Skip to main content

Absolute Alpha Commentary: As at June 30, 2021

Source: Neil Simons
Publish Date: Jul 30, 2021
Read Time: 4 minutes
     

In Q2 2021, the Picton Mahoney Absolute Alpha Fund (“the Fund”) was successful in providing positive returns independent of markets. Our analysis indicated daily portfolio returns contained no statistically significant beta exposures to any of the PMAM asset classes. The Market Neutral strategy was the largest contributor to positive portfolio returns. Portfolio risk as measured in terms of standard deviation of daily returns remained at the lower end of our expected range.

Part of the reason for this low level of observed portfolio volatility was the large degree of diversification observed across portfolio elements. We observed a strong negative correlation between both the Market Neutral strategy and the Arbitrage strategy relative to the Special Situations strategy. For this reason, from a risk perspective, we continue to favor a slight overweight allocation to the Special Situations strategy relative to the other two active strategies within the portfolio. Over more extended time horizons we expect these negative correlations to dissipate and revert to values closer to zero among portfolio strategies, we do not rely upon or expect to see negative correlations.

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. To that end, the largest macro events of Q2 were related to bond yields and the U.S. Federal Reserve.

After their dramatic rise in Q1, longer term bond yields fell through Q2 which offered a rebound in longer duration equities relative to the more cyclical equity markets and sectors. The reflation theme continued for the first part of the quarter and then suffered a bit of a setback with mixed returns across many asset classes during the last part of Q2. The most notable event towards the end of the quarter was the confused market reaction in the aftermath of the June Federal Open Market Committee meeting along with the release of an updated “dot plot”. Markets are attempting to process the impact of transitory inflation, supply chain bottle necks and what a post peak growth, post peak stimulus economy might look like.

Given the uncertain outlook, diversification will continue to be the most prudent approach and a tool we will 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.

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.

® Registered trade-marks of Picton Mahoney Asset Management.
© 2021 Picton Mahoney Asset Management.