PORTFOLIO Construction

PORTFOLIO ALLOCATOR

The allocation for a typical balanced portfolio in Canada is 60% equities and 40% fixed income and cash, but has over 93% exposure to equity risk*. Balanced, yes. Diversified? No.

Adding an allocation to hedged solutions can have a positive impact on the traditional balanced portfolio. Move the slider to the right and then scroll down to see for yourself the potential differences hedging strategies could have on measures such as volatility, drawdown and return.

*Based on the hypothetical Initial Portfolio and calculated for the Period described below, as at the end of the Period.

Data used for the calculation of the hypothetical Initial Portfolio and Hedge Allocation shown above is updated on a quarterly basis and is based on the monthly historical index return and yield data from July 31, 1992 to March 31, 2022 (the “Period”).

The Initial Portfolio is based on the following asset class allocations, each represented by historical index performance or yield for the Period: 0% hedge, 5% cash (3-month Government of Canada Treasury Bill yield), 35% bonds (BofA Merrill Lynch Canada Broad Market Index (CAD)), 40% Canadian equities (S&P/TSX Composite Index TR (CAD)) and 20% foreign equities (MSCI World ex-Canada Index (Gross Total Return Index (CAD)).

The Initial Portfolio is based on the following asset class allocations, each represented by historical index performance or yield for the Period: 0% hedge, 5% cash (3-month Government of Canada Treasury Bill yield), 35% bonds (BofA Merrill Lynch Canada Broad Market Index (CAD)), 40% Canadian equities (S&P/TSX Composite Index TR (CAD)) and 20% foreign equities (MSCI World ex-Canada Index (Gross Total Return Index (CAD)).

The Hedge Allocation adds an allocation to equity hedge funds to the Initial Portfolio. The equity hedge fund allocation is based on the equally-weighted, historical, blended performance of the HFRI Equity Hedge (Total) Index (CAD) and the HFRI Equity Market Neutral Index (USD). HFRI Equity Market Neutral Index returns are in USD to reflect the currency-neutral composition of market neutral strategies. The allocations to cash, bonds, Canadian equities, and foreign equities in the Hedge Allocation are adjusted on a proportional basis relative to increases and decreases to the hedge fund allocation. All hypothetical returns are annualized since inception.

The Hedge Allocation adds an allocation to equity hedge funds to the Initial Portfolio. The equity hedge fund allocation is based on the equally-weighted, historical, blended performance of the HFRI Equity Hedge (Total) Index (CAD) and the HFRI Equity Market Neutral Index (USD). HFRI Equity Market Neutral Index returns are in USD to reflect the currency-neutral composition of market neutral strategies. The allocations to cash, bonds, Canadian equities, and foreign equities in the Hedge Allocation are adjusted on a proportional basis relative to increases and decreases to the hedge fund allocation. All hypothetical returns are annualized since inception.

The Portfolio Allocator Tool contains hypothetical performance information, which has been provided for informational purposes only and is intended to demonstrate the hypothetical impact of increasing the weighting of equity hedge funds to an investment portfolio with the following components: cash, Canadian bonds, Canadian equities, and foreign equities. This information should not be considered personal investment advice or an offer or solicitation to buy or sell securities in any jurisdiction. There is no guarantee that a hedging strategy will be effective or achieve its intended effect. The use of derivatives or short selling carries several risks which may restrict a strategy in realizing its profits or limiting its losses, or, which may cause the strategy to realize a loss. Losses incurred by a hedging strategy may exceed the initial amount invested. There may be additional costs and expenses associated with the use of derivatives and short selling in a hedging strategy.

While hypothetical performance reflects the rigorous application of the investment strategy selected, hypothetical results have certain limitations, inherent risks and are not indicative or a guarantee of future performance. Hypothetical performance does not involve financial risk. In addition, since trades have not actually been executed, simulated performance results cannot account for the impact of certain economic and market risks, such as lack of liquidity which may have impacted the investment decision-making process. There are numerous other factors related to the markets in general or the implementation of any specific investment strategy, which cannot be fully accounted for the in the preparation of simulated results, which could overstate the performance of the Hedge Allocation in comparison to the Initial Portfolio and all of which can adversely affect actual results. The hypothetical performance results also assume that asset allocations would not have changed over time and in response to market conditions, which might have occurred if an actual strategy had been managed during the Period. Hypothetical performance does not include management fees, transaction costs, expenses or taxes. Actual performance results may differ significantly.

The information contained in this report has been obtained from sources believed reliable, however the accuracy and/or completeness of the information provided herein is not guaranteed by Picton Mahoney Asset Management (“PMAM”), nor does PMAM assume any responsibility or liability whatsoever.