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Picton Mahoney Fortified Multi-Asset Fund Monthly Positioning: As at November 30, 2021

Source: Michael White, CFA
Publish Date: Dec 17, 2021
Read Time: 6 minutes
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Picton Mahoney Fortified Multi-Asset Fund  (the "Fund")

As was the case in the prior month, equity weight up slightly month-over-month as we opportunistically utilize pullbacks to add exposure. We continue to optimize the 10% on Alternative Funds and utilize the Picton Mahoney Fortified Long Short Alternative Fund as a "beta dial" for equity exposure at the margin.  Net exposure remains below the 60% traditional “balanced” benchmark, as the Fund holds maintains other exposures to garner returns with less reliance on the direction of equity markets.  While our Economic Cycle Model has been in “Phase 2” (decelerating economic growth), for some time, history would suggest the mid-cycle slowdowns are common and we note that probabilities of “Phase 1” (accelerating economic growth) are rising, yet still not material enough to dictate a major asset allocation shift toward early-cycle assets (such as commodities).  Overall, equities (hedged as they are) remain favoured on the balance of probabilities and our bias is to continue to add on pullbacks.

Fixed Income
Exposure to government bonds is up slightly from the prior month, mostly due to passive performance.  As noted above, our Economic Cycle Model probabilities still weigh heavily to “Phase 2”, arguing for dedicated bond exposure, notwithstanding relatively unattractive yields.  This exposure maintains diversification benefit, but we continue to lean on a core allocation to the Picton Mahoney Fortified Income Fund as a more conservative / defensible allocation within the asset class, given its focus on hedging rates, credit risk and liquidity risk.   

Despite the fact that our Economic Cycle Model is picking up some probability of a re-acceleration in economic growth, which should favour commodities, we will await more decisive evidence (higher probability weight) to increase exposure to the asset class.  Moreover, our equity strategies have the potential to benefit from pro-cyclical themes as well.  Commodities, generally being sensitive to economic growth, offer a way to redistribute equity risk / diversifying, but also add direct exposure to inflation impulses in the marketplace (i.e. benefitting from inflation, rather than simply “hedging” it, as one is wont to do in the fixed income domain).  With this in mind, though the inflation narrative is working through the marketplace, reported inflation could ease in the near-term based on year-over-year comparable figures and that “pause” could present the opportunity to re-express the inflation trade in conjunction with further evidence of accelerating economic growth.

Alpha Strategies
Merger and Market Neutral strategies primarily in use with no material change in use of late.  Target weights are relatively stable (and small), and we have been cognizant of outsized returns in this bucket some months ago.  That said, and as noted above, our alpha strategies offer the portfolio the opportunity to garner returns (and diversify risk) in a manner that does not depend on the direction of risk markets.  These strategies remain diversifiers, but relatively small allocations are in the context of the 10% limit on alternative funds noted above.

Risk hedges (in the form of VIX futures) continue to be a small, but dedicated allocation in the portfolio, in an effort to buffer any gap-down risk associated with COVID resurgence or variants, including brief economic slowdowns due to potential supply-shortages in the foreseeable future, but overall, we remain somewhat constructive into year-end. 

Overall, we continue to highlight fund diversification benefits.  Fund performance remains well ahead of the Morningstar Tactical Balanced category average year to date, all while remaining underweight equities in a typical 60/40 construct.  We are poised to execute on tactical opportunities in the context of changes to our Economic Cycle Model discussed above, but believe there is sufficient diversification benefit being achieved both within and across the assets and strategies utilized in the portfolio, that wholesale allocation shifts are unlikely in the near-term. 

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 December 17, 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.

Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Alternative mutual funds can only be purchased through a registered dealer and are available only in those jurisdictions where they may be lawfully offered for sale.

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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