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Absolute Alpha Commentary: As at March 31, 2023

Source: Neil Simons
Publish Date: Apr 18, 2023
Read Time: 3 minutes
     


The Picton Mahoney Absolute Alpha Fund Class F (“the Fund”) produced a return of -0.54% in the first quarter of 2023. While the returns for the fund were negative for the quarter, traditional stocks and bonds provided positive returns in Q1. The Fund continues 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 PMAM asset classes in Q1 2023.
 
The largest contributor to positive performance was the Market Neutral Equity 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. There are significant diversification benefits available to investors in the Fund relative to the individual component strategies.
 
We have previously noted that the macro environment is less important to the management of the Fund. 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. Despite the lack of tail events in 2022, we believe maintaining some exposure to tail risk hedging is worthwhile. These proved to be helpful through the banking crisis which emerged in mid-March. Over the entire quarter the tail risk hedging ended up flat, but through the month of March our tail risk hedging strategies did provide positive returns on days in which the market reacted negatively to the banking 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 return of more diversified behavior of the core strategies in the Fund relative to asset markets over these moderate time horizons. We believe sourcing returns from non-directional, uncorrelated strategies is the best long-term strategy for building the Absolute Alpha strategy. The Fund has an important context vis-à-vis portfolio construction imperatives such as risk diversification, lower correlation, and quality of returns.


Performance table for Picton Mahoney Absolute Alpha Fund (Cl.F)
This material has been published by Picton Mahoney Asset Management (“PMAM”) on April 18, 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.

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