Alternatives are no longer alternative

In October I attended an institutional investor conference in Toronto that reminded me about the significance of alternative investments.  It used to be that these were fringe discussions, on the cutting edge. Even the name "alternative", conjures up visions of something edgy or rejecting the mainstream. Alternative music, alternative lifestyles, alternative energy. When it comes to investing, alternatives are still considered by many retail advisors to be a non-mainstream choice. Fast forward a few years, and now many in the institutional space consider alternatives to be part of the mainstream. 

This acceptance seems to fly in the face of the pitch of old for "Alts"; that they generate higher returns by taking greater risks along with the potential benefits of low correlation to more traditional assets like stocks and bonds. Alts were considered sophisticated and opaque, adding to the exclusive allure.

When looking at institutional investors, we generally consider them a group that has the role of protecting capital first and foremost, while also looking to achieve investment goals. In practice, this is often the case for groups like pensions, and endowments.  These groups realized many years ago that they needed to look at alternatives to achieve return goals along with the goal of reducing the stock market risk as asset allocation became their focus.   They were early adopters of  investing in private equity, infrastructure, real estate and these are now considered "traditional" alternatives.   These three categories alone often make up nearly 50% of institutional portfolios. Adding "hedge funds", now often referred to as "absolute return", rounds out the typical institutional Alt focus. 

These strategies have now found their way into retail portfolios in varying degrees.   Given interest rates are very low and the stock market has rallied for over 10 years, the challenge of finding new reasonable returns at modest risk is becoming more challenging for institutional and retail investors alike. While the cost and complexity of alternative investments has always been a criticism, efforts have been made provide lower cost solutions via delivery mechanisms that all investors can access including ETFs and mutual funds.  Many alternative strategies that historically were structured with hedge funds like fees of 2% management fee and 20% performance sharing are now available for management fee only to meet investor and regulator needs.   

While some global retail markets have embraced alternatives, looking to invest more like the institutional investors, some markets have lagged.  While Europe and the US have been very progressive, with a system of many independent RIAs (registered investment advisors) acting like mini-institutions and employing the same philosophies as the respected Yale endowment model, Canadian investors are indeed behind.   Most retail investment, largely controlled by the Canadian bank monopoly, has provided little in the way of alternative solutions.  As of 2019, this has started to change, with the advent of a new regulatory framework for liquid alternatives in Canada – and not a moment too soon.

To quote the CEO of one of the largest Mutual fund companies in Canada:

The democratization of alternative investments has just begun in Canada with the increasing availability of “liquid” alternatives – funds that make use of hedge-fund-like investment strategies – which debuted in January for Canadian retail investors. Prior to this, they had been mostly within the domain of large, sophisticated institutional investors, such as public pension plans, sovereign wealth funds, endowments and foundations, and high-net worth individuals.  - Barry McInerney is the President and CEO of Mackenzie Investments

To learn more about the innovative Auspice alternative investments and the potential portfolio benefits, please give us a call.

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.

Trading and Living are Episodic

As I left the office Friday Sep 13th, I spoke with my Auspice co-founder about something I read describing good trading as "episodic, not continuous".  It was a brief conversation as we both agreed that this is indeed the case.   Ironically, this occurred hours before Saudi Arabia was hit by drones and cruise missiles, disabling over half of its oil production and sending oil soaring in its biggest one day move ever. It reminded me of an adage in energy trading: never go home short before the weekend. 

 While it is human nature to want constant gratification, it is a dangerous way to trade or invest. Opportunities in investing are not constant or consistent. The challenge is that good opportunities are often few and far between. They require patience and discipline in order to be prepared and engaged enough to recognize the opportunity when it appears.  Moreover, you need to have the capital and structure to invest in place as these are often fleeting opportunities.

To deal with many aspects of episodic living, managing the bankroll is critical. This is the reason good poker players often fold, knowing the odds are not in their favor.  Given one of the most critical aspects of the game is to manage the capital pool, betting when there are good odds on a rare hand is critical.  Good players do not bet without these odds and they are not betting all the time.  Moreover, you can't bet if you have no chips left or make a decent size bet when odds are in your favor.

Did we make a bunch of money post Saudi attacks on September 16th? No (although the CCX ETF rose 18%). Did we lose money? No.  Job #1 is to manage the capital pool. Job #2 is to wait patiently for opportunity.  Opportunities like we experienced in August are rare.  Without taking any atypical risk it was one of our biggest months in history, providing offsetting returns as stocks, commodities, currencies and rates all moved sharply.

At Auspice we remind investors: we don't make money every day, month, quarter or even every year. We aim to make money when it counts and when our strategy has an edge. This is often when investor's portfolio's need it the most as the traditional markets are falling or at very least experiencing volatility which is always unnerving. Returns are not continuous as opportunity is not continuous. Opportunity is episodic - and that requires patience and discipline. 

For more about the innovative Auspice quantitative CTA and commodity strategies and the potential portfolio benefits, please give us a call.

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.

Special Teams

A common analogy used to explain what our funds do is an insurance policy.  Investors, and in particular retail advisors, found this explanation comforting given the history of paying out in times of "market crisis".  It perhaps also explained why during the low volatility, grinding higher good times of the equity market, that CTAs may not perform nearly as well, often making investors question the value at precisely the wrong time.  I have never liked this explanation albeit admit to falling into this discussion trap more than once. 

I prefer to describe what we do as Special Teams.  This analogy seems to fit far better and was affirmed to me earlier this month as my son started football (American/Canadian style) and the market started to get volatile. 

While insurance implies a guaranteed payoff that only occurs after an event or crisis, this is not what we do. We are not the same as buying S&P puts to protect the downside - a perfect negative correlation.   Rather, we employ a strategy that has the potential to benefit during volatility, from more than just equity (includes Currencies, Interest Rates and Commodities), but also has a positive expected return over the long term. Insurance does not do this - at the end of the day, the winner of the insurance game is the insurance company - just ask Warren Buffet.  

Special Teams have a similar but different function - they are relied upon at critical times to complete a task, put up points or protect field position.  The goal isn't to only show up in the "clutch", but to be called upon as special players who also often hold other roles. Their value is positive, and their important contribution is significant to the outcome of the game.  

Do we show up at key times? Yes. Do we contribute positively over time? Yes. Do we keep up to the returns of the stock market all the time? No.  We aim protect your asset base and have the ability to add value at critical times of need.   

For more about the innovative Auspice quantitative CTA and commodity strategies and the potential portfolio benefits, please give us a call.

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.

Thinking Big and Thinking Small

As I read morning headlines for July 22nd (Sunday evening), the first thing across my screen was that the "market bounce" first half 2019 had caught the massive Bridgewater hedge fund off-guard.  Immediately I am thinking this must mean a massive loss, unrecoverable, and given its size ($150 billion or so), this could have implications for the markets in the weeks ahead.  I continued on with my morning but had this in the back of my mind.  I thought about it some more - wondering how a seemingly disciplined trader like Ray Dalio and Bridgewater could have a "massive loss" in this market environment.  While I don't know all the inner workings, their philosophy is not unlike ours at Auspice.  They follow trends identified in one fashion or another, with rigorous risk management. 

Then I read the article where it is reported that Bridgewater Pure Alpha was down 4.9% to June 30.  4.9% - less than 5%.  This mid-summer "wrong-footed" headline maker is a result of a less than 5% pullback as equity and bond markets have bounced back sharply after correcting in late 2018.   

 This is a perfect example of thinking small.   Here is a fund that is non-correlated to the stock market making over 14% in 2018 while the S&P was down 6% and it starts 2019 by correcting a modest amount while the S&P rallies. 

 I encourage investors to think bigger. 

 Rates are dropping - historically this means the Fed is concerned about credit quality and the health of US institutions and this could help the stock market.   However, critics contend that historical recessions stemmed from easy money credit bubbles leading to market weakness.   Either way, it will likely bring a strong difference of opinion, which means volatility and risk taking. Typically, this is a good environment for quantitative asset/hedge fund managers and trend followers.

 With a record-setting 11th year of economic expansion and rising stock markets, is the fact that a top performing fund manager was non-correlated and negative while the stock market rallied really the biggest worry?   We recommend betting on those that made money when others did not historically.   Think bigger. 

 For more about the innovative Auspice quantitative CTA and commodity strategies and the potential portfolio benefits, please give us a call.

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.

Getting Spoiled and Market Rodeo

“Nothing sedates rationality like large doses of effortless money."

–WARREN BUFFETT

 This same sentiment appears in many aspects of life.  If you give a dog a treat every time you come home, he expects it. If you give a teenager everything they whimsically desire, they become spoiled. Think of forced tips for waiters or (Canadian) provinces that gain transfer payments. 

 Like the old proverb, "give a man a fish and he eats for a day, teach a man to fish and he has enough fish for a lifetime”.  Or the generous man who offers his dock to that fisherman only to learn the fisherman came to expect the access as a handout, for free.  The truth is if you provide everything to a group of people or society for nothing, they come to expect it and lose appreciation for it.

 Which brings us back to investing - and another example of this same psychology at play. 

 Periods of extraordinary or prolonged gains causes investors to have unrealistic expectations. They begin to discount volatility or even lose sight of the real risks and magnitudes.   I believe this is where we are now. 

 This isn't only applicable to retail investors, the pros at institutions fall into the same traps - except bigger. For example, using alternatives is now commonplace. But which ones? The answer is often whatever has been the top performing recently and the most familiar. For example, equity hedge funds used to hedge equity exposure often ends in tears.    The problem is that many “alts” have high correlation to the stock markets they are attempting to protect and this means added negative skew (downside volatility is higher than upside).  Doing the easy thing has little political or corporate risk as everyone is doing it. Lots of small gains and modest yield feels good but comes at a price as eventually these markets converge and correct violently. Doing the right thing is hard and can be uncomfortable. 

 So while investors and commentators appear to be drunk on years of returns and dividends or high on Cannabis stock returns, I believe the reckoning is coming.  And while I can’t see the catalyst through my crystal ball, and each time it’s different, one thing rings true: I have been to this rodeo before...

 Let the Calgary stampede begin. 

 If you are planning a visit to Calgary during the Stampede or this summer, please let us know. For more about the innovative Auspice CTA and commodity strategies and the potential portfolio benefits, please give us a call.

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.

On Pioneers and Innovation in the West

"Go West Young Man" …an often used cliché.

For me, it is ironic because the first thing I did, like so many others looking for a career in the markets and finance, was to go east.  Whether it be New York, Toronto, or London - those are the destinations one often cuts their teeth in as they are the epicenters for trading, finance, market participation.  These business centers are full of career opportunities no matter where you are from for a hodge-podge of "foreigners" who are ambitious, excited and willing to learn. 

However, once you’ve been there a while, the opportunity seemed to shift.   People often head back west.  Why? What is it about the west?  I liked the word so much that I named my son “West”.

I believe there is a spirit in the west that goes back to the pioneer days that endures to this day.  There is an excitement of breaking new ground, trying something new and innovating that is germane to the west.  

Whether it be in Houston or Calgary for Energy (for me I ended up in both), Silicon Valley and San Fran for tech and VC, or Seattle for software, payments and the online marketplace that is sweeping the globe, they are all in the west.  The culture of these western locations and the businesses that develop there are built on innovation and disruption. 

However, I also observe that much of the financial business has remained concentrated in the east. Perhaps it is the shear scale, concentration of banks or maybe it has been the focus of talent historically.   Many of the FinTech hubs are in the east, but with the concentration now shifting to new locations out west.  We have seen signs of this with Robo-Advisory firms like Wealthfront in California and Wealthbar in Vancouver.   Or even in Calgary with Solium (stock options software) and Benevity (corporate giving). 

The concentration of educated, ambitious engineers and computer scientists makes a difference.  Places like Denver, Austin, Seattle, Calgary and Vancouver offer an educated and experienced workforce along with a lifestyle often sought by the creatively disruptive crowd.   Engineers that once went into the ubiquitous energy business now have other options and other western locations to consider.

But here is my prediction - the same disruption and creativity we have witnessed in software, payments, electric vehicles, tech, and retail that developed in the west will also happen in financial services and markets.   Given online technology and the ability to connect to exchanges anywhere, location is less relevant.  The west will be a key driver of this shift as it has been in so many other areas. 

If you are planning a visit “out west” to Calgary, please let us know. For more about the innovative Auspice CTA and commodity strategies and the potential portfolio benefits, please give us a call.

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.

Is there a real black gold?

Near Calgary, there is a town named Black Diamond. Everybody here understands the origin of the name given the history of oil production and the related economic benefits.  But while diamonds are the metaphor, it is a commodity that is hard to understand and thus seldom considered in terms in a portfolio context.  Gold is another story.

Together, gold and oil are talked about more than all other commodities combined.  They were both amongst the first to become available to retail investors via exchange traded funds (ETFs).   And while there may be diversification benefits to including either or both in an equity dominated portfolio, the need for each is not equivalent.

 Oil has for some, become the vilified symbol driving climate and environmental efforts, this does not takeaway from its current importance. Oil is critical to running most aspects of our modern society, economy and trade. It is the most important energy source yet its use goes beyond transportation from health and medicine to electronics and textiles. From medicines like Aspirin and antiseptics to anything plastic, from water pipes to contact lenses. The list is almost endless.

 As such, there is no doubt that oil serves a critical role as an input to most everything, yet it can also serve a purpose in a portfolio.  Given its importance, the inflation aspect cannot be ignored and has been highlighted by central banks. Oil and Inflation are indeed correlated higher than gold.

 Moreover, direct investments in the commodity (versus equities of producers) can have a beneficial effect. This has been argued with gold for a long time. There is no need to be an “oil bug” alongside the “gold bugs” to justify this – we can demonstrate the value.

 The common belief that using gold as a proxy for all commodities is a mistake that is easily proven given the inter-commodity correlation is low.  As such, adding other commodities may help, but adding oil is important.   They don’t call it black gold for nothing. 

 Auspice has published a paper on this topic in our Portfolio Benefits series, available in the Research section of the website or at this link here.

For more about the Auspice CTA and commodity strategies and the potential portfolio benefits, please give us a call.

 Disclaimer below

 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.

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.

Artificial Intelligence and Machine Learning - still about people

Artificial Intelligence and Machine Learning (AI/ML) has been a big topic in the last couple years and has become a catch phrase in investment management. So, what is it?  AI is the science of simulating human intelligence, while ML refers to the methods used to automate the building of models.  As such ML is really a technique to for realizing AI. What we are really talking about is algorithms to solve problems and learn from data.  "Big Data" and the ability to use technology to make sense of it, is at the heart of this topic.

Many believe that these two things, AI/ML, along with Big Data, are "reshaping" the investment landscape. It has been an area where media and investors alike can tie the excitement around technology and what the smart folks in Silicon valley are doing, to the traditional world of investing. Applying what Google, Amazon and Netflix do in predicting your needs and interests, has utility in the investment world. For fund managers, it has been an area many felt they need to get up to speed on, develop further, or just talk about.

These are welcome changes in a lot of ways. For example, moving investment decision making in asset allocation away from the human emotions of individuals or advisors makes sense, as a growing amount of evidence shows. Looking for patterns, trends and persistence amidst noise is something a machine can do much more efficiently than a human, and this is beneficial to making sound decisions under uncertain conditions.

Historically, a lot of weight was put on fund managers that had the best gut feel, and instincts. The new reality reflects that the majority of hedge fund pros now use some form of AI/ML, embracing technology to learn from the data within their investment decision process. 

At Auspice, like many other CTA's and “quant” managers, this is nothing new.  Embracing technology and algorithms to sift through an ever expanding pile of data is standard fare. The difference now is that the amount and type of data is greater, the computing power is greater, and the algorithms looking to identify opportunities or patterns are also better - more complex, adaptive and smarter. The commonality? It takes people to program and manage the algorithms. People with experience in identifying ideas and opportunities and the ability to test these ideas using technology. Trading desks used to be full of traders on phones pointing at screens, now they are outnumbered by programmers and analysts working with ever more powerful tools.  

From idea generation to execution, managers like Auspice blend together proprietary trading experience with algorithmic research including AI/ML, with the goal of generating robust return drivers. Ideas are generated from human directed machine learning or direct observation. Note the human side has not completely disappeared…but it is being nicely enhanced by the application of these “new” technologies.   

For investors, this may be a new topic. However, for managers this path has been developing for a long time. Make sure your manager has the knowledge and experience to work with the tools that are available.

For more about the Auspice CTA and commodity strategies and the potential portfolio benefits, please give us a call.

Disclaimer below

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.

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.

All Hat, No Cattle

This saying gets used where we are from, and specifically in the west.  It refers to people who dress like cowboys, but clearly are not. 

The phrase goes beyond attire and gets appropriately used to describe a person who is full of talk, but lacks the substance to back it up.  It also applies to news, media and the internet as we wonder what is real and what isn’t. Is it real or all talk?

Lots of people come up with great plans and ideas, but it gets down to whether or not you can follow through with the execution. There are always lots of reasons not to do it: Perhaps they fear failure, lack the motivation, or are simply caught in the "its easiest to do nothing" trap.

This could be a business opportunity, a product idea, or a personal investment strategy.

We see in this a lot. As we ended 2018, we heard a lot of talk about diversifying investment portfolios to reduce equity risk going forward. This makes sense. But during the first 60 days of 2019 the equity market has rewarded those that have done nothing. The question is: "Has anything changed?"

Do you have what it takes to do the right thing? Or are you all hat and no cattle?

For more about the Auspice CTA and commodity strategies and the potential portfolio benefits, please give us a call.

Disclaimer below

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.

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.

Resource Equity is not Commodity

Many people refer to stocks of companies that produce commodities as commodity investments.  This is incorrect.  They are equities and thus have a high correlation to the broad equity market.  Just like tech company stocks and health company stocks are equities.  The difference is simple - you can invest directly in commodities. And if you think an alternative like private equity isn’t equity, I have some tropical ocean front property in Calgary that you might be interested in.

There is another difference - commodities are the raw materials for making other things. They are important building blocks.  As such, they can be used as a hedge, for pure price risk management or inflation protection.  We will always need commodities- always being a long time from current times anyway. At least until Elon the third finds a way to do this in outer space.

The best part? Commodities are not correlated to equities or fixed income over the long term. They are valuable to a portfolio because of their low correlation.  Moreover, if invested in tactically, as opposed to a long only index approach, the result can have far less volatility, less downside risk and potential for gains when other assets cannot provide this opportunity.

The chart at right depicts the recent performance of the Auspice Broad Commodity tactical program (ABCERI) versus a long only commodity benchmark in Bloomberg Commodity (BCOM) along with the S&P500 and the TSX Capped Energy Index (resource equity).  In addition to being the only positive return since December 1ˢᵗ 2018, the ABCERI has little drawdown (< 1%) and far lower volatility.

Can we convince you that a commodity investment might be more valuable to a portfolio than stocks in the resource equity sector? 

We aim to try - please read the linked Research here.  For more about the Auspice CTA and commodity strategies and the potential portfolio benefits, please give us a call.

Disclaimer below

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.

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.

Volatility upon us?

Many investors stand bewildered with what to do given the current hyped volatility and as we turn to absorb media data points, it appears chaotic as equities sold off sharply for the year.  But is this volatility new?  Is this a sign?

 The first chart below shows almost 50 years of the S&P500 daily percentage moves.

What it illustrates is the recent volatility, while perhaps uncomfortable, is not atypical.  It looks a lot like volatility in 2010, 2011, 2014, 2015 etc. If you look closely, you may notice that volatility has been low over the last 9 years.  

 Looking at the second chart, since 2017, it shows there is indeed some incremental volatility of daily movements – but again, by no means extraordinary.  So where does this leave us?

 We believe volatility is likely to be upon us and rising for some time.  We have written many times that the volatility measures such as VIX have been artificially low and importantly not representative of risk.  The VIX started 2018 under 10, averaged 16.6 and left the year at 25. With the long term average since 1995 of 21 and 18 since 2009, we think it is more likely to be closer to average than it has been lately.

 Given the direction of equities in 2018, this also highlights an important reality about equity volatility: most of the volatility is on the down side. This phenomenon is called negative skew and it means that the downside volatility is typically greater than the upside – kinda scary right?

 A recent example of negative skew is the big down month experienced in December (-9.2% S&P500, -9.5% Nasdaq).  However, there is a solution in investment strategies that are positive skew: that is higher upside volatility than downside. CTA strategies are less likely to have these large down months and are indeed positive skew and have beneficial volatility. An additional benefit is that CTA strategies also have a low correlation to negatively skewed investments like equities. This is why adding CTA exposure to an equity portfolio typically lowers volatility and improves risk adjusted returns.

 For more about the Auspice CTA strategies and the potential portfolio benefits, please give us a call.

 Disclaimer below

 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.

 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.

Striking Oil

Striking Oil

Too much of a good thing creates a problem. The overabundance of any commodity puts downward pressure on the price. Striking oil creates a unique dilemma: getting it to market is often part of the challenge as prices often react immediately to changes in perceived supply and demand regardless of the delivery terms and constraints.

Since October 1st, WTI oil has plunged 30% (Canadian Crude even more), that “Striking Oil” may seem like an odd topic to discuss. But if you think about it, this is an important issue. Oil like any commodity that needs to be extracted, transported and stored, goes through periods of price swings. Too much of it and prices fall. Not enough and prices rise.  For a producer company or producing nation, it can be like chasing your tail.

However, just like a producer, investors need to take price swings in stride and consider the long term.  Short term deviations are challenging to judge but may present opportunities in the context of long term trends and fundamental demand.  For oil, we believe global demand is strong and growing.  Moreover, the easy oil, produced conventionally, is becoming more and more scarce making technology and nations that embrace this, the ones to watch. Growing supply in Canada and the U.S. is upon us.   At times there is a mismatch between the supply and the ability to get it to market.  Canada has done a poor job managing this.  Arguably, it has the largest recoverable oil reserves in the world yet lacks the infrastructure (pipelines, shipping) to transport it to global markets.

In a bear market you have two choices, go short falling prices, or sit back and wait for an entry point.  If you are interested in being short to generate non-correlated returns, we specialize in this and can help you out. On the other hand, if you are looking for an entry point, the market has already sold off and thus your risk is further correction.   Given the long-term demand, and recently announced Alberta production cuts, we think it won’t last for too long.

The fact remains – Canada has the cheapest oil on the planet.

For those interested in the opportunities in oil, specifically deeply discounted Canadian oil, we recommend checking out our website under the Canadian Crude Index, the CCX ETF, and related Research section postings.

For more about the Auspice philosophy and the potential portfolio benefits, please give us a call.

Disclaimer below

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.

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.

Break the Cycle

Break the Cycle

October marks one of the largest capital inflows in many years for Auspice. Perhaps this will explain why.

I had a debate at month end with a partner about market performance. His argument was that people fall in love with investment strategies when they perform well but have to face the reality of periods of underperformance. He called this “Fake News” versus “News” – an obvious political reference.  Moreover, it was his thesis that this was the justification for not including a strategy if it’s recent “News” period was lacking performance (versus S&P). 

Unfortunately, this line of thinking is flawed on many levels.  While almost every investment strategy has underperformed the S&P500 recently (and likely for many years), it is a mistake to focus on recent performance. Here’s why:

We can see that the equity market makes a significant correction every 5 to 10 years. As depicted on the chart, the small correction in October does not likely count.

This quote applies: “The definition of insanity is doing the same thing over and over and expecting different results.”  This seems crazy, but this is exactly what many investors do:

1. The market corrects significantly and the investor is unprotected.

2. Investors lick their wounds, and look to protect themselves with alternatives (or do nothing).

3. Equities start to perform again.

4. Investors grow weary of the underperformance of the alternatives and get out at the wrong time (and those that did nothing start to think they made the correct decision).

5. Repeat!

We have seen this movie before. While none of us have a crystal ball, it is important to recognize a few things. In investments, trying to time strategies is difficult. It is why asset allocation is important. However, because of this, it is also important to remain steadfast and stick to the plan. If your investment plan calls for X when Y happens, it is mission critical to execute unemotionally. There is no use getting to the starting line and changing the plan. It also doesn’t matter how you did in the last race.

Without historical knowledge (past), commitment to following the plan and control of your emotions (now), you have no chance to perform in the future.  Here is what we know: when the stock market struggles over time, alternative strategies like Managed Futures (CTAs) have done well. 

You remain calm and let it unfold – you are prepared.

For more about the Auspice philosophy and the potential portfolio benefits, please give us a call.

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.

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.

Measure Twice, Cut Once

Measure Twice, Cut Once

My uncle, a carpenter and a farmer, used to say to me, “Timmy, measure twice, cut once”.  I didn’t hear that saying much when I went to university or started my trading career on Bay Street in Toronto nor during my time at Shell.

But when I left to start my own business, I heard it a lot. In my head.

The common wisdom is one should always double check measurements before cutting materials to minimize the chance of mistakes thus wasting materials, time and money.

It comes up all the time. Someone sends you a presentation or research paper, and you realize the numbers are wrong. Perhaps a silly error, but none-the-less, a distraction and time waster. 

I say it to my kids when they rush through some task and we realize it has to be redone. They get frustrated as I get them to start again and do it right. “Measure twice, cut once” I say. They grumble.

But what it means to me is more than when cutting lumber, a random project, or even supplying numbers to a work task.  Its far more encompassing as a philosophy. It means taking the time to plan something out ahead of time, carefully considering the variables and importantly anticipating the possible negative consequences.

In investing, you can always make adjustments, change the portfolio. But consider this, a big error that causes a significant loss in value may take years to make up.  This may come from trying to get that last bit of return from a stock or the market overall, being greedy, only to see an investment or portfolio correct heavily as you feared it may.

So look at the facts. Do your research. Look at your results over the last decade. What does it tell you?  Do you now have the portfolio that gets you through an adverse period? What if…?

Measuring twice means making sure you have considered the things that could go wrong before you make a decision or… before you do nothing – as a decision to do nothing is still a decision.

For more about the Auspice philosophy and the potential portfolio benefits, please give us a call.

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.

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.

Back to School: but don’t get schooled

Back to School: but don’t get schooled

Fact: over the past 100 years, September is the only month that exhibits negative returns on average for the stock market (think about that for a second).  Some call this the "September effect”.

One theory is that "investor inattention" during holidays slows the incorporation of news, specifically negative news.  We believe this is especially true during the lengthily summer holidays when most people are really "checked out" for a prolonged period of time.  Moreover, nobody wants news, led alone negative news, when they are trying to have a good time.  It’s just simple human psychology - we are trying to forget reality for a while in a very connected, instantaneous environment.  

As a result, studies have illustrated that markets react slower to negative news during school holidays.  Additionally, it has also been observed that short sale activities are constrained during holidays given the technical attention required.   It takes effort, costs more than being long (the borrow), and closing your eyes may be a recipe for disaster.  Of course there are exceptions - just ask Elon Musk.

After the Labor-Day long weekend we all need to check back in. Kids are back in school and we have to catch up on everything we ignored for the last two months. Be aware of your perceptions in the next couple weeks.  You are likely a little more cautious, suspicious, and alert to risks.

Now think of the market psychology as a whole. It makes sense that it behaves a little different. The question becomes what did we miss? How do we protect ourselves?

For more about the Auspice philosophy and portfolio benefits, please give us a call.

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.

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.

Investing without emotion: It’s a process

Investing without emotion: It’s a process

We are hearing a lot of worried investors out there.  And for good reason...stock markets have been up for the better part of 9 years and interest rates are rising.   All of this while, after a brief hiccup in February, the market marches higher and volatility (VIX) is very (artificially) low again.

It is making people nervous and when people are nervous they are emotional.

Quite often, when we become emotional we make irrational decisions, especially when it comes to investments. Simply, emotions hurt investment decisions. Behavioral finance theories suggest that emotions and psychology cause us to behave in unpredictable and irrational ways. Why buy high when you know you should buy low? Because you panic. Your emotions and anxiety lead you to make poor decisions but the awareness of this will give you an edge.

How do you efficiently remove emotions from the decision making process? Rules-based, process-driven, scientific approaches. Process-driven investments remove emotions from investing as they don’t fight market trends, they follow them. These strategies are designed to act rationally through volatile times (like 2008) and hence have historically performed well at these times.  It should give investors confidence that in times of volatility and emotion that part of their portfolio is actually set-up specifically for that situation.  There are no guarantees, but rules-based strategies create processes that permit you to remove emotions from investing and benefit by sticking to the plan.

Would you bake a cake without a recipe? Would you build a car without an automated assembly line process? No. It would be far too inconsistent. So why invest without a process?

For more about the Auspice philosophy and performance history, please give us a call.

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.

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.

Commodity in focus: Part 2 - Timing

Last month we talked about the shift in sentiment towards the commodity markets. We are seeing this with both institutional and retail investors. There is a positive view given where we are in the long-term cycle, inflation, global demand, and for portfolio diversification reasons.

We highlighted that timing is hard and as such we advocate adding a tactical commodity sleeve to a diversified portfolio has the potential to improve risk-adjusted returns, regardless of the timing and cycle in commodities.

However, what people asked about is indeed the timing aspect and thus we wanted to clarify something: At Auspice we believe the opportunity in commodities is greater than we have seen in almost 10 years. Actually, more like 20, since the late 90’s.  

The chart that says it all:

Source: Dr.Torsten Dennin, Incrementum AG

As such, while timing things is hard and we advocate for aiming to build better portfolios, we believe now is the time to be looking at this asset class and importantly the best ways to gain access. We would be happy to help you with this.

For more information on this topic, please refer to the Auspice Commodity white paper on the website under Resources/Research.

For more information, give us a call.

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 Broad Commodity Excess Return Index (ABCERI): The Auspice Broad Commodity Index aims to capture upward trends in the commodity markets while minimizing risk during downtrends. The index is tactical long strategy that focuses on Momentum and Term Structure to track either long or flat positions in a diversified portfolio of commodity futures which cover the energy, metal, and agricultural sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available in total return (collateralized) and excess return (non-collateralized) versions.

*Returns for Auspice Broad Commodity Excess Return Index or “ABCERI” represent returns calculated and published by the NYSE. The index does not have commissions, management/incentive fees or operating expenses.

The performance of Auspice Broad Commodity Index prior to 9/30/2010 is simulated and hypothetical as published by the NYSE. All performance data for all indices assumes the reinvestment of all distributions. To the extent information for the index for the period prior to its initial calculation date is made available, any such information will be simulated (i.e., calculations of how the index might have performed during that time period if the index had existed). Any comparisons, assertions and conclusions regarding the performance of the index during the time period prior to the initial calculation date will be based on back-testing. 

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 BARCAP US AGG Bond index, rebalanced annually.

BARCAP US AGG Bond: the Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S.  The Bloomberg Barclays US Aggregate Bond Index is an intermediate term index. The average maturity as of December 31, 2009 was 4.57 years.  The Bloomberg Barclays US Aggregate Bond Index, which until August 24, 2016 was called the Barclays Capital Aggregate Bond Index, and which until November 3, 2008 was called the "Lehman Aggregate Bond Index," is a broad base index, maintained by Bloomberg L.P. since August 24, 2016.

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.

Commodity in focus

Commodity in focus

The last few months has seen a remarkable shift in market sentiment. While previously it seemed like everyone was talking about the same market view regarding direction, and this was backed up by the prevailing up-trend, this has changed significantly since the new year.

We are not talking about equity markets. We are talking about commodities.

A year ago no one wanted to talk about Commodities - what a difference a year makes. At Auspice we believe the opportunity in commodities is greater than we have seen in almost 10 years. The fact is that, like anything, there are periods of opportunity and periods of challenge. We believe this is a rare opportunity. So when does one step in?

As we have said many times before, timing things is hard (see February 5th blog post). As such instead of focusing on perfect timing (an arguably futile effort), we advocate for aiming to build better portfolios. At Auspice we believe adding commodities builds a better portfolio, and the data backs this up. As outlined in the Auspice published white paper (Benefit 2: Diversification on page 5):

Despite the lackluster performance of commodities over the last decade, including the (commodity) asset class in a portfolio long-term is historically accretive.  Moreover, “Including a tactical broad commodity index allocation has the ability to improve overall performance and significantly reduces volatility and drawdowns.” Per the Figure below, the addition of this commodity benchmark not only improves historical returns and risk metrics, it also reduces the portfolio correlation to the (stock) market itself.

So while timing isn’t everything, and who knows if its “perfect”, it looks decent right now. And from a portfolio perspective, we know it makes sense.

Unfortunately, there is very little product in this space in Canada.  However, Auspice has been managing tactical broad commodity exposure in this space for many years.  Please reach out and let’s try to find a solution for you or your organization.

For more information on this topic, please refer to the Auspice Commodity white paper on the website under Resources/Research.

For more information, give us a call. 

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 Broad Commodity Excess Return Index (ABCERI): The Auspice Broad Commodity Index aims to capture upward trends in the commodity markets while minimizing risk during downtrends. The index is tactical long strategy that focuses on Momentum and Term Structure to track either long or flat positions in a diversified portfolio of commodity futures which cover the energy, metal, and agricultural sectors. The index incorporates dynamic risk management and contract rolling methods. The index is available in total return (collateralized) and excess return (non-collateralized) versions.

*Returns for Auspice Broad Commodity Excess Return Index or “ABCERI” represent returns calculated and published by the NYSE. The index does not have commissions, management/incentive fees or operating expenses.

The performance of Auspice Broad Commodity Index prior to 9/30/2010 is simulated and hypothetical as published by the NYSE. All performance data for all indices assumes the reinvestment of all distributions. To the extent information for the index for the period prior to its initial calculation date is made available, any such information will be simulated (i.e., calculations of how the index might have performed during that time period if the index had existed). Any comparisons, assertions and conclusions regarding the performance of the index during the time period prior to the initial calculation date will be based on back-testing. 

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 BARCAP US AGG Bond index, rebalanced annually.

BARCAP US AGG Bond: the Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S.  The Bloomberg Barclays US Aggregate Bond Index is an intermediate term index. The average maturity as of December 31, 2009 was 4.57 years.  The Bloomberg Barclays US Aggregate Bond Index, which until August 24, 2016 was called the Barclays Capital Aggregate Bond Index, and which until November 3, 2008 was called the "Lehman Aggregate Bond Index," is a broad base index, maintained by Bloomberg L.P. since August 24, 2016.

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.

Did you know? Canadian Oil Facts and Opportunity

Did you know? Canadian Oil Facts and Opportunity

While many of our investors, industry peers, and gawkers alike have an interest or know something about commodities, here is a little slice of something you may not know about Canadian Oil and why it is a great market to trade. While the market talks about WTI (West Texas Intermediate) almost singularly, that is like saying Copper is the only metal that matters.

Some facts:

• Canada has the 3rd largest oil reserves in the world only behind Venezuela and Saudi Arabia and the largest foreign supplier of oil to the US at over 40% of all US imports. This is more than all OPEC producers combined and roughly 3 times what Saudi Arabia itself supplies. Almost all of Cdn oil production goes to the US.
• There is huge global demand for heavy crude as refineries get better margins from heavy-sour crude and demand is increasing.
• Canadian Crude is discounted from WTI primarily due to transportation constraints and costs not the grade – heavy-sour.

What does it mean?

1.   Discount Barrel:   While highly correlated to the more well-known “WTI”, due to transport costs, Canadian crude trades at a discount. The discounted price leads to higher volatility and returns (up and down) without the drawbacks of traditional leverage, creating opportunistic trading setups.

2.   Alpha Barrel: Given the scale and importance of Canadian volume to the US, this supply is not only valuable but influential on all crude pricing in North America. Including the Canadian barrel enables an opportunity to create an outperforming exposure.

 3.  Infrastructure Barrel: The CCX ETF is currently the only way to get exposure to heavy-sour crude, which is in high demand by refineries in the US and globally in the developing world.  Demand for infrastructure means demand for heavy-sour barrels and the Canadian market share meeting heavy oil demand is increasing in the US and in Asia as tide water access is developed.

Full transparency: Auspice created the Canadian Crude Index (CCI) and CCX ETF to enable access to this market. The CCX has been listed in TSX in Canada and we have partnered to launch the product in the US under the ticker UCCO (NYSE).  US Commodity Funds, who run the USO ETF, the largest oil ETF globally, began working with Auspice in 2016 on bringing this exposure to the US market.

For more information, give us a call. 

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.

Odd Duck or Rare Breed?

Odd Duck or Rare Breed?

Someone said that one definition of an odd duck is "someone who enjoys that which others seem to despise".  You have to love being different. Given we are not equity focused at Auspice, we are by default an odd duck. But it begs the question are we a Rare Breed?

When we created Auspice, we intended to provide a product suite that was different than typical managers in our sector.  We are one of the few managers in Canada that have a commodity background and are focused on strategies outside of the resource and/or equity sector. We are proud of that.

For example, taking hedge funds and commodity products into the retail ETF space, pure energy ETFs (Canadian Natural Gas and Crude) are odd duck approaches.  Even our flagship fund, a quantitative rules-based multi-strategy is an odd duck in Canada. However, on closer inspection it is a commodity tilted approach highlighting our unique backgrounds within energy commodities at an energy major and a Canadian bank - it is our expertise and perhaps demonstrates we are a rare breed.  

Yet, while commodities were a popular place to be from 2001 to 2010, this changed with the relentless charge of the equity market in the last 8 years where it worked to put your client in equities and close your eyes. But that is changing.  People are scared. The concern over the stock market is real and warranted. Moreover, increasing interest rates and volatility, while concerning for many, is actually more like normal and this is an environment we historically thrive on.  All of a sudden being different is cool again. 

We are seeing a shift in interest to commodities for good (great) reason.  Historically, the sector is undervalued versus equities - very stretched. Moreover, like equities, commodity volatility has been low but this has been increasing.  We love it.

As such, we will remain focused outside of equity and creating products that are complimentary to typical portfolios.  We do not guarantee returns on every short, quick market pullback - the 10% dive in the first few days of early February is an example. What we focus on providing returns outside stocks from trends that develop on sustained corrections and volatility.  That is our domain of experience.  We overweight commodities but don't ignore currencies, interest rates/bonds and yes, even equity indices. We simply do not pick stocks.

Are we an odd duck? Perhaps.  But remember, odd ducks only seems odd from a certain perspective.  Everyone has a community - it just may not be your community.  What you are looking for is the Rare Breed amongst the Odd ducks.  Do something different than the pack, then do it different than your peers, do it better. And love it.

If any of this appeals to you, give us a call.

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.