The Picton Mahoney Absolute Alpha Fund (“the Fund”) ended Q4 2021 approximately where it began in the quarter. The Fund continues to provide returns independent of market direction; our analysis of daily portfolio returns indicates no statistically significant beta exposures to any of the PMAM asset classes.
The largest contributor to positive performance in Q4 was the Market Neutral strategy followed by PMAM proprietary Factor Risk Premia. The Special Situations strategy was the largest detractor from performance. The internal tail risk strategy provided positive contributions to portfolio returns on many of the volatile days observed in the quarter. However, overall, the tail risk strategies detracted from performance in Q4 due to the compression of implied volatility, an ongoing theme of 2021.
Portfolio risk as measured by standard deviation of daily returns has slowly increased in the quarter and remains at the lower end of our anticipated long-term range. We continue to see diversification across the core strategies which tends to suppress portfolio level volatility. The modest increase in fund volatility is due to an increase in strategy volatility.
On the surface, the macro environment is less important to the management of the Fund, however, we do make use of our macro-economic framework to guide both risk management and return seeking behavior at the portfolio level as well as within the underlying strategies. For example, the ongoing environment of slowing economic growth and increased attention to global central bank activity tends to suggest a higher level of tail risk hedging is appropriate.
The most notable macroeconomic event in Q4 was the emergence of the Omicron variant and the associated uncertainty around economic activity. Energy commodity markets were hardest hit, disrupting an ongoing bull market. For the most part, equity markets as dominated by large cap US growth names were strong in Q4 with a notable drawdown associated with the Omicron news.
Given our current outlook, diversification will continue to be the most valuable tool we utilize in our portfolio management process.
Overall, we are pleased with the behavior of the Fund and the characteristics of sourcing returns from non-directional, uncorrelated strategies. The Fund has an important context vis-à-vis portfolio construction imperatives such as risk diversification, lower correlation, and quality of returns.
This material has been published by Picton Mahoney Asset Management (“PMAM”) on July 30, 2021. 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 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.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.
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.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.
The offering of units of the Picton Mahoney Authentic Hedge® funds are made pursuant to an Offering Memorandum only to those investors in jurisdictions of Canada who meet certain eligibility or minimum purchase requirements. Prospective investors should consult with their investment advisor to determine suitability of investment.The offering of units of the Picton Mahoney Authentic Hedge® funds are made pursuant to an Offering Memorandum only to those investors in jurisdictions of Canada who meet certain eligibility or minimum purchase requirements. Prospective investors should consult with their investment advisor to determine suitability of investment.
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