Tim Pickering, whose background includes family farming and more than 25 years commodity trading at TD Bank, Shell, and Auspice, is well versed in the commodity space.
He launched Auspice Capital Advisors, a Calgary-based commodity fund manager, in 2005 and is its chief investing officer.
The firm, with about $1 billion in assets under management, is a result of Pickering’s entrepreneurial drive to bring commodities diversification to Canadian investors.
He shares his thoughts on working with regulators to bring commodities investing to a wider market through ETFs and mutual funds, and on setting the record straight about a few misconceptions around commodities.
What are your views on commodities?
“I think Canada should be on top of the world in terms of what we do as a commodity producer and a conscientious one at that. We’re not as a nation.
And, on the other side of it, there are a lot of people proclaiming to be commodity experts today who are not.
There’s also a bit of a misnomer with commodities. When I talk about commodities, I’m talking about the underlying commodities, not resource equity.
My view is this: Commodities have periods of time when they’re more or less opportune from an investment perspective. They’re always important, but that investment opportunity ebbs and flows.
We’ve seldom seen, in the grand scheme of the world, where commodity pricing, vis-a-vis other assets like equities, is as low as it is right now.
It might surprise people, but when we do that comparison of equity versus commodity value, it’s extremely low.”
Why did you put commodities in an ETF?
“Auspice is the first CTA [Commodity Trading Advisor]/hedge fund to launch [a commodities] ETF, in 2008, in partnership with Som Seif at Claymore [Inc.]. This was the GAS ETF on TSX. As a fund manager, specifically a commodity fund manager, we have unique skills as per the regulator, and hence the “CTA” designation.
It’s the same reason people want an ETF in Bitcoin or Ethereum right now because you take away some of those systemic risks.
An ETF is a great vehicle. It has liquidity. It’s visible. You can put it in your RRSP. It’s all those good things.
The second one was in 2010 and then we branched into the U.S. in 2012, all with the impetus that we were trying to bring real diversification to the Canadian investor, because the only way for them to get commodity exposure is to go buy their favourite stock. That is not commodity investing, that is resource equity investing.
It’s not to say it’s bad, it’s different, and they need to be separated.”
You have said you don’t consider gold to be a reliable inflation hedge. Why is that?
“If you look at it statistically, it’s a diversifier. It does something different than other assets, including other commodities.
It is not a reliable inflation hedge. Whether you look at a long-term study, or just at the last five years, you see the same thing. When COVID hit in 2020, and everything went down, it was risk-off, including commodities. Equities went down. Commodities went down. Everybody ran for the hills. We all got scared.
Gold bounced a little bit starting in about April of 2020. That lasted till about July or August. We thought, ‘Well, maybe gold is going to be that protector. It seems to have reacted.’
Then inflation started to move. CPI started to move in the summer of 2020. It went from nothing, literally nothing, all the way to [about 8] per cent.
Here’s what did not move. Gold. Gold didn’t move from September, 2020, for the next two years. But what did move? Cotton, crude, coffee, canola, everything else.
This is the thing about commodities and inflation. They are a good inflation hedge. The question is: which commodity?”
Are Canadian regulators behind their counterparts when it comes to commodities?
There’s very little commodity product in Canada. There are one-off products. You can buy any type of gold product. You can even buy some oil-related stuff. As far as diverse commodity exposure, like an ETF in stocks, it almost didn’t exist.
What we had to do was engage with the regulator again.
We started working with the regulator in 2021 to say, ‘Look, we’ve got a long track record investing in commodities with low risk. It’s not no risk. There’s always risk.’
In Canada, it’s very difficult for a manager like us to put our product in front of the Canadian public. Public funds are what they call liquid alternatives under NI 81-102. That’s the instrument. They made it very difficult. Why?
Not that they were malicious, but they had an old-school way of looking at risk in all assets, and they lumped all assets together. Equities, bonds, commodities are the same, right? No, they’re not. They’re different. You have to treat them differently. You have to look at the risks of each. You have to look at how you get that commodity exposure; in our case, through futures contracts, which is very obscure to both Canadian regulators and many investors.
In March of 2023, we were granted an exemption under that instrument, NI 81-102, to take our existing OM funds, offering memorandum funds [only accessible to exempt investors] that are commodity-based, and make them publicly available that anybody can buy them. That took an engagement from the regulator.
They had to be curious. They had to learn a lot. They were willing to do that, partially because they see the statistical benefit, but partially because they look at other jurisdictions and say, ‘You know what? We’re behind in Canada on this one.’”
What would you say has worked for you and made your firm successful?
As a firm, we have also evolved towards longer-term asset allocation solutions, versus more topical or trading like vehicles, such as the GAS ETF.
It’s all about looking at things in a longer-term perspective, getting away from the fads, looking at the long-term needs of investors and what we see as the opportunity.
I launched a series of products for a series of types of investors with different needs and appetites and built a diverse business.”
Responses have been lightly edited for clarity and length.
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