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Picton Mahoney Fortified Multi-Asset Fund Monthly Positioning: As at October 31, 2021

Source: Michael White, CFA
Publish Date: Dec 1, 2021
Read Time: 6 minutes
Picton Mahoney Fortified Multi-Asset Fund Cl. F icon  Fund profile icon
Picton Mahoney Fortified Multi-Asset Fund  (the "Fund")

Overall equity weight up slightly month-over-month as we seek opportunities to add equity exposure on pullbacks.  In total, all equity strategies still below 60% net exposure; primary vehicle is the Picton Mahoney Fortified Equity Fund.  We will continue to optimize the 10% limit and utilize the Picton Mahoney Fortified Long Short Alternative Fund as a "beta dial" for equity exposure at the margin.  Over the past couple months, our Economic Cycle Model has moved decidedly toward “Phase 2” (decelerating economic growth), wherein equities remain favoured, but with greater dispersion in markets, more long-short opportunities may present themselves.   Having said that, the typical balanced fund, “tactical” or not, is generally loaded with bond proxies, so we believe style differentiation and respect for factor-driven returns in this cycle phase argue against being merely “defensive” within equities.

Fixed Income
Exposure to government bonds has crept up from lows of ~4% some 3-6 months ago when our Economic Cycle Model was in the early cycle phase, which would have argued for more economically-sensitive exposures at the time.  Economic cycle “Phase 2” argues for more bond exposure, notwithstanding relatively unattractive yields.  This exposure maintains diversification benefit.  Moreover, we maintain 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.  

Inline with the Economic Cycle Model transition noted above, commodities have been trimmed over the past few months.  Though a more modest exposure than early cycle (when commodities tend to offer their best Sharpe Ratios), our Multi-Asset framework still seeks exposure here, and is achieved largely via ETFs rather than futures (which we consider as more capital efficient).  Commodities, generally being sensitive to economic growth, offer a means of redistributing 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) 

Alpha Strategies
Merger Arbitrage and Market Neutral strategies primarily in use.  Target weights are relatively stable (and small), and we have been cognizant of outsized returns in this bucket some months ago.  Cryptocurrency (which some consider as “Gold 2.0”) remains a de minimus exposure, largely due to risk-weighting considerations.  Base hedges (in the form of VIX futures) are often enhanced with some VXX call spreads and index puts to deal with any gap-down risk associated with COVID resurgence / variants, including brief economic slowdowns due to potential supply-shortages in the foreseeable future, but overall, we remain constructive toward year-end.

Overall, we continue to highlight fund diversification benefits.  Fund performance remains well ahead of the Morningstar Tactical Balanced category average YTD, all while remaining underweight equities in a typical 60/40 construct.  As yields rose and levelled out, allocation to government bonds in G7 nations allocation is up almost 300bps from a few months ago…not a huge call on rates and their attractiveness in isolation, but we continue to view the Picton Mahoney Fortified Income Fund as a conservative proxy at large in the Fund’s positioning, rate hedge, or not…that’s why our fixed income allocation appears more aligned with traditional balanced constructs.  This is not a call on the relative attractiveness of the asset class, but rather, how the approach to garnering returns within each asset class is unique and suits our portfolio construction framework very nicely.

On positioning the Fund for investors, our belief is the diversified nature of the Picton Mahoney Fortified Multi-Asset Fund offers a modern 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 alt strategies, etc), or a one-ticket solution for smaller portfolios. 

An image of a table of the Picton Mahoney Multi-Asset Fund (F)  vs. the Morningstar Category: Tactical Balanced
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