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Fixed Income Commentary: As at December 31, 2021

Source: Phil Mesman, CFA | Sam Acton, CFA
Publish Date: Jan 12, 2022
Read Time: 3 minutes
Picton Mahoney Fixed Income Fund Class F icon     Picton Mahoney Fortified Income Alternative Fund Class F icon     Fund profiles icon   

In Q4, the Picton Mahoney Fortified Income Fund (Class F) returned -0.04% and the Picton Mahoney Fortified Income Alternative Fund (Class F) returned -0.17% slightly outperforming the blended benchmark composed of 75% ICE BofAML Global High Yield Index / 25% ICE BofAML Global Corporate Index (TR) (Hedged to CAD). Interest rate and credit hedging, as well as defensive credit positioning was a key contributor to the outperformance in the quarter.
During the fourth quarter we saw the U.S. Federal Reserve (the Fed) make a dramatic hawkish shift in response to persistently high inflation as well as a rapidly tightening labour market. Despite this change in tone, as well as the emergence of the Omicron variant and surging COVID case counts globally, risk assets held in reasonably well during the quarter with equities at all-time highs and credit spreads at post-crisis lows.
We believe this creates an awkward setup for the Fed as they may need to be even more aggressive in 2022 to tighten financial conditions to combat the risk of higher inflation. With the Fed seemingly behind the curve on inflation, we see the potential for increased volatility across markets in 2022 as we enter a phase of policy normalization.
Given these potential headwinds and tight credit spreads, we have positioned the funds defensively with hedges in place to help protect against rate and credit volatility and with dry powder to take advantage if we see higher yields. That said, we continue to be active with new idea generation and have added several new special situation investments during the quarter. We see a trend of issuers focusing on improving their balance sheets via mergers and acquisitions, asset sales, and early refinancing’s and these are all potential sources of event-driven investments for our portfolios.

Picton Mahoney Fortified Income Fund (Cl.F) and Picton Mahoney Fortified Income Alternative Fund (Cl.F) performance table
This material has been published by Picton Mahoney Asset Management (“PMAM”) on January 12, 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.

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