Fortified Inflation Opportunities Alternative Fund Commentary: As at September 30, 2024

The Picton Mahoney Fortified Inflation Opportunities Alternative Fund Class F (“the Inflation Fund”) decreased by 2.33% in the third quarter of 2024.

The performance of the Inflation Fund continues to mirror inflation dynamics year to date in 2024.

Market participants were largely caught off guard by the hotter than expected inflation data in Q1 in the same way that inflation data generally cooled in Q2 and most of Q3. As a result, the Inflation Fund moved sideways in Q2 after strong performance in Q1 and subsequently rebounded at the very end of Q3. We are pleased with the performance of the fund thus far indicating the ability to preserve capital in the presence of cooling inflation data as well as provide upside capture when inflation dynamics turn positive.

Throughout 2024 we have maintained two key themes in our approach 1) we gain exposure to a diversity of inflation sensitive asset classes, and 2) we seek diversification within each of these inflation sensitive asset classes. Both themes ensure the portfolio is designed to properly capitalize on the emergence of an inflationary regime.

As the third quarter and the disinflationary trend progressed, the risk management process within the portfolio became increasingly oriented towards a deflationary stance with minimum portfolio exposure across most of the inflation sensitive assets in the portfolio.

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. The equity market sell-off created significant turmoil across financial markets with an additional cause being carry trade unwinds. These types of sell-offs are associated with deflationary shocks. A significant drop in breakeven inflation rates was observed during this event.

We believed that these events looked like a moderate deflationary capitulation event meaning that markets had overreacted in the pricing of the disinflationary process. And therefore, we decided to tactically increase the exposure to the duration-hedged inflation protected bond component of the portfolio as well as increase the exposure uniformly across all the components within the portfolio.

The U.S Federal Reserve began its rate cutting cycle with a 50 basis point cut in September, joined by the European Central Bank and the Bank of England, which both also lowered rates, signaling a broader shift towards more accommodative monetary policies. In addition, towards the end of September, Chinese policymakers announced a series of coordinated stimulus measures. These events caused a change in the inflation dynamics through the second half of September.

In the third quarter, the largest contributor to positive performance was Precious Metals followed by Soft Commodities. Soft Commodities were driven mostly by idiosyncratic weather events as opposed to an inflationary dynamic, although sometimes the former can incrementally cause changes in inflationary dynamics. Most of the portfolio gains for the third quarter were due to performance in September. The largest negative contribution through the third quarter was from the decline Energy prices. Other than Energy commodities, almost all of the other inflation sensitive asset classes within the portfolio provided positive contribution to returns in the month of September.

 

Performance as of September 30, 2024 (%) 1M (%) 3M (%) 6M (%) 1YR (%) Since Inception* (%)
Picton Mahoney Fortified Inflation Opportunities Alternative Fund (Cl. F) 2.50 2.33 2.23 6.74

6.08

(2023-05-04)

(*) 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.

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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.