As the investing world talks about an emerging supercycle, we’re bringing forward a commodity expert to discuss his outlook on the commodity markets. Tim Pickering is Founder, President and CIO of Auspice, a quantitative investment strategy specialist firm based in Calgary, Alberta, Canada. Auspice, which leverages both TT screens and APIs, employs a scientific research process to create rules-based investment strategies that put the volatility created by human behavior to good use. Tim talked with us about his career, Auspice’s unique market position and how the firm utilizes the TT platform to capitalize on market inefficiencies. You can find Tim on Twitter at @AuspiceTim.
How did you get into trading, and what path took you to where you are today?
Tim: I come from a farming family on the Canadian prairies. My dad raised us in the city and would take me to a broker to look at Rapeseed contracts. They traded on Winnipeg and now trade as Canola on ICE.
TD Bank recruited at my school, the University of Calgary Haskayne School of Business, and I got a job with them that included a trading rotation through forex, fixed income and money markets. In time, I was given the opportunity to interview for an energy trader role and was asked how I traded. I said, “Risk one to make three, no emotion.” The interviewer said, “The world is your oyster, don’t blow up the bank.” I will never forget that moment and the opportunity he gave me.
My next position was at Shell as an options prop trader and VP of Trading. That experience eventually led to the creation of Auspice with my co-founder, Ken Corner.
Why is Auspice different from other CTAs?
Tim: Auspice differs from other CTAs in a few ways. First, our systematic and rules-based focus came from experience as we figured out the most efficient, disciplined and directionally agnostic way to trade commodities. Second, while we have four core products—some multi-strat, some single strat—we are generally commodity tilted in our risk. With CTAs, smart investors want something different, and that’s what we provide. We’ve had significant outperformance in delivering both crisis and commodity alpha. Third, Auspice is the first CTA to launch an ETF (GAS on TSX based on Canadian Aeco gas) back in 2008 in partnership with Claymore ETFs.
Why did you choose to use the TT platform?
Tim: We have used a number of tools and developed much of our own infrastructure over the last 15 years. We use TT in a particular way as we are fully automated, and I see three key attributes that set TT apart for us:
- We use TT.NET SDK which allows our systems to talk to TT thru the API.
- TT’s API and front-end work very well together. The TT platform provides lots of visual tools like charts and how far orders are away from the market.
- Rolling contracts is very important for trend followers, and the Spread Matrix widget is very good at displaying spreads and executing trades.
The commodity topic is big right now. Why is Auspice well positioned for this? Does inflation play into it?
Tim: There are two ingredients required for a commodity supercycle: an extended period of underinvestment in supply and a generational demand shock. Today we have both. The pandemic has created a demand that is hard to calculate and probably quite significant in the face of a lack of investment in the sector for quite some time. There’s been a lack of investment in commodity supply including oil, and the ratio of commodity to equity value has never been lower. As such, the pandemic has acted as an accelerant—lots of savings, then explosive spending while supply chains are disrupted and commodity supply remains finite.
The typical way investors tackle inflation with commodities is not efficient—gold is not a great inflation hedge. New ways are being discussed, but Bitcoin is not an inflation hedge. They are diversifiers with orthogonal returns (i.e., different and unique and thus accretive). The key is to have broad tactical commodity exposure, not just typical like oil and gold. We don’t lump all commodities into one thing: cotton is not like canola is not like crude is not like corn. We all want to participate in uptrends, but what about the ability to capture those volatile trends, potentially benefit from extended (and often sharp and quick) downtrends—that’s our edge. Commodity trend capture, up and down, and the required risk management. Unlike many CTAs only telling the “crisis alpha” story, Auspice hasn’t just provided crisis alpha, but commodity alpha and hence significant outperformance at critical times.
Our long-flat Broad Commodity Index and related strategies have over 10 years of track record in tough commodity markets, and related products (e.g., COM ETF on NYSE) are top ranked. COM is the only 5-star Morningstar rated ETF in the commodity category.
Can you share a memorable moment and a takeaway from what you’ve learned in your career?
Tim: Years ago, I got a call from a member of Jerry Parker’s team. I had read about Jerry, and am obviously inspired a bit by the Turtle story. He had a real great group of people working for him. He asked to meet me when it was announced we were launching a managed futures ETF for 95 bps. We had quite a debate about fees and strategy. We still outright argue often, but in good spirit. We approach things differently and obviously come from different CTA paths.
As a takeaway, two things get me up every morning. One is doing something innovative. The other is to interact with more people. When we left Shell as prop traders, our network was pretty narrow, consisting of some traders and brokers. Now we strive to meet all sorts of individuals, and the network we’ve built is a valuable asset.