Direxion Indexed Commodity Strategy Fund

Overview

Why Invest in the Fund?

• The long/flat approach provides exposure to commodities that can individually be positioned long or flat (in cash) based upon price trends
• Seeks to mitigate the downside risk and maximum declines relative to notable long-only commodity indices
• Has the flexibility to make individual commodity position changes intra-month
• Risk management controls designed to adjust exposure levels if volatility gets to high
• Low- or non-correlation to stocks and bonds
• Disciplined, quantitative, rules-based approach to commodity investing

Not just commodities – Long/Flat commodities.

Most traditional commodity funds provide long only exposure to commodities. This limits their potential to contribute to a portfolio’s long-term performance because they only benefit if commodity prices rise.

The Direxion Indexed Commodity Strategy Fund is the only fund on the U.S. market today that seeks to match the performance of the Auspice Broad Commodity ER Index (ABCERI), which provides exposure to 12 commodities that can individually be positioned long or flat (in cash) based upon price trends.

This long/flat index is potentially more adaptive to volatile commodity markets because it seeksto take advantage of individual commodities by going long when prices rise, and preserving capital by going flat (to cash) when prices fall.

 Click here for more information about the Auspice Broad Commodity ER Index

Strategy & Benefits

Investment Strategy

The Fund:

• Tracks a quantitative, rules-based index
• Provides exposure to 12 commodities that can individually be positioned long or flat (if a short signal is triggered, the position is moved to cash) based on price trends
• Has the flexibility to make position changes intra-month based on price trends
• Reviews trends over shorter time periods, making it more responsive to rapidly changing markets
• Rebalances monthly based on risk, reducing individual component allocations, when volatility exceeds predetermined levels
• Uses a smart-contract-roll approach designed to select the most cost effective futures contracts

Key Strategy Benefits

The Fund aims to provide improved risk/return profile relative to traditional long-only commodities funds by:

• Provides exposure to commodities showing an upward price trend and protecting capital (by going to cash) to commodities in a downward price trend
• Providing commodity investment returns with potentially lower risk characteristics
• Employing a disciplined, quantitative, rules-based index approach to commodity investing

Component Sectors

Direxion Indexed Commodity Strategy Fund (DXCTX)
(as of 03/31/2013)

Flat positions are held in cash and U.S. Treasury Bills. Individual component weightings may vary based on risk levels.

Monthly Commentary

The following commentary is provided by Auspice Capital Advisors. Direxion did not contribute to this content.

Market Review

Commodities were generally lower in April and have remained volatile. The index continues to show the ability to protect on the downside and wait for an opportunity to recover when markets move in a sustained trend higher.

Index Review

The ABCERI lost 1.42% in April to be off a mere 0.49% in 2013 despite continued commodity pressure. The monthly loss was far less than the peer group and the index continues to outperform. (see table below). The strategy had a few position changes during the month, holding only 2 components or 17% of the basket long at this time.

Since the start of publication in 2010 and calculation by the NYSE, the index has outperformed its peers significantly in absolute return and risk adjusted measures. The following table highlights the strategies ability to capture the upside while limiting the downside.

The ABCERI does not attempt to simply track the broad commodity markets or predict their direction, but rather aims to capture upward price trends from those commodities that are making sustained moves higher.

Portfolio Recap

In April the ABCERI did not make gains in any of the 3 broad sectors. The strategy remains positioned long in Cotton and has added Natural Gas while exiting long positions in Heating Oil and Gasoline. Within the 2 markets held, Natural Gas made gains but were offset by the corrections in the other markets.

Source: Auspice Capital Advisors

Energy

The petroleum weights are now all flat after exiting Gasoline and Heating Oil to add to the zero Crude Oil weight.  However, the index has moved Natural Gas to a long position for only the second time in 5 years as it has begun to break out higher.

The Energy sector remains choppy with an overall negative bias to trend in the petroleum components.

Metals

The index remains without a long weight in Metals after it exited long positions in Gold and Silver in February. The entire sector was sharply lower in April providing the most significant commodity volatility in the asset class.

Agriculture

After selling off, Ags generally moved higher on the month. While some of the Grains moved up, led by Soybeans and Wheat, Corn continued lower. Sugar also continued to drift lower. Cotton remains the lone long position in the sector but was pushed lower for a loss.

¹Standard Deviation – A measure of the dispersion of a set of data from its mean.

²Sharpe Ratio – The Sharpe ratio tells us whether a portfolio’s returns are due to smart investment decisions or a result of excess risk.

³MAR Ratio – A measurement of returns adjusted for risk that can be used to compare the performance of commodity trading advisors, hedge funds and trading strategies.

⁴Drawdown – The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.

Index Descriptions:

• The S&P GSCI is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The returns are calculated on a fully collateralized basis with full reinvestment. The combination of these attributes provides investors with a representative and realistic picture of realizable returns attainable in the commodities markets.
• The Dow Jones-UBS Commodity Index is composed of futures contracts on physical commodities. Unlike equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts normally specify a certain date for the delivery of the underlying physical commodity. In order to avoid the delivery process and maintain a long futures position, nearby contracts must be sold, and contracts that have not yet reached the delivery period must be purchased. This process is known as “rolling” a futures position. The DJ-UBSCI is a “rolling index.”
• The Deutsche Bank Liquid Commodities Indices Optimum Yield are designed to maximize potential roll returns by selecting, for each commodity, the futures contract with the highest implied roll yield. The index aims to maximize the potential roll benefits in backwardated markets and minimize the loss from rolling down the curve in contango markets. This index rebalances yearly to fixed weights on the 6th Business day of November according to the index holiday calendar Index.

Auspice Capital Advisors Disclaimer – Futures trading is speculative and is not suitable for all customers. Past performance may not be indicative of future results and there is no assurance that any of the strategy’s investment objectives will be met. This document is for information purposes only and should not be construed as an offer, recommendation or solicitation to conclude a transaction and should not be treated as giving investment advice. Auspice Capital Advisors Ltd. makes no representation or warranty relating to any information herein, which is derived from independent sources. No securities regulatory authority has expressed an opinion about the securities offered herein and it is an offense to claim otherwise.

Fund Literature

Fund Literature

Download fund literature and regulatory documents

• Fact Sheet (pdf)
• Brochure (pdf)
• Regulatory Documents (including Prospectus, SAI, Semi-Annual Report, Annual Report)

Related Material

• Subscribe to the Alternative Insights e-newsletter
• Watch the video: Why Invest in Commodities?

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• Direxion Indexed Managed Futures Strategy Fund