We are very pleased to report strong results at the close of the third quarter. With three months left in the year, all our main arbitrage strategies have all contributed to this success, helping us achieve a year-to-date return of approximately 10%. These results validate our cautious opportunistic approach in the face of an uncertain economic environment and challenging outlook for central bank monetary policy. On several occasions we’ve emphasized our commitment to protecting your capital, even if it means occasionally forgoing some returns. Today, we see how this prudent approach has served us well, and our performance provides objective proof of its value.
The months ahead also look promising. We expect continued market volatility, with the recent central bank interest rate cuts providing us with a strong tailwind. At the same time, we will be exercising caution, recognizing that equity market valuations are at historically high levels and a sharp correction could occur at any time, given the highly uncertain political and geopolitical climate.
Our Long-Term Strategies
These factors underscore strength and value of well hedged arbitrage strategies, in both the equity and debt markets, enabling the Amethyst Arbitrage Fund—which includes the Canadian Sovereign Bond Absolute Return Fund (SBAR)—to effectively fulfill its role in our clients' portfolios. Our objective is to generate investment returns of 5% to 10% above the short-term benchmark interest rate (i.e., federal government Treasury bills) while preserving capital and maintaining a very low correlation with traditional asset classes like equities and bonds - and all the while reducing volatility, of course.
No FOMO Syndrome Here
More than ever, investor sentiment could play a decisive role in the financial markets over the coming months. Our previous newsletter discussed the economic outlook among U.S. investors regarding a possible economic landing, whose views completely reversed over the past 12 months. Last year, 75% of them feared a hard landing, but now over 75% expect a soft landing. Some even believe that there will be no landing at all. As a result, investors’ fear of missing out (« FOMO ») on good investment opportunities has created a frenzy that is pushing prudent risk management out of the window. We did not buy into this excessive optimism three months ago, and we stand by this position. Seeing stock markets at all-time highs only reinforces our cautious approach. We are skeptical and prefer to remain positioned with our « all-weather » portfolio while waiting for the inevitable reversal in confidence that could occur at any time.
Our non-directional strategies and all-weather portfolio are well suited to this environment, we believe. And, our results speak for themselves with our arbitrage strategies on track to meet or exceed their return targets year-to-date. We are well positioned to take advantage of the opportunities that we think will inevitably arise over the coming months and quarters and meet the expectations of our investors. for the Amethyst Arbitrage Fund.
Excellent Start to the Year
In our last year’s quarterly newsletters, we often spoke about how our arbitrage strategies were guided by caution. Faced with frequent and excessive volatility, uncertainty surrounding the end of the interest rate cycle, and equity market valuations that we found to be excessive, we often adopted an approach that put capital preservation at the core of our investment decisions. At the same time, we were able to find many high-quality opportunities that offered attractive risk/return profiles. Today we are reaping the rewards of this cautious yet opportunist approach. The Fund is off to a good start this year (+6.5% CL.F), holding its own against the main benchmark indices. And we believe that we can build on this momentum, even though we still consider the conditions challenging.
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