The Picton Mahoney Absolute Alpha Fund Class F (“the Absolute Alpha Fund”) produced a return of 1.73% in the second quarter of 2023.
The Picton Mahoney Fortified Alpha Alternative Fund Class F (“the Fortified Alpha Fund”) produced a return of 1.26% in the second quarter of 2023.
The Funds continue to provide returns independent of market direction; our analysis of daily portfolio returns over the most recent time frame indicates a very small beta footprint in terms of exposure to traditional asset classes such as stocks and bonds as measured with respect to our PMAM asset classes in Q2 2023.
The largest contributor to positive performance was the Special Situations strategy.
Portfolio risk as measured by standard deviation of daily returns was relatively constant through the quarter and remains at the lower end of our anticipated long-term range. While over shorter time horizons, the portfolios are exhibiting risk levels at the lower end of our anticipated long-term range, we are weighing the benefits of increasing leverage to source additional returns (and therefore increased portfolio risk) with the shorter term costs of financing leverage.
In the current environment investors receive significant diversification benefits in the two Alpha Funds relative to the individual component strategies.
We have previously noted that the macro environment is less important to the management of the Alpha Funds. However, as we have highlighted in the past, it is important to have diversification as a key component of a portfolio construction methodology along with tail risk hedging tools to mitigate against unforeseen events. The Regional Bank events of Q1 did not result in further financial market stress in Q2 and we continue to maintain a small risk budget to our tail risk hedging strategies. We did increase the hedge budget in Absolute Alpha Fund to our external tail risk manager at the end of Q2 to bring the allocation back to model weight.
The Picton Mahoney Absolute Alpha Fund is now more than two years old and the Picton Mahoney Fortified Alpha Alternative Fund has more than a one year track record. Both of these funds are beginning to accrue the portfolio construction benefits relative to the underlying components. The low correlation and positive returns achieved from the underlying components will continue to benefit the Alpha Funds as time evolves.
Overall, we are pleased with the return of more diversified behavior of the core strategies in the Alpha Funds. We believe sourcing returns from non-directional, uncorrelated strategies is the best long-term strategy for building the Absolute Alpha strategy. The Funds have 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 20, 2023. 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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