 60 stocks in nine industry sectors. Price Return data is used (not including dividends), which is not the same basis as the fund's return, which includes distributions. There is a low degree of similarity between the TSX 60 and Auspice Diversified Trust. As the main benchmark for equity performance in Canada its inclusion is typically used to illustrate how Auspice Diversified Trust is notably different from equities, an important consideration for portfolio managers and investors alike.
IMPORTANT DISCLAIMERS AND NOTES
Some of the assumptions and opinions contained herein are the view or opinion of the firm and are based on management's analysis of the portfolio performance.
The returns for Auspice Diversified Trust ("ADT") are “net” (including management and performance fees, interest and expenses). Returns represent the performance for Auspice Managed Futures LP Series 1 (2% mgmt, 20% performance) including and ending November 2019. From this point, returns represent the performance for Auspice Diversified Trust Series X (1% mgmt, 15% performance) which started in July 2014.
Prior to February 28, 2023, Auspice Diversified Trust was offered via offering memorandum only and this Fund was not a reporting issuer during such prior period. The expenses of the Fund would have been higher during such prior period had the Fund been subject to the additional regulatory requirements applicable to a reporting issuer. Auspice obtained exemptive relief on behalf of the Fund to permit the disclosure of the prior performance data for the Fund for the time period prior to it becoming a reporting issuer.
Commissions, trailing commissions, management fees and expenses may all be associated with investment funds. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
The contents on this website are provided for informational and educational purposes and are not intended to provide specific individual advice including, without limitation, investment, financial, legal, accounting and tax. Please consult with your own professional advisor on your particular circumstances.
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. Please read the offering documents before investing.
Certain statements in this document are forward- looking statements, including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, “target”, “seek”, “will” and similar expressions to the extent they relate to the Fund and the Manager. Forward- looking statements are not historical facts but reflect the current expectations of the Fund and the Manager regarding future results or events. Such forward-looking statements reflect the Fund’s and the Manager’s current beliefs and are based on information currently available to them. Forward-looking statements are made with assumptions and involve significant risks and uncertainties. Although the forward-looking statements contained in this document are based upon assumptions that the Fund and the Manager believe to be reasonable, neither the Fund or the Manager can assure investors that actual results will be consistent with these forward-looking statements. As a result, readers are cautioned not to place undue reliance on these statements as a number of factors could cause actual results or events to differ materially from current expectations.
The forward-looking statements contained herein were prepared for the purpose of providing prospective investors with general educational background information about the Funds and may not be appropriate for other purposes. Neither the Fund or the Manager assumes any obligation to update or revise them to reflect new events or circumstances, except as required by law.
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