Fund Performance
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Key Takeaways
01/
Policy Uncertainty Drives Recession Fears
Market sentiment deteriorated in Q1 2025 amid rising trade tensions and spending cuts under the Trump administration, leading to increased recession pricing despite limited confirmation in economic data.
02/
Credit Markets at a Crossroads
Wider spreads and strong carry create selective opportunities, particularly in higher quality credit (BB/BBB), though caution is warranted given the potential for further volatility.
03/
Active Hedging Added Value
Defensive positioning and event-driven alpha helped offset market volatility, while shorts and CDS hedges, though detracting from absolute returns, reduced portfolio beta and improved risk-adjusted outcomes.
Manager Perspective & Outlook
Q1 2025 saw a dramatic shift in market narratives as investors were forced to grapple with new uncertainties brought about by the Trump administration. It started off as concerns around a rapid slowdown in government spending through the newly formed Department of Government Efficiency (DOGE), but the market’s focus shifted toward trade policy as it became clear that tariffs were going to be implemented on a large scale. As the quarter progressed, we saw more evidence in survey and sentiment data that this policy uncertainty was starting to have an impact on consumer and business decision making. While investors may need to wait a few months before this shows up in the official economic data, the market rapidly began pricing in a higher probability of recession.
Interest rates declined during the quarter, but not as much as would otherwise be warranted given the equity volatility and rising risk of recession. We believe that lingering inflation as well as persistent fiscal deficits are both headwinds for duration in the current environment. This potentially stagflationary environment could make it difficult for central banks to play their traditional role of cutting rates in response to market turmoil. Indeed, while U.S. 10-year yields initially fell 35 basis points during the early March selloff, they quickly reversed course—ending the quarter 70 basis points higher—highlighting how fragile the rate environment has become.
Credit spreads moved wider, although the decline in interest rates helped offset the move and effectively dampened the volatility on a price basis. Given the extremely tight levels we started the quarter at, and signs of complacency that we observed within the credit market in Q4 2024, we see the potential for spreads to widen further. That being said, we do see the potential for higher quality credit (BB and BBB) to remain fairly resilient on a spread basis given the still attractive all-in yield. This has been a tailwind for credit spreads over recent years, and given the strong cushion for investors created by the high level carry, we do see any significant further widening in credit as a potential buying opportunity.
Porfolio Positioning
Our portfolios were defensively positioned throughout the quarter, given expensive valuations in credit and mounting macro uncertainty. We added to our credit hedges and short exposures during the late-March spread rally, and subsequently took profits and rotated hedges as volatility resumed in early April. While still cautious overall, we do see tremendous value in higher quality credit at wider spreads and we plan to take advantage of market dislocations and put capital to work with high conviction at more attractive valuation levels. We have already raised the yield of our long-short portfolios by over 100 basis points through the repositioning in early April, enhancing the cushion available in the event of further spread volatility.
As we look ahead, we remain focused on shorter-duration positioning, given the uncertain path for central bank policy and the limited margin of safety in long-dated government bonds. We believe investors should consider strategies that emphasize stability and income, while maintaining flexibility to navigate through volatility. In our view, long-short credit approaches are particularly well-suited to this type of market environment—offering the ability to actively manage exposures and selectively hedge downside risks.
Performance Highlights
Our event-driven component of the portfolios was a notable contributor during the period, as we saw some idiosyncratic catalysts take place leading to positive performance. Our allocation to various capital structure opportunities such as limited recourse capital notes (LRCNs), hybrid securities, and synthetic risk transfers (SRTs) collectively performed well during the period driving alpha to the portfolios. Our shorts and credit default swaps collectively detracted from absolute performance during the period but achieved their goal of within the portfolios of hedging risks and lowering market beta.
| As of March 31, 2025 (%) | 1M (%) | 3M (%) | 6M (%) | 1YR (%) | 3YR (%)* | 5YR (%)* | Since Inception |
| Picton Mahoney Fortified Income Fund Cl. F | 0.03 | 1.38 | 2.76 | 7.96 | 4.23 | 5.08 | 5.28 (Oct 29, 2015) |
| Picton Mahoney Fortified Income Alternative Fund Cl. F | 0.32 | 1.48 | 2.98 | 7.23 | 4.54 | 5.96 | 4.92 (July 10, 2019) |
| Picton Mahoney Fortified Special Situations Alternative Fund Cl. F | 0.25 | 1.49 | 3.17 | 7.91 | 5.46 | — | 4.08 (July 13, 2021) |
This material has been published by Picton Mahoney Asset Management (“PMAM”) as at April 10, 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.
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