December Commentary & Performance

The Auspice Diversified Program was down 3.44% in December.

For those that missed our announcement in late November, Auspice was awarded a Silver medal by Morningstar in the category of Best Opportunistic Hedge Fund. 

Monthly Commentary:

We entered December with continued momentum in trends from November, but the month ended up very choppy. While December is often quiet, the continued efforts by government and central bank forces continued to destabilize market trends.  We are optimistic that this will soon pass and that government’s will soon focus on their raison d’être and leave the market to find a path.

The equity markets were very choppy during the month of December. Some indices fought back to flat on the year (S&P 500) but most remained in the red or in significant negative territory (S&P TSX 60 for example).  Regardless, the volatility and risk associated with the equity market remains very high.  As illustrated in the table, while the Auspice strategy had a small loss on the year, the correlation to equity remains very low (to non-existent) in times of similar performance while the volatility is markedly lower. 

Additionally, for those interested in more info and ideas about investing in alternatives, please check out AMFM Blog.

Since full diversification (achieved in June 2007) the annualized return is +8.90% with 13.47% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.

Interesting trades: We exited our long term Gold trade near month end. This position has been long since February 2009, over 1050 days. This change is interesting as it could be a catalyst for other trends and capital flows that create trends. We also saw a shift to short currencies vis-a-vis the USD.

Key Points Regarding our Positions

Energies: Despite overall choppiness, the energy sector was profitable on the month. We took a short position in Crude at mid month as weakness showed up again. However, the trade was short lived as the market bounced back aggressively.  We exited a long Heating Oil position that was entered in October further illustrating the choppiness within Energy. We remain short Natural Gas which was very profitable on the month.   We firmly believe that there is a great opportunity developing in Energy and it has been taken advantage of in the last quarter. For those with specific interest in this sector alone, please contact Auspice regarding the launch of our Energy focused strategy.

Metals:  Gold continued the sell-off that started in November and was exited during the month. This marks one of the longest trades we have ever held and returned approximately 6 times initial capital risked.  We also exited a short position in Palladium with a modest gain.  We remained out of Copper and hold no other Metals positions at this time. This sector was very choppy in December and throughout Q3.

Grains: Our positions remain the same in Grains but were not profitable on the month. We are short Soybeans and Wheat which both bounced back after being very profitable in the direction of trend in November.  We remain flat Corn.

Soft Commodities:  Orange Juice again continued to trend higher and we remain long.  Coffee broke out of its sideways pattern and we took a new short position. Cotton remains sideways which we are not participating at this time. Lumber remains choppy and we have covered our short.

Currencies: Currencies were profitable during December and we only made one change. We added a long position in US Dollar index mid month. As noted last month, we made a number of changes in October and November where there was a shift to short currencies in general. The long US Dollar index during December highlights this shift. At month end, we are short Swiss Franc, British Pound, Canadian Dollar, and the Euro. We are flat Yen and Aussie Dollar.

Interest Rates:  Rates were profitable as we added to the short end of the curve with 5 year notes. We remain long US 10 Year notes and 30 year bonds. 

Equity Indices:  We covered some shorts as the equity market chopped around with little direction. During the month we covered in Hang Seng and Russell 2000 while remaining short in Nikkei.  At month end we are also flat Nasdaq and S&P 500.  This sector is giving some mixed signals, so will be one to watch for direction early in 2012.  

November Commentary & Performance

The Auspice Diversified Program was up 1.07% in November.

For those that missed our announcement last week, Auspice was awarded a Silver medal by Morningstar in the category of Best Opportunistic Hedge Fund. 

Monthly Commentary:

It’s becoming a common theme: November was volatile across many asset classes. As in recent months, November was highlighted by market interventions from governments and central bank forces. For some reason they believe they are having a stabilizing effect and the reality is quite the opposite. During the month, the equity market continued its erratic path. Many markets lost much of the gain made in October only to bounce aggressively in the final days of the month as Euro-zone efforts appeared to provide a magic bullet solution and buoy investor confidence.

Regardless, the equity markets remained down on the month, down in the second half of 2011, and down over the last 5 years. During the month, the Auspice Diversified Program managed to find enough of the prevailing trends to post a decent gain on the month. While this is often challenging to do in these periods of choppy volatility, we take comfort in allocating the appropriate amount of risk across a diverse basket of global asset classes and the widespread opportunity this affords the portfolio beyond the traditional equity and fixed income markets.

Note in the table above the correlation to the equity markets remains very low (to non-existent) in times of similar performance and somewhat negative when outperformance is needed most (08' and the last 4 years!).

Additionally, for those interested in more info and ideas about investing in alternatives, please check out AMFM blog.

Highlights of the month: In November, the Auspice Diversified Program was profitable in 4 of the 7 sectors traded.  

Since full diversification (achieved in June 2007) the annualized return is now +9.9% with 13.4% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.

Interesting trades: While few positions were crystallized on the month, we had very profitable trades in Energy (both long and short) and Grains (short).  We also had success holding long term trades in Rates (long) and Metals (long Gold). 

Key Points Regarding our Positions

Energies: We hold the same positions as in October: we are short Natural Gas and long Heating Oil which was quite profitable. Crude is showing some strength but remains in a wide range over the last 6 months. Keep an eye on it in the near term. 

Metals:  Gold made a modest gain on the month while the rest of the sector was weak. We benefited from the weakness in Palladium and remain out of Copper at this time.

Grains: We took a new short position in Soybeans mid month as this market continues to erode. This complimented our short Wheat trade which combined to be our most profitable part of the portfolio. We remain flat Corn.

Soft Commodities:  Orange Juice continued a modest move higher and we remain long since October.  Cotton and Coffee are somewhat sideways and we are not participating at this time. Lumber remains choppy yet we remain short at month end.

Currencies: After exiting the US Dollar Index and the Yen last month, we also exited long positions in Canadian dollar, Euro, and Aussie dollar during the month. In the case of the Canadian dollar, we also entered a new short alongside the British Pound and Swiss Franc.  This is a fairly significant departure from the prevailing positions and opportunities in the last couple years.

Interest Rates:  Rates were profitable as we remain long the long end of the curve holding US 10 Year notes and 30 year bonds. We hold nothing in the short end of the curve. 

Equity Indices: We added to our short exposure in equities taking positions in Russell 2000 and Nikkei. The same can be said for Hang Seng, however, we exited the short in the violent rally that occurred on November 30th. We remain on the sidelines in Nasdaq and S&P.  While the market has bounced and is net positive in the last 60 days, the trends are tilted down in most of these markets.

October Commentary & Performance

October brought continued volatility across many global asset classes. In particular, the significant equity market weakness of Q3 was partially recouped; while the S&P fell over 15% in Q3, approximately 10% was regained in October. While this may provide some comfort in the short term (band-aid) it continues to raise concerns over the enormous volatility and risk in that asset class. As such, we do not take much comfort in the rebound in any regard and this validates investor need for diversification and non-correlation.

As with the comments last month regarding correlation and periods of appropriate measure, one sometimes feel like asset classes are highly correlated when we are hoping (and wishing) they are not. This is perhaps how it has felt the last few months with our strategy and managed futures more broadly vis-a-vis the equity markets. However, if one considers the correlation over a longer period, we see that the correlation is indeed low.  It is also a bit negative, which is important as well. (For more talks about non-correlation and ways to get it, visit the www.amfmblog.com).

The key is the correlation is low but tilts to negative when the investor needs it most - times of financial crisis (tail risk protection). So - while the last 4 months from July (on an individual basis) may have felt like managed futures were perfectly positively or negatively correlated, the reality is both our strategy and equity are down but importantly the correlation is actually -0.42: a moderate negative.  This is indicative of the portfolio benefit and it is patience that will allow the long term effects to result in our desired goal: absolute returns.  Patience is required.

Highlights of the month: In October, the Auspice Diversified Program was not profitable in any of the 7 sectors traded.  The last time this occurred was in July 2008.  Opportunities often arise (and did in 2008) out of these directionless markets which are significant for the strategy. Out of the chop comes the trend.

Since full diversification (achieved in June 2007) the annualized return is now +9.9% with 13.6% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.
Interesting trades: 

Despite the negative performance, there were a couple of bright spots: We took profits in US 5 year Notes at 5 times initial risk. Also, on the last day of the month we exited a long position in Japanese Yen.

Key Points Regarding our Positions

Energies: Energies struggled as it was choppy and lacking trend (with the exception of natural gas continuing to trend lower). We covered our Crude short during the month and are now flat along with Gasoline. We took a new long position in Heating Oil at month end while remaining short Natural Gas.

Metals:  Gold continued higher after the quick correction at the end of September - none of this changes the long term uptrend. We took a new short in Copper but exited on a stop by month end. Lastly, we are still short Palladium. Keep an eye on this one as it can be an aggressively trending market.

Grains: We remain on the sidelines in both Corn and Soybeans as they currently experience continued consolidation within tight ranges.  We remain short Wheat through its own sideways action during the month.

Soft Commodities:  Like the other sectors, Softs didn't have a positive month. We remain short Lumber and added a new long position in OJ. We remain flat Cotton and Coffee.

Currencies: Currencies remained choppy which in one sense isn't surprising given the global financial stresses and critically, policy interventions. The long Japanese Yen trade was exited profitably on the month. We also exited the recently added US Dollar index length that was noted to be the first shot at USD from the long side in a long time.  As such, we also added long positions in Swiss Franc, Aussie Dollar, Canadian Dollar, and the Euro.

Interest Rates:  We continued to drop short-end rate risk started in August by exiting US 5 year Notes. Great trade.  We remain long the 10 years and 30 years.

Equity Indices: It should be no surprise the Equity Indices were the biggest challenge on the month. The aggressive rebound was counter to the trends lower that have been developing the last 4 months in most markets.  Timing of the short entry late last month in S&P proved poor and we exited quite quickly.  We also covered shorts in CAC 40 (Paris), Hang Seng, and Russell 2000. This leaves us with a single remaining short in the Nikkei. Obviously, Equities are a key sector to monitor as the markets look for clarity and we look for....trend.

August Commentary & Performance

August was a choppy month with a number of long term trends ending and short term reversals occuring. Overall, we are happy with our positive performance over the July and August period vs. global equity markets. Many equity markets are down 4-8% over this 2 month period. In times of equity market unrest, Managed Futures often provides non correlation and this was the case in this most recent period.

As mentioned last month, it is important for investors to remain invested or even add to these types of non-correlated strategies during these times. As such, we are seeing significant interest and flows into non-correlated strategies including the Auspice Diversified. To this end, there have been a number of media stories on the benefits of non-correlation during August. Opalesque recently published this article on Auspice.

Highlights of the month: In August, the Auspice Diversified Program was profitable in 2 of the 7 sectors traded. The profitable sectors included Interest Rates and Grains.  We completely exited all remaining Equity index exposure at the beginning of the month and reduced our risk in Interest rate futures (long).

Since full diversification (achieved in June 2007) the annualized return is now +12.0% with 13.5% volatility, 25-30% lower volatility than the Equity market. The global equity markets remain down over this same period.

Interesting trades: Two trades highlight our ability to crystallize long term trends: We took profits in Swiss Franc returning 14 times originally risked capital. We also took profits in Soybeans at over 4 times risked capital. Additionally, we crystallized long term uptrends in the Russell, and S&P indices and Wheat market. Yet the month was also dominated by a number of trades that resulted in small short term losses. As a result of the choppy nature of the markets small losses occurred in Nasdaq, Heating Oil, Gasoline, Palladium and Copper positions.  During the month new trades were taken in Crude Oil and Natural gas from the short side. We also started to take short positions in Equity indices starting with Japan's Nikkei. We also added a short in Lumber and a long position in Eurodollars (short term interest rates).

Key Points Regarding our Positions

Energies: Energy had a choppy month.  The new long positions taken recently in Heating Oil and Gasoline were exited quite quickly. Additionally, we took short positions in Crude Oil and Natural Gas during the month as both markets broke below previous trading range floors. Despite the challenge recently, we consider this sector to be one of the most opportune going forward after experiencing a few months of pullback.

Metals: We remain long Gold which despite some choppy behaviour, remains a great long term trend. Recent long positions in Palladium and Copper were exited during the month.

Grains: Grains had another great month. We took profits in Soybeans early in the month as the market broke down significantly, but by month end took another long position. Despite the reversal we feel good about crystallizing mark to market (paper) gains. We remain long the Corn and Wheat markets. This sector is performing very well despite a choppy month.

Soft Commodities: Softs provided mixed opportunity.  We continue to hold a long position in Orange Juice and we remain flat the Cotton market. However, we took new positions by shorting Lumber and going long Coffee. Coffee is one to watch as we participated in a great long trend from mid 2010 to May of 2011 exiting before it sold off significantly until early August. We have re-entered this market as the long term trend up remains intact.

Currencies: Currency trends took pause vis a vis the US Dollar (that we exited our short in last month).  The sector was highlighted by an outstanding example of trend capture in Swiss Franc.  The long position, established on Dec 30, 2010, was exited on August 11th before selling off considerably. The trade returned over 14x the original risked amount. We also exited our long position in Canadian dollar that was established in October 2010. We remain flat the US Dollar Index but continue to hold long positions in Yen, Aussie Dollar, British Pound and the Euro.  

Interest Rates: Interest Rate futures were the most profitable sector again in August.  This occurred despite reducing the risk significantly in the sector early in the month. We hold the same long positions across the sector in reduced risk manner.

Equities: Global Equity markets were again lower in August and again very volatile.  The remaining long position held at the end of July was exited in the first days of August (this included S&P, CAC40 (Paris) and the Russell).  S&P and Russell were profitable trades.   We leave the month flat the Equity indices with the exception of a new short taken in the Japanese Nikkei.  Many of the long term uptrends are now shifting which may bring about new short positions in the near future. Stay tuned...

June Commentary & Performance

As a whole, the first 2 quarters of 2011 provided decent opportunity for the Auspice strategies. Of the 7 sectors traded, we were positive in 4. This includes Energies, Soft Commodities, Currencies and Interest Rates. This left Equities and Grains not working as well. We can attribute the volatile and choppy equity markets for the challenge in that sector. This was similar in Grains where the markets appear to be pausing from opportune trends. The Metals market was flat on the half after providing fantastic gains over the last year. Keep an eye on this sector for direction. Global markets were choppy in June. As the equity markets started to retrace, it seems the other asset classes also became nervous. The equity markets continued to be volatile throughout the month after selling off aggressively and then partially bouncing back at month end. The global commodity markets fell on the month as well.

The choppy activity throughout June and May tests portfolio diversification and risk management. While we gave back a bit on the month, we managed to preserve a positive gain on the quarter and the year. Overall we are happy with the positive and low volatility performance of the strategy in first half of 2011.

Since full diversification (achieved in June 2007) the annualized return is now 12.2% with 13.8% volatility, 30% lower volatility than the Equity market. The equity market remains down over this same period.

Highlights of the month: In June, the Auspice Diversified Program was profitable in 1 of the 7 sectors traded, flat in 2 and down in 4. Gains were made in Currencies while we were flat in Metals and Softs. The most challenging markets were Equities, Energies, Interest Rates and Grains of which Energies and Interest Rates have done well year to date.

Interesting trades: We covered our long term natural gas short and took a long position in Copper.  We also exited our long position in Eurodollars (short term interest rate futures).

Key Points Regarding our Positions

Energies: First things first: after being short Natural Gas since August 2008, we covered the final remaining short position.  This trade was over 1000 days long and gave a fantastic return. Currently, we are flat the natural gas market which has been in a tight consolidative pattern since the beginning of the year. To be clear, by our definition natural gas is still in a down trend. However, the risk reward was no longer in favor of being short. To give some idea, sustained price action over $5.00 may turn this trend up.  Keep your eye on this one throughout the summer as things can change quickly in natural gas.

Overall, the Energy market continued to give back some of the gains made in early 2011. To reiterate, after a long dry period, Energy had been very profitable since December 2010. This correction is healthy. Other than natural gas, we took profits in the remaining Heating Oil trade which gave a reasonable return. 

Metals: The Metals sector was again flat on the month as we continue to hold the long term Gold trend which moved sideways on the month. We remain flat in Palladium but took a long position in Copper at month end. Keep an eye on this market to see if the long term trend reignites to the upside.

Grains: Grains were not profitable on the month as we continue to hold long positions in Corn and Soybeans (established positions since 2010). We remain on the sidelines in Wheat which is in long term uptrend but moved sharply lower in June. This sector appears to be in transition and one to watch closely.

Soft Commodities: Softs were flat on the month. We covered our short in Lumber for a small gain and remain long Cotton and Orange Juice.

Currencies: Currencies have provided great results in the first half of the year and had a good month after correcting in April.  As with last month, we have not closed any positions after adding a long position in the Japanese Yen in May. We remain long the Canadian and Aussie dollars as well as the Euro, the Pound and the Swiss Franc. We continue to be short the US Dollar index.

Interest Rates: Interest Rate futures corrected lower and were not profitable on the month. Of note we covered our long position in Eurodollars in the short end of the curve. This sector has been very profitable in 2011.

Equities: Global Equity markets were again lower on the month and quite volatile. We continue to hold long positions in S&P, CAC40 (Paris) and the Russell of which the Russell 2000 (small cap index) definitely looks the strongest. We remain on the sidelines in the Hang Seng, Nasdaq, and Nikkei. 

December Commodity Commentary and Performance

What a month! December was one of our most opportune months and topped off a very good year for the Diversified Program. Auspice has now been profitable in 9 of the last 12 months. While the global indices also had a good month, Auspice managed to outperform almost all on the month, and many on the year. For example, the S&P was up 6.5% in December and 12.80% in 2010. The TSX didn't fare as well but was up 3.7% in December and 10.9% for the year. The GSCI commodity index made up the bulk of its 2010 performance in December finishing off the year with a 9.0% return. On a 3 year annualized return basis, most equity indices remain negative (S&P -5%, TSX -1.7%) while Auspice continues to outperform at 14.4%.

Key Points regarding our Positions

Energies: As in November, the Energy market made some small gains. From a trend perspective, 3 of the 4 (less natural gas) components are now showing up-trend potential including Gasoline, Heating Oil and Crude Oil. In addition to the Gasoline position taken last month, we took a new position in Heating Oil. A new Crude position was also taken at the beginning of January. We remain short natural gas.While we would describe the trends as preliminary which are notoriously challenging to trade, we will continue to carefully monitor this sector as we believe opportunities are likely forthcoming in this sector. To that end, we are launching an institutional Energy program in early 2011. Please contact Auspice for more information.

Metals: The Metals sector was again the star of the month (and the year) and we remain long Copper, Gold, and Palladium. This sector remains in a solid up-trend. At the beginning of December we reduced the risk and resized positions (took some profits).

Grains: Grains also had a fantastic month. We remain long Soybeans and Corn and added a long Wheat position as well. 

Soft Commodities: Softs had a decent month. We remain long Coffee and Orange Juice, both have been profitable. We re-entered the Cotton market after exiting very profitably in November. The current position is small given the volatility in that market. Lastly, the short entered in Lumber last month was covered. This market was a challenge to trade given the lack of trend in 2010.

Currencies: The currency sector was also profitable in December. We took new positions in Swiss Franc (Long) and Yen. We remain flat in US Dollar index, Euro and British Pounds. We remain long solid up-trends in the "commodity currencies", Aussie and Canadian Dollars. Interest Rates: Interest Rates were the only down sector in December despite being the second most profitable on the year. We exited the remaining long 10 and 30 years. Both were profitable long term trades which returned approximately 4 times risk taken. We re-entered a long position in the Eurodollars in the short end of the curve late in the month.

Equities: Equities produced the third highest gain in December as the global markets rallied. We remain long the majority of the sector with the exception of Japan's Nikkei which we are currently flat. This sector remains risky and volatile.