01/
Persistent and expanding fiscal deficits globally reinforced our caution on longer-duration assets and the potential for further yield curve steepening.
02/
While credit spreads remained stable amid strong inflows, rising AI-related issuance and expected supply growth in 2026 may warrant a more defensive stance.
03/
Portfolios remained defensively positioned, with added hedges and higher-beta shorts aimed at dampening volatility and protecting against downside risks.
Q4 2025 provided steady returns across equities and credit as earnings growth remained solid and the U.S. Federal Reserve and the Bank of Canada delivered more rate cuts. The global trend of rising fiscal deficits continued with Canada announcing an expansionary budget plan. We believe that fixed income markets are underestimating the risks associated with the large and persistent fiscal deficits globally. Credit spreads were generally stable, however we did see a meaningful uptick in AI-related financing both in the investment grade and high yield bond markets. Continued strong inflows into corporate bonds helped soak up this additional issuance, however we are concerned that significant supply growth in 2026 could pressure spreads wider.
Our portfolios were defensively positioned throughout the quarter, given expensive valuations in credit and lingering macro uncertainty. We took advantage of the complacency in credit markets to add to hedges and rotate our shorts into lower quality and higher beta credits. With growing government bond supply and deteriorating fiscal profiles globally, we remain focused on shorter-duration positioning, given the potential for further steepening of yield curves. We believe the current environment highlights the potential benefits of strategies designed to emphasize stability and income, while maintaining flexibility to navigate volatility.
Our strategies were positive in the quarter but slightly underperformed the benchmark given defensive positioning. 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 December 31, 2025 (%) | 1M | 3M | 6M | YTD | 1YR | 3YR* | 5YR* | 10YR* | Since Inception |
PICTON Income Fund (F) | 0.26 | 0.57 | 2.90 | 6.50 | 6.50 | 7.37 | 3.88 | 5.65 | 5.39 (Oct 29, 2015) |
PICTON Long Short Income Alternative Fund (F) | 0.28 | 0.62 | 2.81 | 5.75 | 5.75 | 6.66 | 4.02 | — | 5.00 (July 10, 2019) |
PICTON Credit Opportunities Alternative Fund (F) | 0.38 | 0.56 | 3.31 | 6.27 | 6.27 | 7.42 | — | — | 4.45 (July 13, 2021) |
This material has been published by PICTON Investments as at January 13, 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 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.
