The CI Auspice Broad Commodity ETF, which began trading on the Toronto Stock Exchange on Sept. 27, is designed to provide lower-risk exposure to an asset class known for huge price swings.
Managed by Auspice Capital Advisors Ltd. of Calgary and sponsored by Toronto-based CI Global Asset Management, the ETF can hold positions in up to four energy commodities (crude oil, natural gas, gasoline and heating oil); three metals (gold, silver and copper); and five agricultural commodities (wheat, corn, soybeans, cotton and sugar).
This alone makes CI Auspice distinct from other commodities mutual funds and ETFs offered by prospectus to Canadian retail investors. Most of those invest in either gold or silver, or both precious metals. Single commodity funds investing in crude oil, natural gas and uranium also are available.
However, CI Auspice won’t necessarily hold a particular commodity at any one time — or, for that matter, any of the 12. In early October, for instance, the ETF held only natural gas exposure, amounting to one-12th of assets, with the rest in cash. The ETF seeks to replicate the returns of the Auspice Broad Commodity Index, whose constituent holdings are based on price trends.
“We will go long commodities if they’re in an uptrend. And then if they go into a downtrend, we go to cash,” said Brennan Basnicki, an Auspice director and partner. “We’re trying to provide that upside commodity exposure but with risk management.”
The risk rating, according to the ETF Facts regulatory filing, is low to medium.
The CI Auspice ETF will hold no more than a one-12th exposure to any of the 12 commodities. “We don’t overallocate to a single position if none of the other markets are trending,” Basnicki said. “As opportunities improve, as prices rebound, we will systematically add positions back on.”
Because Auspice invests in commodities through futures contracts, the bulk of the ETF’s assets are held in cash, primarily in units of the CI Money Market Fund. Recently, this fund was yielding 3.8%, providing a significant portion of the ETF’s total return. The CI Auspice ETF’s management fee is 0.52%, and on top of that the administration fee is 0.10%.
In pitching the ETF to advisors and investors, CI and Auspice say that lack of investment in new supply and “generational demand shock” have created the conditions for a “commodity supercycle.” Among the factors contributing to this bullish scenario, they say, are government policies that impede resource development, the Ukraine-Russia war and supply chain complications.
Even so, the ETF’s tactical approach is based purely on technical trading trends, such as a commodity trading at higher highs and higher lows over the past several months.
“We can talk about the fundamentals all day, but ultimately if a commodity is trending up, we’re long. If it’s trending down, we go to cash,” said Basnicki. “We just let price-based strength determine our position. That removes all of our biases and is a lot more effective.”
Portfolio turnover will vary, with holding periods for a commodity that can typically range from several months to one year or more. “We’re not trying to pick bottoms and tops,” Basnicki said. “We’re not trying to capture anything too short-term. We’re really trying to capture the bulk of major market moves in individual commodities.”
Auspice, led by president, chief investment officer and founder Tim Pickering, also manages the U.S.-listed Direxion Auspice Broad Commodity Strategy ETF. This US$308-million ETF, whose strategy is the same as its new Canada-listed counterpart, has the top Morningstar rating of five stars for risk-adjusted performance in its peer group. That ETF also has returned an annualized 9.0% in the five years ended Sept. 30, and 9.7% over 12 months.
Auspice’s re-entry into Canadian ETFs, this time under CI sponsorship, follows the terminations of its natural gas ETF in March 2018 and its Canadian crude-oil ETF in May 2020. Both provided continuous exposure to a single commodity, in sharp contrast to what Auspice’s risk-managed and diversified commodity ETFs now offer.