August 2, 2011 / 3:38 PM / 8 years ago

Auspice touts managed futures for Canada investors

TORONTO (Reuters) - Canadian investors are turning increasingly to managed futures to gain exposure to commodities without the risks of buying stock in companies that mine, drill or farm for them, a leading commodity adviser says.

Tim Pickering, founder and head of hedge fund investor Auspice Capital Advisors, says investor demand is growing for products that tap into the global boom for commodities, but which offer a quick exit if needed.

“2008 reminded everybody that if you have a basket of stocks and if you’ve got a whole bunch of commodity related or resource-based stocks, that didn’t help save the day,” Pickering told Reuters in an interview.

“What you got out of that was serial correlation because the entire market basically went down.”

With managed futures, Auspice uses mathematical models to help it profit from rising commodity prices while minimizing the impact of price declines.

It focuses on four sectors — energy, metals, grains and soft commodities — and complements that with trade in currencies, interest rate futures and equity indices futures.

Auspice, which started out offering its investments to wealthy individuals, now gets most of its funds from institutions. Assets under management have grown to C$250 million from C$5 million in just five years.

Richardson GMP, CIBC (CM.TO), RBC (RY.TO), Scotia Canadian Hedge Fund Index, Canaccord (CF.TO), and TD Waterhouse NPLXX.O are some of the clients that helped Auspice grow so quickly, and Pickering said deals pending with international investors will take Auspice’s assets higher still.

“Whereas we had to beg, borrow and steal to get on these platforms three years ago, now they’re coming to us,” he said.

He said the firm had one of its largest monthly inflows ever in June, mostly through CIBC, a client for just 90 days.


Managed futures have gained traction in Canada since the economic crisis, when Toronto’s main stock index .GSPTSE fell 45 percent from September 2008 through March 2009.

The base metals mining index .GSPTTMN plunged 76 percent before rebounding.

Metals prices also crashed in that time period, along with natural gas and crude oil prices, but Pickering says investors in managed futures would have exited before precipitous drops.

“If we see a trend going up, great. If we see a trend going down, great. We risk one unit of capital and so if that one unit of capital is exceeded, or if it gets to that level, then we stop out of that trade,” Pickering said.

Challenging periods are those of government intervention or policy change, because they distort the market, he said.

The use of managed futures in Canada is tiny compared to that in more mature markets like Europe, where they are the largest hedge fund investment category by asset size, with 20 percent of the pot.

But Canadian investors are catching on.


Over 90 percent of Auspice’s holdings are in cash, guaranteeing liquidity in times of crisis.

In the first part of 2011, with commodities booming, Auspice was long in commodities in general, says Pickering. It was short the U.S. dollar and long other currencies.

Auspice designed and subadvises the Claymore Broad Commodity exchange traded fund (ETF), which is listed on the New York Stock Exchange and tracks the Auspice Broad Commodity Total Return Index (ABCTRI).

Pickering said Auspice will launch a new managed future ETF within the next six months that responds to retail demand for managed futures in Canada.

“This will be available to everybody, Mom and Pop and the kid who is in university and is trying to build a portfolio.”

Pickering started Auspice after leaving his job as vice president for options trading at Shell Trading, part of Royal Dutch Shell (RDSa.L).

($1 = $0.96 Canadian)

Editing by Janet Guttsman

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