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Tim Pickering, Auspice Capital

Managed futures’ roots aids Auspice’s commodity ETF

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The Direxion Auspice Broad Commodity Strategy ETF, COM, is one of the only commodity ETFs to have a five-star Morningstar rating and has outperformed all other broad commodity ETFs with significantly less volatility and drawdown.

The fund mirrors Canada-based Auspice’s CTA/managed futures hedge fund origins, using an active long/flat strategy designed to provide upside exposure with downside protection.

Tim Pickering, founder and CIO of Auspice, says: “Borrowing the trend-following approach from our CTA/managed futures background, the strategy has produced far better risk-adjusted results alongside superior long-term absolute returns by exiting markets that are weak yet participating in commodity upside based on the merits of an individual commodity market — not a broad shotgun approach. Commodity markets are simply too unique for that approach to outperform long-term.”

Brennan Basnicki, director and partner in the firm, explains that the firm has CAD500 million under management, of which CAD300 million is in the ETF, which has seen performance of 30 per cent year to date.

“A big driver of interest broadly in the space is inflation protection,” Basnicki says. “Broad commodity exposure is much more effective protection against inflation, particularly when compared to gold or TIPS”
COM trades the Auspice Broad Commodity Index which has been published by the NYSE since 2010. Pickering explains that the product was first launched 11 years ago in Canada and then moved to the US. “There was a lack of commodity focused products for investors to get exposure to the sector in a risk responsible way,” he says.

“Volatility in commodities is high, which is a struggle for investors,” Basnicki says. “What we did was take a model sub-set from our hedge fund which manages risk better and makes a commodities investment more palatable for investors.”

Basnicki notes that the GSCI has seen 25 per cent volatility since inception, which is, as he says, tough to invest in.  The COM ETF has less volatility than most equity benchmarks. 

“Auspice created a tactical and equal-weighted basket to provide a more diversified exposure to the asset class. It was a recognition that there was a lot of interest in this space but that the existing products had flaws and high risk.”

Pickering says: “You want to be long things going up, not things going down and when you own a typical basket linked to a long-only commodity benchmark you take the good with the bad. We think there is a better way blending our CTA trend following background which is embedded in disciplined management along with term structure in a better way for the investor. It’s a good way to participate on the upside,  control the volatility, and reduce the downside.”

Basnicki has observed significantly more interest in the commodity space this year, driven by the green transition. “COVID was a catalyst in the world uniting around “building back better” he says. “The green transition is commodity intensive. In order to “build back better”, you need to build. There has been a big break out in prices as everyone is scrambling to get commodity exposure.”

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