Off the desk | Multi-Strategy | April 2026
Three Regimes in One Quarter: Why Diversifiers Are No Longer Optional
READ TIME: 2.5 MIN | Q1 2026 put the 60/40 portfolio through three distinct market regimes in 90 days. See why our team believes a 40/30/30 framework is built for exactly this environment.
Q1 2026 served as a stark reminder that the traditional 60/40 portfolio was not designed for today’s environment. In a single quarter, markets cycled through three distinct regimes: a broadening equity rally in January, an AI disruption selloff in February, and a geopolitical shock in March that sent oil prices surging approximately 40% and equity markets sharply lower. Bonds offered little refuge. The stagflationary narrative (higher energy costs acting as a drag on growth) pushed U.S. 10‑year Treasury yields higher at the same time equities sold off, delivering the kind of simultaneous drawdown that the 60/40 was never meant to absorb.
Our portfolio management team has been constructing portfolios around a 40/30/30 framework: 40% traditional equities, 30% fixed income, and 30% in alternative strategies that include genuine diversifiers and inflation sensitive exposures. This third bucket is not a satellite position; it is a structural allocation designed for exactly the environment we are in. For instance, the PICTON Inflation Opportunities strategy delivered positive performance in March precisely because it is designed to perform well in an inflationary environment. And despite the bounce back in some markets such as the S&P 500 rebounding to new all-time highs in April, we believe the potential for further inflationary shocks are present. These shocks could include second order impacts to energy supply chains, fertilizer supply disruptions impacting agricultural commodity prices, and the spill over impact to government bond and currency markets. These are the types of impacts our team is considering.
The PICTON Multi‑Strategy Alpha Fund is built to generate returns that have low correlation to both equities and bonds. A well-constructed diversifier will also act as a buffer in the instance of some unintended correlation to equity markets due to their inherent lower volatility. Several idiosyncratic dislocations were observed across the core strategies within the Alpha strategy in Q1 2026. Critically, the team’s fundamental views remain unchanged. History shows that these periods of indiscriminate selling are followed by mean reversion as manager skill reasserts itself.
The convergence of geopolitical risk, re‑accelerating inflation pressures, and wide credit spreads may not be a temporary disruption, rather it could be the new context. Fertilizer supply disruptions during planting season could support further increases in food prices and inflationary pressure into late 2026. Precious metals have been a meaningful year‑to‑date contributor to inflation sensitive strategies. The currency debasement theme which was prevalent in the late stages of 2025 and early part of 2026 has given way to a more direct energy cost inflation theme since the beginning of the Middle East conflict in March 2026. This dynamic as well as the market anticipating the potential for second-order effects noted earlier, has resulted in a notably more diversified risk profile across commodity groups in the portfolio as compared to six months ago.
Advisors should consider actively allocating to strategies designed for this environment, since we believe that making a bet that the 60/40 structure will be enough, is increasingly difficult to justify.
Through decades of managing alternative strategies across every market regime, our team has developed the analytical depth to identify opportunities. The depth of our investment team across the equity, fixed income and commodity markets is key to managing our diverse set of portfolios. The 40/30/30 framework is not a marketing concept; it is the architecture of a portfolio built to perform across regimes.
READ TIME: 2 MIN | The rate cushion that once protected corporate bond investors has disappeared. Find out what rates and spread correlation means for portfolios built on traditional fixed income assumptions.
READ TIME: 2.5 MIN | Factor leadership rotated three times in a single quarter, often reversing within days. Our Equity team explains what drove it and how they're positioning for a broadening market.
READ TIME: 1.5 MIN | Volatility and geopolitical instability made March a test of judgment across every arbitrage sleeve. Here's what our team’s active thinking is observing.
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