Picton Investments chief executive David Picton poses with a bear statue the firm placed in the Well building in Toronto.iStockPhoto / Getty Images
At the beginning of the year, when some market outlooks looked gleefully toward U.S. tax cuts and a continuing artificial intelligence boom, David Picton held a more bearish view.
The president and chief executive officer of Picton Investments warned of a growing bubble in large-cap U.S. equities. That exuberance could face a reckoning from stubborn inflation or the policies of incoming U.S. President Donald Trump, the firm’s 2025 market outlook stated.
That reckoning came, to some extent: first with the emergence of AI competition from China in the form of DeepSeek, then with President Trump’s tariffs and the U.S. Federal Reserve’s holding of interest rates. Yet, stocks are once again close to record highs.
“If you look where we are now, you have a similar setup as you had at the beginning of the year, but with [fewer] pillars underneath it,” says Mr. Picton, whose firm this week changed its name from Picton Mahoney Asset Management and chose a bear for its logo.
“The uncertainty in the backdrop is higher,” he adds. “And, in our opinion, the prices aren’t reflecting that properly.”
Mr. Picton has long made the case that the traditional balanced portfolio of 60 per cent equities and 40 per cent bonds doesn’t provide the same diversification when interest rates aren’t declining steadily, as they did for about 40 years until 2022. He proposes a 40/30/30 mix, in which the last 30 per cent is comprised of one-third private equity and private credit, one-third in hedging strategies that act as diversifiers, and one-third in inflation protectors such as commodities.
“Given where equity prices are today, maybe you take a little bit more out of that 40,” he says.
As for the alternative tranche, he suggests increasing allocations to the diversifiers, “with an eye toward adding some inflation [protection] if this tariff stuff does go through.”
He’s also monitoring the progress of President Trump’s One Big Beautiful Bill, specifically section 899, which would raise the rate of U.S. foreign withholding taxes significantly on dividends for Canadians who hold U.S. securities or invest in U.S. companies through Canadian investment funds.
Mr. Picton says his firm is thinking about ways of working around the so-called “revenge tax,” such as swapping return streams. But he says the bigger point is the U.S. has benefited from capital flows because of its stability and the dollar’s status as the world’s reserve currency.
“As you start to unwind the certainty and the stability within its system, it’s probably not the time to also chase away capital,” he says.
Alternative purposes
While a believer in private equity and private debt, Mr. Picton says these assets are too often considered diversifiers when they should be viewed as return enhancers on the equity and bond portions of portfolios.
“Private debt is not diversifying to high yield. Private equity is not diversifying to equity,“ he says. ”What they are is levered bets on those two betas in your portfolio. There’s a sales pitch that suggests because they don’t have to mark the market, especially when times are bad, that they’re helping with diversification.”
That may comfort some investors if the price of their private assets are the same even though the market is down 20 per cent, he says.
“But the reality is that, economically speaking, if the market is down 20 per cent, there is a high likelihood that their private equity is down.”
The firm’s rebranding this week is centred around building portfolios that are prepared for anything. Mr. Picton says the bear is meant as a reminder not to take on too much risk.
“If you can have a better ride – i.e. there’s more certainty attached to it, which is a big part of our mission – our view is that you’ll stay invested for the longer term with a better diversified mix of return streams, as opposed to getting forced out at the most inopportune times,” he says.
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