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Picton Mahoney Fortified Income Alternative Fund

Philip Mesman, CFA
Head, Fixed Income
Picton Mahoney Asset Management

Tell us about the Picton Mahoney Fortified Income Alternative Fund and ETF class.

Our fund aims to provide investors income with less risk, which rolls into our higher-level mission of helping investors achieve their goals with greater certainty at the firm.  The strategy invests in corporate bonds and we buy those bonds for income and capital gain, but we don’t stop there.  We also employ hedging tools, going long and short, and other strategies to mitigate the risks that we see in fixed income.

Where might this fund fit in an investor’s portfolio?

Stepping back, in organizing fixed income, a classic way to divide fixed income is between core and plus investments.  Core investments would include your government bonds and investment-grade bonds, and plus gets into high yield.  We’re in the middle.  We look at triple-B to single-B, in developed markets only, and look to get investors a coupon-like return but mitigate the risks that we see within fixed income.

How do you manage the fund?

The way I organize the fund is we have three buckets wrapped in portfolio hedges.  To be more specific, we have one bucket that I call patient capital, and that is coupon clipping and stable bonds issued by corporations that have a low turnover and low volatility. That’s the anchor of any good income portfolio.  The second bucket is what I call yield with upside, and that’s event-driven credit investing. It’s looking for situations with an attractive yield, but more importantly have the potential to make more capital gains.  The third bucket is single-name shorting, and that’s looking for bonds where we think the corporation might be in trouble or might have some challenges and we believe the bonds could go lower in price. We’ll short those bonds.  And then, wrapping all of that in hedges to help mitigate the risks we see in fixed income, which are interest rate risk, credit risk, and liquidity risk.

Why consider the fund, why now?

Investors should consider our fund for a few reasons.  We’ve been investing in the income space for a long time and we’re delighted and excited to be able to offer our strategy in an alternative format with an ETF class to make it easier for investors to buy.  

Today, you’re looking at an environment where I believe investors need to think differently about income investing.  Interest rates have gone down for over a decade.  If you bought any bond and the company or country didn’t go bankrupt, you made a lot of money.  Now we’re in an environment of low interest rates, and there’s going to be a normalization of interest rates and investors will want more tools during that period.


This material is published by Picton Mahoney Asset Management (PMAM) on July 16, 2019. 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 video 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.  Any review, re-transmission, dissemination or other use of this information by persons or entities other than the intended recipient is prohibited.
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 a loss.  There may additional costs and expenses associated with the use of derivatives and short selling in a hedging strategy.
Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. 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.