As at September 30, 2025
Alpha Strategy Commentary
01/
As major equity indices continue to make new highs on narrow breadth and persistently rich valuations, the importance of uncorrelated returns in robust portfolio construction continues to make the case for our Alpha strategy.
02/
After a “choppy” first half in the year, returns from Factor Risk Premia began to gain traction in the quarter, driving greater confidence in expected returns from this sleeve and in target returns for the strategy overall.
03/
The PICTON Multi-Strategy Alpha Alternative Fund Class F returned 1.88% in Q3 2025. As a continued testament to diversification and the prudent use of leverage to achieve same, we note positive contribution across the component strategies.
The positioning outlook at the outset of the year remains intact; namely to place an emphasis on diversifying alternatives within a 40/30/30 (equities/bonds/alternatives) portfolio construction framework.
During the third quarter, equity markets continued to push higher given signs of recovery in economic growth. To the extent our economic cycle models picked up similar signals, we note that there are often “head fakes” in reaching exit velocity, especially with a stagflation narrative continuing to persist. Benchmark bond yields (i.e. U.S. 10-Year Treasury) were largely on a downward trajectory in the period, affirming the stagnant growth narrative as investors focus on challenging dynamics in the U.S. labour market. Ongoing geopolitical uncertainty remains an overhang and we continue to highlight the need for flexible strategies, including those less-dependent on the level and direction of traditional markets.
The PICTON Multi-Strategy Alpha Alternative Fund aims to offer investors the opportunity to garner returns that are independent from traditional asset markets and thus remains a compelling “core diversifier” in a robust and resilient portfolio.
We continue to bias component strategy weightings toward a strategic allocation of an equal contribution to risk within the Fund, and in keeping with this, believe that each of the Market Neutral Equity, Long-Short Credit, and Arbitrage strategies all offer attractive risk/reward dynamics, commensurate with their historical return and risk profiles.
Diversification remains an imperative, as alpha sources (while intended to be absolute return in character) do go through periods of out- and underperformance, relative to expectations.
As was the case in our Q2 update, hedging in our Alpha strategy remains a constant allocation to market “tail risk”. While the component strategies have remained resilient to brief and contained episodes of market volatility, it is the larger-scale deleveraging events in the marketplace which would prompt us to increase the risk budget to tail risk hedging strategies.
We continue to highlight the behavioural characteristics of the Alpha strategy as a “core diversifier” in a well-constructed portfolio and thus believe it could be a foundational allocation in a dedicated alternatives allocation.
The PICTON Multi-Strategy Alpha Alternative Fund Class F (“the Fund”) produced a return of 1.88% in Q3 2025, delivering performance in line with expectations, with low realized volatility and steady return contribution through a turbulent quarter.
Market Neutral Equity strategy was the largest contributor in the quarter. The strategy benefited from positive stock selection in Financials and Energy sectors, as did the overweight exposure to Financials and Industrials. Equity markets posted strong gains over the quarter, though leadership remained narrow. The rally was driven largely by the global artificial intelligence (AI) theme and a sharp surge in Canada’s gold sector. As the quarter progressed, market momentum rotated toward more speculative factors, fueled by growing expectations of U.S. Federal Reserve rate cuts. This backdrop favored higher-beta, more volatile names, which we selectively avoided in keeping with our disciplined investment approach. We continue to emphasize quality and positive change in our long positions while actively managing exposures through both fundamental short positions and tactical hedges—particularly as market drivers become increasingly sentiment-driven.
Arbitrage strategy continued to be a consistent positive contributor during the period, reinforcing its role as a stabilizer in volatile markets. Special Purpose Acquisition Company (SPAC) arbitrage continued to generate strong arbitrage returns. Business combination activity continued to accelerate in the quarter, with 24 new de-SPAC transactions announced. The merger arbitrage strategy was also solidly profitable in the quarter. The initial thesis of Trump being much more open to merger and acquisitions (M&A) than the previous administration, while delayed by the tariff policy in Q2, is now proving correct. While we are pleased to see robust M&A activity, it is important to note that these large deals have not closed and are still subject to regulatory reviews. Commensurate with lower perceived deal risk, we have seen a narrowing of arbitrage spreads over the last couple of quarters
Long-Short Credit strategy was tied with Market Neutral Equity strategy as another largest contributor in the quarter. The event-driven component of the portfolios was a solid contributor during the period, as we saw some idiosyncratic catalysts unfold, leading to positive performance. Our allocation to various capital structure opportunities such as limited recourse capital notes (LRCNs), hybrid securities, and synthetic risk transfers (SRTs) collectively performed well during the period and provided stability to the portfolios. While our shorts and hedges collectively detracted from absolute performance during the period, they achieved their intended role of dampening volatility and lowering market beta.
As of September 30, 2025 (%) | 1M | 3M | 6M | 1YR | 3YRS | Since Inception* |
PICTON Multi-Strategy Alpha Alternative Fund (F) | 1.13 | 1.88 | 3.54 | 7.65 | 8.15 | 7.43 (2022-05-03) |
(*) Annualized performance.
Source: Picton Mahoney Asset Management
Disclosure
This material has been published by Picton Mahoney Asset Management (“PMAM”) as at October 15, 2025. 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 information is not intended to provide financial, investment, tax, legal or accounting advice specific to any person, and should not be relied upon in that regard. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.
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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