A decline in the U.S. dollar will be an essential factor for a sustained recovery of commodity prices. In the energy markets, Crude Oil remains oversupplied, but the global macro and political factors can trigger energies to new highs. For 2020 we expect higher volatility driven by political factors, as well as a risk of an equity pullback in the stock market. In 2018 when S&P declined almost 20%, WTI simultaneously dropped over 40%[1]. In Natural Gas, there is a massive short position held by money managers, and we expect a short covering during the first quarter of 2020, similar to the one in September where prices increased around 20%. This situation will create price movements in several future expirations where calendar spreads will present exciting opportunities to exploit.

We consider grains to be one of the most exciting markets for this year, an increase in the U.S. grain export will support prices, but only if the U.S. dollar stabilizes or declines. Corn and Wheat seem to be at a discount from their previous years’ price average; a definitive US-China trade deal could impact grains to have sharp moves in the year. We also anticipate an inflow of institutional money into grains that will move futures prices of different expiration. This is an optimal environment for our trading program.

In our view, precious metals also present one of the best opportunities for 2020 with Silver and Gold embarking on a new bull market. Both metals ended 2019 at a new higher level in years, a low VIX index, and expected higher stock-market volatility would favor appreciation in the two metals. The FED will play an essential role in the price action of the metals, where the rate decisions may signal tolerance to inflation that usually translates into higher precious metal prices.

In the soft market, Coffee and Sugar will be impacted by LATAM Currencies.  The Colombian Peso and Brazilian real both currencies that in recent years have presented significant depreciation. During 2020 we expect a recovery of these currencies, which could boost the recovery of these commodities. In Cocoa, the impact of the Cocoa Cartel to boost prices will move the market (see WSJ Article Cocoa Cartel Stirs Up Global Market). Also, the African Swan Fever AFS in pigs and the reduction of supply will have an impact on hog prices. Finally, the trade deal between the U.S. and China will have a greater or lesser effect on prices. For the first quarter of 2020, we will maintain open positions in these markets.

Sigma Advanced’s goal is to identify materially mis-priced calendar and relative value spreads, and generate non-correlated alpha by exploiting these inefficiencies on the term structure created in the cost of carry, commodity index roll, extreme price deviation, hedging pressure, weather, price mean reversion, and seasonal patterns. We believe in having a unique and differentiated perspective by using a highly quantitative model-driven for strategy development and the portfolio construction process, complemented with an understanding of the fundamentals of commodity markets and using alternative data analysis techniques to generate strong investment returns over time. Therefore, we have positioned the portfolio to take advantage of these opportunities presented for 2020.

Our portfolio remains diversified and risk-balanced among all sectors: energy, metals, grains, soft, and meats. Expecting higher volatility in 2020, we remain confident that our disciplined, model-driven analysis and risk management approach will reward our investors.

Sigma Advanced Capital Management, LLC (“The Advisor”) an Illinois limited liability company is a Commodity Trading Advisor registered with the Commodity Futures Trading Commission (CFTC) and Member of the National Futures Association (NFA). It specializes in commodity futures, relative value and calendar spread strategies seeking absolute returns across a wide range of economic cycles and market environments. The Global Advanced Futures and Spread Program (GAFS) focuses on a risk-adjusted balanced portfolio of calendar spreads, relative value strategies, and outright futures.

Carlos Arcila Barrera, CFA, CAIA is the Advisor’s founder and sole principal. As such, he is responsible for managing all aspects of the Advisor’s operations. Mr. Arcila has over 8 years of derivatives trading experience across a wide range of commodity markets with a specialization in futures and spread trading. He is the Adjunct Professor of Derivatives Markets at Universidad de Los Andes, and Project Leader of The Financial Markets Research Center (CIMEF) at the University. During his professional career, Carlos worked as an Investment Analyst for the endowment of the Universidad de Los Andes, from 2013 through 2014 he worked as Energy Risk Associate established and managed the electricity risk program of Optima Consultores S.A.S, where he developed diverse hedging and trading strategies in electricity futures for Latin-American companies. From 2014 through 2016, Carlos worked for a prominent CTA in Chicago, his primary responsibilities included fundamental and quantitative research, financial modeling, trading, and risk analysis of the portfolios of the fund. In 2016 Carlos started the Global Advanced Futures and Spread program (GAFS), focused on the strategy, research and trading of the program.

Carlos holds an MSc.in Finance from the University of Notre Dame (Magna cum Laude) and B.S in Business Administration from Universidad de Los Andes, he is member of the International Association for Quantitative Finance (IAQF) and the American Finance Association (AFA), Carlos is a CFA and CAIA Charterholder and hold the Series 3 license.

Notes and Disclosures

DERIVATIVE TRANSACTIONS, INCLUDING FUTURES, ARE COMPLEX AND CARRY A RISK OF SUBSTANTIAL LOSSES.THEY ARE INTENDED FOR SOPHISTICATED INVESTORS WHO UNDERSTAND RISK. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS

Benchmark Data

Benchmark data was obtained from various internal and external sources, such as CTA databases, Bloomberg, International Traders Research Inc., Hedge Fund Research, and Newedge. Sigma Advanced believes the benchmark data to be reliable but can make no warranty as to its accuracy.  Sigma Advanced has not and cannot verify the accuracy of all such information and the recipient should be aware that the information is presented on an informational “as-is” basis and is subject to change without notice.

1 The SG CTA Index provides the market with a reliable daily performance benchmark of major commodity trading advisors (CTAs). The SG CTA Index calculates the daily rate of return for a pool of CTAs selected from the larger managers that are open to new investment. Selection of the pool of qualified CTAs used in construction of the Index will be conducted annually, with re-balancing on January 1st of each year. A committee of industry professionals has been established to monitor the methodology of the index on a regular basis. https://portal.barclayhedge.com/cgi-bin/indices/displayHfIndex.cgi?indexCat=SG-Prime-Services-Indices&indexName=SG-CTA-Index

2 BTOP50 Index: Seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The BTOP50 employs a top-down approach in selecting its constituents. The largest investable trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50 https://portal.barclayhedge.com/cgi-bin/indices/displayHfIndex.cgi?indexCat=Barclay-Investable-Benchmarks&indexName=BTOP50-Index

3 Bloomberg Commodity Index (BCOM) is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Roll period typically occurs from 6th-10th business day based on the roll schedule. https://www.bloombergindices.com/

[1] McGlone Mike, Bloomberg Commodity Outlook – January 2020 Edition