Auspice Managed Futures Excess Return Index (AMFERI)
Market Review
After positive returns in all 6 months of the first half of 2013, the AMFERI gave back some of the gains in July. While it would appear that investor sentiment has come back favorably to the global equity markets (an area not covered by this trend following strategy) the strategy continues to take advantage of long term trends in other asset classes. Commodities were generally stronger on the month led by Energy and Metals while Ags and Interest Rates continued to be weak. Currencies were also stronger versus the US Dollar. However, even within sectors, remaining agile and tactical was important as individual markets like Natural Gas and Cotton bucked their sector trends. This highlights the importance of looking at these markets individually and agnostically based on quantitative trend and risk management first and foremost.
Index Review
The AMFERI was down 3.05% in July after gaining 7.75% in the first half of 2013, outperforming a number of investable and non-investable CTA indices. (Highlighted in the table below).
As seen in the next table, the long term performance of AMFERI versus both investable and non-investable managed futures indices has been exceptional. Since the launch of the index in December 2010, AMFERI continues outperform on both an absolute and risk-adjusted basis.
As a single strategy CTA index, this strategy provides the benefits of traditional CTA through trend following and agility along with the benefits of transparency and third party publishing, monitoring and benchmarking. The strategy now underlies ETFs, 40 act mutual funds and managed accounts providing a low cost means of allocating to Managed Futures without sacrificing performance.
Portfolio Recap:
In July the index was up in 2 of the 5 sectors. Modest gains were made from short positions in Interest Rates and Agricultural commodities. The most challenging sector was Energy followed by Metals and Currencies. The top performing components within the index were shorts in Corn and the 30 year US Bond. Gains were also made long Cotton. The index is currently positioned short in 9 of 12 commodity markets. The index has further tilted short in the financial markets with 8 of the 9 components now holding a short weight. Currencies remain positioned short versus the USD.
Energy
The energy markets continued to correct against the established trends with a sharp and quick move higher in Crude, Heating Oil and Gasoline. Natural Gas started the month higher as well before reversing sharply at month end to make new period lows. While the index is holding the shorts in Gasoline and Heating Oil, the Crude move was substantial enough to change the trend and the index went long early in the month. Similarly but in the opposite direction, the Natural Gas market broke down at month end which resulted in a new short position. Energy was the weakest sector in the strategy.
Metals
The Metals sector was also challenging as markets rallied while the index components remains short. The rally was led by Gold with Silver and Copper showing much less conviction. The index remains short weight in Gold, Silver and Copper on a long established trend lower.
Agriculture
The Ags sector contributed positively to the index in July. Grains were weak overall and Corn was the largest contributor from the short side. The long position in Soybeans remained a drag given the weakness while Wheat was flat. Gains were also made from the long term price deterioration in Sugar and from the long position in Cotton held since October 2012.
Interest Rates
Rates were slightly profitable as prices softened modestly in July. Most of the gain came from the short in US 30 year Bond futures.
Currencies
Currencies were off in July as most markets rallied vis-à-vis the US Dollar. With the exception of a new Euro short early in the month, the index is holding the same positions: short Aussie dollar, Yen, Canadian dollar, British Pound. The index remains long US Dollar Index.
Outlook
While it is impossible to predict the future, it is important to note that the performance by the AMFERI is non-correlated and positive to the traditional markets. For 2013 year to date, the correlation to S&P 500 is -0.77 despite both being positive return on the year. This combination illustrates an important feature of managed futures that benefits all portfolios. For it is not just non-correlation, but added absolute performance specifically when you need it most that helps reduce the depth and length of inevitable setbacks in any portfolio.
For those interested in a copy of an analysis of the drawdown and recovery periods for AMFERI, please contact Auspice. See synopsis at below.
Strategy and Index
The Auspice Managed Futures Index aims to capture upward and downward trends in the commodity and financial markets while carefully managing risk. The index will use a quantitative methodology to track either long or short positions in a diversified portfolio of 21 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 as either a total return index (includes a collateral return) or as an excess return index (no collateral return).
About the Index Provider
Auspice is an innovative asset manager that specializes in applying formalized investment strategies across a broad range of commodity and financial markets. Auspice’s portfolio managers are seasoned institutional commodity traders. Their experience, trading one of the most volatile asset classes, forms the backbone of their strategy for generating profits while preserving capital and dynamically managing risk.
Auspice Capital Advisors Ltd. is a registered Portfolio Manager / Investment Fund Manager / Exempt Market Dealer in Canada and a registered Commodity Trading Advisor (CTA) and National Futures Association (NFA) member in the US. Auspice’s core expertise is managing risk and designing and executing systematic trading strategies.
Auspice uses its diverse trading and risk management experience to manage 4 diverse product lines. and has been described as a “next generation CTA”, offering strategies in active managed futures (CTA), passive ETFs, enhanced indices and custom commodity strategies.