As at December 31, 2025
Alpha Strategy Commentary
01/
At a potential inflection point between stagflation and positive fiscal impulse, our Alpha strategy remains a core diversifier, helping achieve returns with limited path-dependency in markets.
02/
Returns from our factor implementation were negligible in 2025, as leadership and efficacy was more short-lived than historical experience would dictate. We therefore believe 2026 should offer some mean-reversion, where Factor Risk Premia can be more aligned with expectations and offer more positive contribution to performance.
03/
The core PICTON strategies are well-positioned as we move into 2026. Whether the improving dynamics of dispersion favoring our equity strategies, the rate and credit spread hedges in our long-short credit strategy, or the improved dynamics for merger arbitrage, we believe the managers of our component strategies are more constructive on their opportunity set and capabilities relative to 2025.
We remain steadfast in our view with respect to the importance of alternative diversifiers within a 40/30/30 (equities/bonds/alternatives) portfolio construction framework.
During Q4 2025, equities remained resilient into year-end, but the more important story was the regime shift taking shape: policy uncertainty, uneven disinflation, and divergent regional growth, with the U.S. showing clearer signs of cooling as the labour market softened and consumer resilience waned. With rates still higher-for-longer and credit looking expensive, we continue to prioritize diversification, quality, and inflation-resilience within a 40/30/30 framework. Against ongoing geopolitical risk and sticky inflation risk, we emphasize alternatives—particularly inflation-linked and uncorrelated “Diversifiers”—aiming to reduce reliance on the level and direction of traditional markets.
We continue to showcase the PICTON Multi-Strategy Alpha Alternative Fund’s ability to achieve returns which do not depend on the level of direction of traditional markets, acting as a “core diversifier” in portfolios built for uncertain times.
Whereas our most basic bias is to allocate the underlying strategies according to an equal contribution to risk, there remain opportunities to make incremental allocations based on these strategies contribution to portfolio Sharpe. This pays heed to the opportunity set each component manager or team sees and processes continue to tune to improving allocation opportunities to optimize the quality of return for the Alpha strategy.
Our “tail risk” hedging strategy remains at the low end of its potential allocation range. Despite the fact that complacency in traditional markets could offer cost-effective hedging, we believe the component strategies are adequately hedged in isolation and the potential for a large-scale “de-grossing” event in the marketplace is low enough to not warrant incremental premium being spent at the outset of 2026.
The PICTON Multi-Strategy Alpha Alternative Fund Class F (“the Fund”) produced a return of 0.99% in Q4 2025, delivering performance in line with expectations, with low realized volatility and steady return contribution through a turbulent quarter. While returns in 2025 reverted to longer-term expectations for the strategy, the comparative returns of the past two calendar years have demonstrated that the Fund is well-within its objectives.
Market Neutral Equity strategy was the largest contributor in the quarter. The strategy benefited from positive stock selection in Financials and Information Technology sectors, as did the overweight exposure to Financials and Materials. Markets absorbed significant policy and political shock without breaking. Resilience was real but uneven, AI-driven investment vs. deteriorating household affordability. Volatility fell despite elevated uncertainty. The economy has settled into a pronounced K-shaped structure. AI is a double-edged driver. Policy has turned accommodative despite inflation above target. We expect recovery to be driven by rotation - concentration eases and earnings growth broadening. Global conditions could be more supportive, potentially expanding opportunities beyond U.S. large caps. Bond markets will likely determine the recovery’s durability.
Arbitrage strategy continued to be a consistent positive contributor during the period, reinforcing its role as a stabilizer in volatile markets. Record levels of M&A activity broadened the merger arbitrage universe, supporting increased capital deployment across a growing number of transactions. SPAC performance moderated as speculative themes cooled, though elevated IPO activity provided ample reinvestment opportunities and supports longer-term return potential. Strong primary issuance expanded our investment universe, we continue to focus on high-coupon, high-delta issuances that aim to offer attractive carry and favorable convexity to the downside.
Allocation to the Long-Short Credit strategy was also a positive contributor in the quarter. Persistent and expanding fiscal deficits globally reinforced our caution on longer-duration assets and the potential for further yield curve steepening. While credit spreads remained stable amid strong inflows, rising AI-related issuance and expected supply growth in 2026 may warrant a more defensive stance. 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 strategy. 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 December 31, 2025 (%) | 1M | 3M | 6M | 1YR | 3YRS | Since Inception* |
PICTON Multi-Strategy Alpha Alternative Fund (F) | 0.30 | 0.99 | 2.89 | 5.58 | 7.98 | 7.19 (2022-05-03) |
(*) Annualized performance.
Source: Picton Mahoney Asset Management
This material has been published by PICTON Investments as at January 12, 2026. 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 PICTON Investments, nor does PICTON Investments 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 PICTON Investments as of the date they are made. PICTON Investments 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 be additional costs and expenses associated with the use of derivatives and short selling in a hedging strategy.
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