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Multi-Asset Strategies Commentary: As at March 31, 2023

Source: Michael White, CFA | Neil Simons
Publish Date: Apr 18, 2023
Read Time: 9 minutes
Picton Mahoney Fortified Multi-Asset Fund
Picton Mahoney Fortified Multi-Asset Fund Cl. F icon  Fund profile icon

The Picton Mahoney Fortified Multi-Asset Fund (F-class) returned 3.44% in the first quarter, while its blended benchmark returned 4.50%. Relative performance shortfalls were largely confined to January, where the Fund’s lower exposure to equity risk was an opportunity cost when compared to a traditional balanced construct.  Commensurately, portfolio hedges were also a drag on performance, as January’s “plucky” market backdrop drove small losses which held for the entire quarter in this sleeve of the portfolio.

Positive contribution was derived from government bond exposure, which was a tactically higher exposure than in recent quarterly periods. Elsewhere in fixed income, credit was a positive contributor in January as markets were generally “risk-on”, but we maintain an overall conservative positioning in credit as at quarter-end. Within the Fund’s dedicated commodity exposure (to garner inflation-linked returns), most commodities added value in the period, except for the energy basket as recession fears took some steam out of crude.  We are generally pleased with this broad commodity exposure vis a vis our portfolio construction imperatives to offer a more robust strategic asset allocation and point to precious metals as a unique diversifier and positive contributor in these uncertain times.
As always, we are pleased to wield an expanded toolkit in a prospectus-based mutual fund and despite some shortfalls in upside capture, we maintain the view that compounding simply works better when losses are more significantly mitigated.  Consistency of risk-adjusted return is a hallmark for this portfolio and this is borne out by our 3- and 5-year performance metrics.

Picton Mahoney Fortified Multi-Strategy Alternative Fund
Picton Mahoney Fortified Multi-Strategy Alternative Fund Cl. F icon Fund profile icon

Markets in Q1 of 2023 resembled those of the decade prior to the Covid pandemic with the outperformance of US large cap technology stocks. While the multi-strategy portfolio trailed traditional benchmarks with larger exposures to US large cap equities, we believe that sourcing returns from diversified strategies and asset classes will help investors over the long run. Global asset classes were mostly positive in Q1 with diversification benefits available across asset markets. Market participants continue to focus on central bank activity as their resolve to stamp out inflation is being countered by recession risks. A banking crisis within technology focused banks in the US and the orchestrated purchase of Credit Suisse by UBS caused some market stress in mid-March.
The largest contributors to positive performance in Q1 were the Strategic Asset Allocation and our Alpha strategies. Contributions from other portfolio components were relatively small.
Across our asset allocation model, Developed Market Equity, Government Bonds and Precious Metals were the largest positive contributors while Energy and Industrial Metals were negative contributors to portfolio returns. This diversification across asset class is indicative of a more normal market environment as compared to 2022. And is one reason for our forward looking decision to allocate more risk to the asset allocation layers of the portfolio.
Through Q1 2023, we increased exposure to our Tactical Asset Allocation model and Strategic Asset Allocation to bring exposure back to more normal levels. While the underweight and especially the targeted underweight exposure to the government bonds asset class helped through 2022, we believe normalization is appropriate given the return of diversification across asset classes. Our exposure to uncorrelated strategies has also been reduced to more normal levels after being overweight throughout 2022.
Given the normalization of exposure to our Strategic and Tactical Asset allocation as well as our economic cycle model which continues to point to a slowing growth environment, the largest exposure from a risk-adjusted perspective is exposure to Government bonds. We believe this exposure will payoff in the event of a recession and are also tactically hedging this exposure should the global economy reaccelerate.
We continue to believe that diversification across asset classes and strategies is likely the best long-term approach and is expected to be rewarded over longer time horizons.
We reduced our exposure to the uncorrelated active strategies we manage here at Picton Mahoney Asset Management, namely the Picton Mahoney Fortified Market Neutral Alternative Fund and the Picton Mahoney Fortified Income Alternative Fund. Diversification of styles and approaches over the long term can help reduce the impact of the poor performance within a specific style or asset class.
Due to the narrowly defined performance of large cap US indices, the portfolio underperformed the benchmark in Q1, 2023 a result that is acceptable given our focus on more diversified sources of return. As the current market environment continues to evolve, our approach to source returns both directional (asset classes) and non-directional (uncorrelated strategies) should result in improved portfolio construction imperatives such as risk diversification, lower correlation and quality of returns.


As discussed with previous commentaries, the ongoing environment of slowing economic growth and ongoing attention to global central bank activity accurately predicted a continuing difficult environment for most asset classes. As stated in the past, our belief that the bad news related to other macroeconomic events such as China’s ongoing shutdowns and the energy crisis in Europe might be close to being fully priced in and did result in the peak depressed sentiment levels for both investors and consumers. The moderation in inflation expectations and removal of China zero-Covid policies created some upside in asset markets. The focus has now shifted to the soft-landing vs. hard-landing debate. Potential outliers that could surprise markets would include a geopolitical event related to the war in Ukraine or a return to higher CPI prints.
Therefore, we continue our belief that the near-term environment is challenging and remain underweight in asset class exposure and continue to look further out for a “risk-on” stance.  The multi-asset strategies team continues to promote the benefits of our Fortified Portfolio Construction process as a means of aiming to deliver diversification benefits in portfolios.

Picton Mahoney Fortified Multi-Asset Fund Cl. F, Picton Mahoney Fortified Multi-Strategy Alternative Fund Cl. F, and blended benchmark performance table as at December2022
This material has been published by Picton Mahoney Asset Management (“PMAM”) on April 18, 2023.  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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