01/
Central banks began easing after months on hold, as weaker labour data in Canada and the U.S. gave room for initial rate cuts, sparking a broad risk rally.
02/
Strong inflows and a robust new issue market kept credit spreads near their tightest levels of the year, reflecting investors’ ongoing search for yield.
03/
We maintained a cautious stance - reloading hedges and tilting toward lower quality shorts, while focusing on shorter duration and active risk management.
Q3 2025 produced strong returns across most asset classes as a decline in policy uncertainty from the Q2 extremes, combined with a dovish tilt by central banks, fueled investor optimism. Deteriorating labour market data in Canada and the U.S. provided the Bank of Canada and the U.S. Federal Reserve with enough evidence to proceed with the first rate cut in six and nine months respectively. With inflation remaining above target, dovish central banks, and persistent fiscal deficits, we continue to be cautious on longer duration assets as we see potential for further yield curve steepening.
Credit markets continued to see strong inflows, and despite a strong quarter for corporate new issues, it still appeared that credit investors had excessive cash waiting to be put to work. This persistently strong technical pressure led to credit spreads in both investment grade and high yield markets pushing back toward their Q1 tights.
Our portfolios were defensively positioned throughout the quarter, given expensive valuations in credit and mounting macro uncertainty. We took advantage of the sharp rally in credit markets to reload hedges and rotate our shorts back into lower quality credits that have bounced hard off the lows.
As we look ahead, we remain focused on shorter-duration positioning, given the uncertain path for interest rates, especially in long-dated government bonds. We believe the current environment highlights the potential benefits of strategies designed to emphasize stability and income, while maintaining flexibility to navigate volatility. In our view, long-short credit strategies may be well-suited to this type of market environment, and could provide the ability to actively manage exposures and hedge against potential downside risks.
Our strategies outperformed the benchmark during the quarter driven by the event-driven component of the portfolios, 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 | YTD | 1YR | 3YR* | 5YR* | Since Inception |
PICTON Income Fund (F) | 0.70 | 2.32 | 4.45 | 5.90 | 7.33 | 7.48 | 4.46 | 5.47 (Oct 29, 2015) |
PICTON Long Short Income Alternative Fund (F) | 0.65 | 2.17 | 3.56 | 5.09 | 6.64 | 6.75 | 4.69 | 5.10 (July 10, 2019) |
PICTON Credit Opportunities Alternative Fund (F) | 0.86 | 2.73 | 4.12 | 5.67 | 7.42 | 7.32 | — | 4.58 (July 13, 2021) |
This material has been published by Picton Mahoney Asset Management (“PMAM”) as at October 10, 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.
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