Alpha Strategy Commentary: As at September 30, 2024

The Picton Mahoney Fortified Alpha Alternative Fund Class F (“the Fortified Alpha Fund”) produced a return of 2.95% in the third quarter of 2024.

The funds continue 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 Q3 2024.

The third quarter of 2024 saw a generally strong performance across financial markets, despite significant volatility during the period. The positive trend was largely driven by central banks, such as the U.S. Federal Reserve (Fed) and European Central Bank, shifting towards rate cuts amidst cooling inflation.

However, at the beginning of August, there was a significant sell-off in equities triggered by disappointing economic data from the U.S. and an unexpected rate hike by the Bank of Japan. This caused minimal impact to the Alpha portfolios as they continued to provide returns independent of market direction.

Therefore, the funds continue to meet a key investment objective of providing returns independent of traditional asset classes.

The funds 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 in the first half of the year.

Contributions to portfolio performance was more balanced in Q3 with the Long Short Credit strategy providing the largest contribution to positive returns. This reversed the trend of Market Neutral providing the largest contribution to positive performance over the previous two quarters. We expect the relative performance ranking of the core strategies to change over time. Looking at performance over a longer time horizon, the Alpha strategies have outperformed the underlying strategies over a one-year time horizon. 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 driven by stock selection in Energy and Consumer Staples sectors, and overweight to Information Technology and Financials sectors. Performance was slightly offset by stock selection in Financials sector.

Long Short Credit strategy:

This strategy was the largest contributor to the overall strategy this quarter. During the quarter, interest rates fell sharply as investors quickly priced in an aggressive start to the Fed easing cycle. Against this backdrop, risk assets performed well despite some intra-quarter volatility. After the Fed’s 50 basis points cut in mid-September however, investors took profits and interest rates quickly rebounded.

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, as evidenced by the surge in deals over this past quarter.

Arbitrage strategy:

The strategy also contributed positively in the quarter. It was another steady quarter for the arbitrage strategy. Our arbitrage strategy this year has come from avoiding excessive risk in an environment where risky arbitrage situations have largely not paid off. This was evident in the third quarter, as we observed the Albertsons-Kroger and Capri-Tapestry merger challenge trials largely from the sidelines.

The Special Purpose Acquisition Company (SPAC) new issue market continued to pick up, with 18 initial public offerings raising US$3.3 billion in the quarter. While it’s encouraging to see new SPACs coming to market, there has been a lack of successful de-SPAC business combinations, and as such, warrant values remain depressed. We feel the market’s appetite for new SPACs has largely been satisfied for now.

 

Performance as of September 30, 2024 (%) 1M (%) 3M (%) 6M (%) 1YR (%) 3YR (%) Since Inception* (%)
Picton Mahoney Fortified Alpha Alternative Fund (Class F) 0.95 2.95 5.73 11.45

7.33

(2022-05-03)

 

(*) refers to average annualized performance.

 

Disclosure

This material has been published by Picton Mahoney Asset Management (“PMAM”) on October 11, 2024. 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.

This material is confidential and is intended for use by accredited investors or permitted clients in Canada only. Any review, re-transmission, dissemination or other use of this information by persons or entities other than the intended recipient is prohibited.

© 2024 Picton Mahoney Asset Management. All rights reserved.

Related Content

This material has been published by Picton Mahoney Asset Management (“PMAM”) on October 22, 2024

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.

This material is confidential and is intended for use by accredited investors or permitted clients in Canada only. Any review, re-transmission, dissemination or other use of this information by persons or entities other than the intended recipient is prohibited.

© 2024 Picton Mahoney Asset Management. All rights reserved.