Market Update

For the last year global equity markets have largely done a good job of overlooking adversity. From trade wars to AI disruption, stocks have been able to climb the proverbial ‘wall of worry’ to record levels. However, as tensions with Iran evolved into a full-on conflict, it became too much to ignore and markets fell. March was a wild month, and while a last day rally made it look better, it has left scars on many investors.

The war with Iran and the resulting blockage of the Strait of Hormuz has caused lasting damage and is highlighting how intertwined the world has become. It is now well known to everyone how much crude oil flows along this channel, but we are just starting to grasp the many other implications of these events. Fertilizer and the supply of other commodities are facing significant disruption, affecting the supply of many goods. Many Asian countries appear to have scaled back their work week to curtail energy demand. For a global economy that was coming into this year battling trade wars and growth concerns, a lasting supply disruption might be too much to handle and will take a long time to recover from.

The bond market was the first to pick up on these risks. We entered the year expecting to see dovish central banks and rate cuts. But those expectations have been thrown to the side. The US 10-year bond is a good gauge of how far the market has flipped. At the end of February yields had dropped below 4% and looked to be trending lower. During the last month yields spiked to 4.5% and there are now concerns we may not see any rate cuts this year, and in some countries there may actually be rate hikes.

These moves higher in yields have a dramatic impact on which asset classes, sectors and securities will outperform. With most investors positioned towards lower rates, having those assumptions reverse so quickly can likely cause violent rotations. Rate cuts are being pushed out by the FOMC and that has led to a US dollar resurgence. The higher dollar directly impacts the price of commodities, and after a great run in gold and silver, prices fell for the month. But that may be the opportunity.

One of the best things in investing can be to think like a contrarian. It’s not for the faint of heart but this is starting to likely look like a classic setup. Everyone is bearish and looking for a drop. But at the same time, they all want to buy that dip. That is making for an interesting opportunity. The underlying trends in favour of real assets remain in place. If anything, they are even more entrenched. The US has made a mistake, and everyone knows it. The path forward in the US dollar likely remains lower and will be the overarching theme going forward.

The rally we saw to finish the end of March helped to make many feel better. The problem is that we are still looking at a scenario in which inflation stays higher for longer, changing the outlook for interest rates. It’s much easier to get out of a ‘trade war’ vs a ‘shooting war’. That is the new reality and is creating more uncertainty. Headline risk is the biggest worry for most of us now, and we have no way to predict which way it goes. In our view, this is the time to be nimble and flexible.

The next few weeks will be very important to set the path forward. A quick resolution to the conflict could support the markets, yet an escalation may risk the floor dropping out. We believe this is becoming a binary outcome which is unnerving for investors. The rise of passive investing has increased volatility, yet it is also creating opportunities. When markets selloff and correlations go to one it may be a time to be looking to buy and add exposure to risk assets. That time could be coming up and something to take advantage of. In our view, the perfect time to be a contrarian is when everyone is running for the exits.

Performance

The Pender Alternative Multi-Strategy Income Fund was down -0.56%¹ for March and is now higher by 1.67% YTD. The Fund’s blended benchmark returned -0.7%²  and 0.5% for the same period.

For our long/short credit exposure, the Pender Alternative Absolute Return Fund (PAARF), is used to dampen volatility and provide downside protection in choppy markets. The Fund has been able to deliver on that expectation to start a very volatile 2026.  PAARF was higher for March by 1.77%³ and is now positive by 3.08% YTD. The Fund’s benchmark returned -0.7%⁴ and 0.7% for the same period.

The Fund owns the Pender Corporate Bond Fund (PCBF) for its total return and opportunistic credit approach. This was a key factor in its strong returns last year and are off to a great start for the year. PCBF was down -2.2%⁵ for March and is now higher by 2.1% YTD.

The market neutral/merger arbitrage exposures for the Fund come through the Pender Alternative Arbitrage Plus Fund (PAAPF). PAAPF was down -1.0%⁶ for March, it is now lower by -0.3% YTD. The Fund’s benchmark returned 0.5%⁷ and 1.5% for the same period. Last year was a record year for corporate activity in the United States and the environment looks strong for that to continue in 2026.

Portfolio Positioning

We continue to monitor correlations across the different Fund exposures and will introduce additional asset classes or make tactical shifts should opportunities arise. Given the current phase of historically tight credit spreads, we remain in more of a defensive stance and have increased our allocation to PAARF. We believe that M&A activity is expected to increase, which should act as a catalyst for PAAPF. Entering Q2 we are looking for opportunities to add to our exposure in the PCBF in the event of market dislocations. Cash can be used as a component of the asset mix but is not material at this point in time.

Greg Taylor, CFA
April 13, 2026

¹ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-alternative-multi-strategy-income-fund/

² The Fund’s blended benchmark consists of 9% FTSE Canada Universe Bond Index, 25% ICE BofA US High Yield Index, 33% HFRI Credit Index (Hedged to CAD), 33% HFRI ED: Merger Arbitrage Index (Hedged to CAD)

³ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-alternative-absolute-return-fund/

⁴ The benchmark used is the HFRI Credit Index (USD). The Fund’s benchmark is the HFRI Credit Index, hedged to CAD.

⁵ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-corporate-bond-fund/

⁶ All Pender performance data points are for Class F of the Fund unless otherwise stated. Other classes are available. Fees and performance may differ in those other classes. Standard Performance Information for the Fund may be found here: https://penderfund.com/fund/pender-alternative-arbitrage-plus-fund/

⁷ Benchmark HFRI ED: Merger Arbitrage Index (USD)