As at June 30, 2025
Fixed Income Commentary
01/
Macro uncertainty remained elevated in Q2, driven by volatile trade policy, geopolitical tensions, and concerns over persistent fiscal deficits and bond supply.
02/
Portfolios were defensively positioned amid rich credit valuations and macro risks, with active profit-taking on hedges during the early-April selloff and selective rotation into lower-quality credit shorts that had rallied sharply off the lows.
03/
Our event-driven component of the portfolios was a solid contributor during the period, as we saw some idiosyncratic catalysts take place leading to positive performance.
Q2 2025 began with a roller coaster ride for investors as extreme tariff policies were enacted and then quickly reversed in early April. Throughout the rest of the quarter however, as the market began pricing in that peak trade policy uncertainty was likely behind us, risk assets pushed higher with equities and credit spreads posting impressive recovery rallies. There was also a significant flare up in geopolitical risk, as Israeli and U.S. strikes in Iran briefly pushed West Texas Intermediate oil futures up to US$78 after touching a low of US$55 per barrel earlier in the quarter. The other key development during the quarter was the announcement of Trump’s One Big Beautiful Bill, which reinforces our concerns about persistent fiscal deficits and oversupply of government bonds.
For both the U.S. Federal Reserve and the Bank of Canada, risks of lingering or resurgent inflation kept them on the sidelines during the quarter, both maintaining their policy rates at 4.5% and 2.75% respectively. We believe the central banks need to see more concrete evidence of a labour market slowdown before they feel comfortable cutting rates meaningfully.
Credit markets continued to see strong inflows, and despite a very strong June for corporate new issues, it still felt like credit investors had too much cash that needed to be put to work. This persistently strong technical 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 actively took profit on our hedges during the selloff in early April, and began covering some of our higher beta shorts and chipping away at watchlist longs. However, with the quick reversal and rally back, we’re using this as an opportunity 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 investors should consider strategies that emphasize stability and income, while maintaining flexibility to navigate through volatility. In our view, long-short credit strategies are particularly well-suited to this type of market environment—offering the ability to actively manage exposures and selectively hedge downside risks.
Our event-driven component of the portfolios was a solid contributor during the period, as we saw some idiosyncratic catalysts take place 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. Our shorts and hedges collectively detracted from absolute performance during the period but achieved their goal within the portfolios of dampening volatility and lowering market beta.
As of June 30, 2025 (%) | 1M | 3M | 6M | 1YR | 3YR* | 5YR* | Since Inception |
PICTON Income Fund (F) | 0.81 | 2.08 | 3.50 | 8.08 | 6.58 | 4.65 | 5.37 (Oct 29, 2015) |
PICTON Long Short Income Alternative Fund (F) | 0.60 | 1.36 | 2.86 | 6.71 | 6.32 | 5.03 | 4.94 (July 10, 2019) |
PICTON Credit Opportunities Alternative Fund (F) | 0.67 | 1.36 | 2.86 | 7.31 | 7.08 | — | 4.17 (July 13, 2021) |
This material has been published by Picton Mahoney Asset Management (“PMAM”) as at July 9, 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.
This material is confidential and is intended for use by accredited investors or permitted clients in Canada only. Any review, re-transmission, dissemination or other use of this information by persons or entities other than the intended recipient is prohibited.
© 2025 Picton Mahoney Asset Management. All rights reserved
