The Picton Mahoney Fortified Alpha Alternative Fund Class F (“the Fortified Alpha Fund”) produced a return of 2.96% in the fourth quarter of 2024.
The Fund continues to provide returns independent of market direction; our analysis of daily portfolio returns over the most recent time frame indicates a very small beta footprint in terms of exposure to traditional asset classes such as stocks and bonds as measured with respect to our PMAM asset classes in Q4 2024.
The fourth quarter of 2024 saw a generally strong performance in equity markets especially a positive surge which followed the US election. The largest volatility event during the quarter was a hawkish December U.S. Federal Reserve meeting in which the tone changed from balanced to more concern about the path of inflation. As in previous events in 2024, this selloff in the equity markets caused minimal impact to the Fortified Alpha Fund.
Therefore, the Fund continues to meet a key investment objective of providing returns independent of traditional asset classes.
The Fund benefited from positive return contributions from all of the core active strategies as well as the Quantitative Equity Factor Risk Premia. This positive performance follows strong performance throughout the entire 2024 across the majority of the underlying strategies.
The Market Neutral equity strategy provided the largest contribution to positive performance over the fourth quarter as well as the entirety of 2024. We expect the relative performance ranking of the core strategies to change over time. Combining portfolio components with a positive return potential and a low correlation can result in better portfolio outcomes over moderate to long term time horizons. These portfolio construction benefits continue to accrue to investors in the Alpha portfolios.
Highlight of the component strategies:
Equity Market Neutral strategy:
Positive return contribution was primarily driven by overweight and stock selection in Information Technology, as well as stock selection in Financials and Materials sectors. Performance was slightly offset by overweight and stock selection in the Industrials sector.
Long Short Credit strategy:
This strategy was the second largest contributor to the overall strategy this quarter. During the fourth quarter of 2024, interest rates rose sharply despite aggressive rate cuts by global central banks. Yield curves steepened as the market re-assessed inflation risk and started to rebuild its historical term premium. The re-election of Donald Trump and the December Federal Open Market Committee meeting were two key catalysts driving longer term yields higher.
Credit spreads remain at the bottom of their recent ranges, driven partly by continued inflows to the asset class and yields that are sufficiently attractive to larger pension plans and annuities. Defaults remain low, and issuers continue to have easy access to capital with very strong corporate issuance during the quarter.
Arbitrage strategy:
The strategy also contributed positively in the quarter. It was another steady quarter for the arbitrage strategy. Our arbitrage alpha has come from avoiding excessive risk in an environment where risky arbitrage situations have largely not paid off. Arbitrage turmoil in the fourth quarter was widespread following the third-quarter turbulence of Capri-Tapestry and Albertson’s-Krogers court losses: the Biden administration cited national security concerns for blocking the U.S. Steel-Nippon Steel deal; in Canada, STEP Energy Services Ltd shareholders rejected a bid from majority holder ARC Financial Corp; in Asia, China TCM’s parent surprisingly failed to secure regulatory approval.
Fortunately, we had positive contributions this quarter from the successful completion of several notable deals: Stericycle-Waste Management closed on a much quicker timeline than was originally expected; Axonics-Boston Scientific closed without challenge after a prolonged review; Stelco-Cliffs was a short and sweet counterpoint to the drama of US Steel. One of our largest exposures, Canadian Western Bank-National Bank, received regulatory approvals almost a full year quicker than they originally guided, contributing a very attractive return to the performance, although not without some short-term drama related to a delayed earnings release that was poorly communicated.
Performance as of December 31, 2024 (%) | 1M (%) | 3M (%) | 6M (%) | 1YR (%) | Since Inception* (%) |
Picton Mahoney Fortified Alpha Alternative Fund (Class F) | 0.82 | 2.96 | 6.00 | 13.28 | 7.79 (2022-05-03) |
(*) refers to average annualized performance.
Disclosure
This material has been published by Picton Mahoney Asset Management (“PMAM”) on January 11, 2025. It is provided as a general source of information, is subject to change without notification and should not be construed as investment advice. This material should not be relied upon for any investment decision and is not a recommendation, solicitation or offering of any security in any jurisdiction. The information contained in this material has been obtained from sources believed reliable, however, the accuracy and/or completeness of the information is not guaranteed by PMAM, nor does PMAM assume any responsibility or liability whatsoever. All investments involve risk and may lose value. This information is not intended to provide financial, investment, tax, legal or accounting advice specific to any person, and should not be relied upon in that regard. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.
This material may contain “forward-looking information” that is not purely historical in nature. These forward-looking statements are based upon the reasonable beliefs of PMAM as of the date they are made. PMAM assumes no duty, and does not undertake, to update any forward-looking statement. Forward-looking statements are not guarantees of future performance, are subject to numerous assumptions and involve inherent risks and uncertainties about general economic factors which change over time. There is no guarantee that any forward-looking statements will come to pass. We caution you not to place undue reliance on these statements, as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forward-looking statement made.
Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Alternative mutual funds can only be purchased through a registered dealer and are available only in those jurisdictions where they may be lawfully offered for sale.
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, limiting its losses, or, which cause a strategy to realize or magnify losses. There may additional costs and expenses associated with the use of derivatives and short selling in a hedging strategy.
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