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Fixed Income Commentary: As at September 30, 2022

Source: Phil Mesman, CFA | Sam Acton, CFA
Publish Date: Oct 7, 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 Q3, the Picton Mahoney Fortified Income Fund Cl F returned -1.9% and the Picton Mahoney Fortified Income Alternative Fund Cl F returned -1.3% outperforming the blended benchmark composed of 75% ICE BofAML Global High Yield Index / 25% ICE BofAML Global Corporate Index (TR) (Hedged to CAD). Defensive positioning and portfolio hedging primarily drove the outperformance in the quarter.

During the third quarter, we saw the U.S. Federal Reserve (the Fed) re-enforce its hawkish stance in response to high inflation with a 75 bps rate hike in both July and September. This drove the market to unwind any hopes for a near term policy pivot leading to a significant intra-quarter selloff in risk assets. Government bonds yields rose significantly during the quarter with extreme volatility in the 10- and 30-year part of the curve especially in the UK and Europe.

We continue to observe some encouraging signs of inflation rolling over with commodities and inflation breakevens falling during the quarter and supply chains normalizing. There are also some leading indicators pointing to an eventual decline in wage growth and shelter cost inflation. Given the market volatility, slowing economic growth, and emerging signs of progress on the fight against inflation – we see the potential for the Fed to strike a more balanced tone during Q4. However, we also see a risk that the Fed would rather be a quarter too late instead of a quarter too early so we may need to see more conclusive evidence of inflation coming down before we get the shift in policy stance.

With yields on corporate bonds above March 2020 levels and trading at the highest level since 2009, we believe this is a compelling opportunity to buy high quality credit. However, given the economic and geopolitical uncertainty, we believe it is critical to maintain a hedged long/short approach as we navigate the fourth quarter.
Picton Mahoney Fixed Income Fund (Cl. F) and Picton Mahoney Fixed Income Alternative Fund (Cl. F) performance chart as of September 2022
This material has been published by Picton Mahoney Asset Management (“PMAM”) on October 7, 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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