
Picton Mahoney Fortified Multi-Asset Fund (the "Fund") Portfolio Allocation

Equities
With markets increasingly pricing in odds of recession as a result of potential over-application of higher policy interest rates, equities will likely continue to feel the brunt. The Fund’s net equity exposure remained conservative, relative to history, helping the Fund outperform its custom benchmark and a traditional 60/40 benchmark (i.e. 60% MSCI World Index and 40% ICE BofA Global Broad Market Index Hedged to CAD). During the month of June, our economic cycle model continued to deteriorate. While we believe that the second half of 2022 will see central banks effectively “back off” from their hawkish tone, we will not attempt to pre-empt such an occurrence, preferring to see evidence of improving economic and market conditions before allocating further to equity exposure.
Fixed Income
A notable shift in rates occurred in the month. After peaking mid-June with a crescendo in the inflation narrative, bond market participants seemed to grow more concerned with potential recession and rates subsequently backed off, quite hard. With a bias toward hedging the risk of higher interest rates, our primary fixed income allocation (the Picton Mahoney Fortified Income Fund) suffered losses in the month. Despite a conservative approach to credit, the combination of wider credit spreads and lower rates to end the month saw a detraction, but we note it was well within the experience of traditional “long-only” credit allocations. We remain comfortable with positioning in fixed income, both active (credit) and passive (government bond) allocations.
Commodities
Commodities did not escape the “recession” impulse in markets during the month, with industrial metals subject to somewhat aggressive profit-taking. As the inflation narrative gives way to recession fears, we are biased toward more fundamentally-driven commodity stories (i.e., within grains, energy, and copper) over broad asset class exposures. We continue to believe commodity allocations are important diversifiers in multi-asset portfolios, not only as a means of garnering exposure to inflation impulses in the marketplace, but as a means of redistributing equity risk with other growth-sensitive assets.
Alpha Strategies
In the month of June, exposure to the Picton Mahoney Fortified Market Neutral Alternative Fund translated to a negligible detraction from performance. That said, the position helps “dial down” the equity beta of the overall portfolio until either or both of: 1) a resolution to the conflict in Ukraine, or 2) further signs of re-accelerating economic growth, provide a better risk/return prospect for equity risk.
Other
With ongoing elevated volatility, our CBOE Volatility Index (VIX) futures position proved a cost in the month as ongoing or new hedges became relatively more costly. This hedging is expected to insulate the portfolio when volatility “spikes”, but the ongoing “grind” of volatility may potentially prove a precursor to better risk/reward opportunities within the broader portfolio.
Though our economic cycle model has seen increasing odds of recession, we believe central bank policymakers will eventually cede their hawkish stance given a likely combination of inflation readings easing and further weakness in broader economic data. While the war in Ukraine seems to have died down in the headlines, we continue to pay close attention to the fundamentals within certain commodity categories like energy and grains. Beyond that, the potential for a “pause” in the hiking of interest rates could likely provide for a better return environment for broader risk assets in the back half of the year.
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 in a solution focused on core diversification.
