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Picton Mahoney Fortified Multi-Asset Fund Monthly Positioning: As at January 31, 2022

Source: Michael White, CFA
Publish Date: Feb 23, 2022
Read Time: 6 minutes
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Picton Mahoney Fortified Multi-Asset Fund  (the "Fund")

Upside risk to interest rates had ripple effects in equities, namely long-duration tech valuations proved vulnerable. Though our net (long minus short) equity exposure has been below the 60% reference point in most traditional multi-asset models, we will fine-tune any style risk by adjusting beta commensurately.  As at January month-end, the movement is negligible, but we are currently adjusting equity beta downward via rotation from the Picton Mahoney Fortified Long Short Alternative Fund into the Picton Mahoney Fortified Market Neutral Alternative Fund.  We have noted that movement between these strategies is a useful "beta dial" for equity exposure at the margin and can reverse course with evidence of re-accelerating economic growth and that valuation risk in broad equities is generally exhausted on a tactical basis.  With ample tools at our disposal and an over-arching focus on diversification, we continue to believe the fund demonstrates ample upside capture, despite the relatively “underweight” exposure to equities.

Fixed Income
Fixed Income positioning has been very stable month-over-month.  Despite the upside to government bond yields, the Fund has remained well-insulated as the majority of exposure in the asset class is via the Picton Mahoney Fortified Income Fund.  We continue to highlight this position as a more conservative / defensible allocation within fixed income, given not only the toolset to hedge interest rates, credit risk and liquidity risk, but our fixed income team’s assertive means of utilizing it.   

In our portfolio construction framework, we view commodities (as an asset class) as a means to diversify a portfolio.  The role which specific commodities play in a portfolio can vary, but those which are sensitive to economic growth (i.e. energy, industrial metals) can be a viable means to redistribute equity risk.  In the context of the inflation impulse which has been “spooking” interest rates, the majority of our dedicated exposure has been a relative bright spot and a differentiator against the traditional application of only stocks and bonds in a multi-asset portfolio.  We do expect that reported inflation will “come off the boil” in the near-term, but inflation expectations seem to be entrenching themselves.  Hence, this exposure continues to remain a diversifier in an uncertain near-term environment.

Alpha Strategies
Exposure to Merger Arbitrage and Market Neutral strategies continue to offer diversification benefit to the Fund, given return streams focus on manager skill and are largely independent of the directional risk in traditional asset markets. As noted above in the equity commentary, we are utilizing the Market Neutral strategy to “dial down” the equity beta until further signs of re-accelerating economic growth provide a better risk/return prospect for equity risk.  We continue to maximize the 10% limit on alternative mutual funds within the portfolio.

Risk hedges (in the form of VIX futures) as a small, but dedicated allocation in the portfolio continues to make sense as we believe near-term policy concerns (withdrawing monetary stimulus – when and how fast), coupled with newfound geopolitical risk, are likely to be a near-term headwind.

Our house view maintains that headwinds will prevail in the first half of the year as a combination of slowing economic growth conflicts with interest rates significantly higher than when the growth slowdown began.  A “risk off” tone seems persistent, but at some point, fundamentals and broad investor positioning (i.e. capitulation) can present an ample risk/reward opportunity.  With this in mind, and until we “get there”, we do not believe this environment begs heroic asset allocation calls, but rather a keen focus on diversification and a sensibility for hedging and exploiting tactical opportunities incrementally.

On positioning the Fund for investors, our belief is that the diversified nature of the Picton Mahoney Fortified Multi-Asset Fund offers a more enhanced diversification in a core holding that is the natural evolution of a “balanced fund”.  Whether as an introductory vehicle to a diversified strategy with alternative tools and sensibility, a stable portfolio base from which to add satellite positions (individual securities, other alternative strategies, etc), or a one-ticket solution for smaller portfolios, we remain steadfast in our objective to deliver consistent risk-adjusted return.

This material has been published by Picton Mahoney Asset Management (“PMAM”) on February 23, 2022. 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.

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