Get to know Sam Acton

What’s your title, and what do you do at Picton Mahoney?

I am a Portfolio Manager on the Fixed Income team, so I’m responsible for the day-to-day, in-the-weeds management across our fixed income strategies, such as our long short credit strategy and event-driven credit strategy. I work closely with Phil Mesman on the high-level portfolio strategy, and also provide a second pair of eyes to support the credit analysis from our team of analysts.

How would you describe your approach to investing?

I started my career in investment banking, so initially my approach was very focused on fundamental analysis. Since I’ve been at Picton Mahoney for over 11 years, I’ve learned the technical side, the trading side, the more market-oriented aspect of investing, so now I bring a blend of both. I’m fully focused on the fundamentals, doing credit analysis, reading financial statements – that’s the foundation – then overlaying technical or market aspects, which have to do with how things might trade, or the mark to market, or the volatility of a security, which is very important for our style.

How would you describe the Picton Mahoney style of investing?

I’d say the Picton Mahoney style is about trying to deliver the most yield or return, without taking on too much risk. We view risk as a priority, a limiter, and we strive to stay within the bounds. Risk management and volatility management are first priority. After that, it’s about delivering additional alpha, which is like the icing on top. But risk is always at the core: any time we’re rebalancing the portfolio or thinking about adding a new name, I ask, what will it do to the risk profile?

Do you have a favourite investing quote?

There’s a quote attributed to Mark Twain that’s very applicable to investing: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

This idea always resonates with me when we’re looking at a new situation, analyzing the markets, or thinking about risk. As much as you can have high conviction on an investing thesis, you can never know anything 100%. It’s a good reminder to stay humble and embrace the fact that we don’t know everything for certain. There’s uncertainty and risk in everything.

What part of your job gives you the greatest satisfaction?

I really do enjoy the markets and competing against other fund managers out there. The investing aspect of the job is obviously crucial, but I also enjoy the client side: dealing with advisors and talking to them about investor portfolios. Plus, I like the entrepreneurship of working at a smaller firm and trying to build the business. We’ve seen some good growth in recent years, but I think we’re still in the early days, and there’s potential for much bigger things ahead at Picton Mahoney.

Growing up, was there something that sparked your interest in investing?

I was always naturally inclined toward math, science and economics courses – I just found those courses very easy, as opposed to things like English, where there wasn’t one right answer. That led to me getting a math degree and a business degree, and then going into finance. I guess you could say it was my inability to write essays that got me here.

What was your first job, and your first investment industry job?

My first job, while still in high school, was working as what they call a lot jockey at a General Motors dealership. I was basically moving around the inventory, making sure the cars were in the right spots. I had got my G2 Ontario driver’s licence at the absolute earliest opportunity, at 16 years and 8 months. It was a really fun summer job.

My first real finance job was at PricewaterhouseCoopers, working in the corporate finance group. It was basically small-cap investment banking. If the auditing group had a family business as a client, and they decided to sell the business, we’d step in and help them find a buyer. I worked with a great group of people, and it was really interesting to meet the business owners and hear their stories. It really gave me a taste for investment banking.

What’s one essential thing every portfolio manager should know?

It’s essential to know your investor, and know what role your fund is playing within their portfolio. It all comes back to risk profile. What’s a suitable investment for the portfolio? Does it align with the stated strategy? Sometimes, when things feel good in the markets, it’s easy to let additional risk creep in. That’s where I think discipline is crucial: stick to the role you’re supposed to play, and keep risk in line. Don’t drift.

What’s one key success factor for being a great fixed income portfolio manager?

Let me use a golf analogy. If I’m thinking about managing fixed income and I’m on the tee box, what I’m trying to do is avoid the big number. My goal is to avoid making a bogey or double bogey. I’m trying to just find the fairway, aim at the middle of the green, make my two-putt par.

Whereas I think it’s a different mentality on the equity side: it’s more about trying to make that birdie or that eagle, being more aggressive, and taking on more risk in search of higher returns. For me as a fixed income portfolio manager, I’m happy to hit an iron off the tee and play it safe.

In your view, what sets your Fixed Income team apart?

In my view, several things set us apart: our people, our size and our team dynamic. I think we’ve done a really good job of investing in the Fixed Income team, in terms of the number of people, and the quality and experience of those people. There are some fixed income funds that are five times the size of ours, yet they have fewer people managing the funds.

Plus, we’ve all worked together for a long time. If there’s a new deal some of us want to participate in, but others don’t think it’s a great risk/reward, we’re comfortable enough to have an open and candid discussion. It’s a safe space where you can speak your mind, and I think that’s unique. In other circumstances, the loudest personality just dominates things, but that’s not the case here.

What would you say is the greatest benefit institutional investing has brought to retail investing?

If you’re an institutional investor allocating to asset managers, you have to do a lot of in-depth due diligence around their process. That means scrubbing and checking everything – from the investing side to the compliance side to the operations side – to ensure you feel comfortable allocating money to those portfolio managers. Those are the standards expected within the institutional community. So I believe that retail investors can take great comfort in the fact that we’ve been through those in-depth due diligence processes, and we have institutional investors invested in some of the same funds alongside individual investors.

Market conditions have been challenging lately. How do you spot opportunities in such conditions?

We have a saying on our Fixed Income team: “Process over prediction.” We believe our strength is reacting to news, not predicting it. For instance, if there’s a merger and acquisition announcement, we are very quick to analyze the bonds and see if there’s an opportunity; that’s where we feel we can generate our alpha and add value to investor portfolios. Other firms out there tend to rely more on predicting things, like where are interest rates headed next quarter.

I think we have the humility and the discipline to say, we don’t know. We embrace the uncertainty and hedge across different scenarios. Ultimately, the thing that’s going to drive our strategy is our ability to identify those single-name opportunities. That’s our strength, our core competency, our value add – that focus on process over prediction. That’s ultimately how we set ourselves apart.

What would you say is the most-overlooked metric that advisors should heed?

In my view, it all comes down to risk/reward, and you can slice that a lot of different ways. For some, it’s the classic Sharpe ratio. For fixed income, maybe it’s yield versus duration, or yield versus historical maximum drawdown or realized volatility. There are lots of different metrics, but ultimately it’s about risk/reward, and how much risk people take to generate a certain return. We’re proud that we have a process and a strategy in place that’s designed to outperform on risk-adjusted metrics like these.

As a fixed income portfolio manager, what keeps you up at night?

People often ask me, what could go wrong with the portfolio? And to be honest, the answer is, not too much. We have a broadly diversified portfolio of low-volatility coupon clippers, plus idiosyncratic event-driven situations with catalysts to drive capital gains, as well as shorts and hedges to reduce market risk and dampen volatility. We have a really good track record of managing interest rate and credit risk, and I’m confident that our process will continue to deliver strong results.