Purpose Total Return Bond Fund July Commentary

Fund Highlights

  • The Fund ended the month slightly negative, as the weakness in U.S. high yield bonds was offset by strong performance in Canadian investment grade and government bonds.
  • Bank of Canada unexpectedly cut rates during the month that was prompted by sluggish economic data and continued falling in energy prices. Governor Poloz also went on to suggest that there were more tools at his disposable to fend off a potential recession. As a result, Canadian investment grade and government bond holdings were the best performers this month. With Poloz promising further action if necessary, the possibility of a Canadian version of QE and further dovish rhetoric should keep Canadian fixed income well supported. U.S. high yield was the worst performer. The spectre of rising rates and weakness in the energy sector drove outflows from the space.
  • This month the Fund decreased U.S. high yield exposure from 65% to 46% and increased corporate investment grade bonds from 16% to 28% and government bond positions from 4% to 12%.

Market Commentary

In July, global stocks ended higher with strength in the U.S and Europe contrasted by weakness in Canada and China. The Greece overhang was temporarily resolved as Greece voted “yes” to more austerity and in return the ECB provided a bridge loan to tide debtors over until a 3rd bailout could be negotiated. In the U.S jobs data was slightly softer, nonetheless the Fed retained faintly hawkish overtones in its statement preparing the market for the possibility of a rate hike into the end of the year. In Canada, sluggish economic data and falling energy prices prompted the BOC to unexpectedly cut interest rates for a second time this year. Poloz went on to suggest that there were more tools at his disposable to fend off a potential recession.
Commodities ended lower this month. The announcement of a historic U.S backed nuclear deal with Iran caused crude to plummet in anticipation of more Iranian oil coming online. Inventory builds and weakening demand exacerbated the move lower as WTI closed below $50 for the first time in months. Gold plummeted to new multi-year lows as geopolitical fears over Greece waned and the dollar strengthened. Grains also reversed course as prices stabilized after experiencing heavy short covering the previous month.
Currency markets continued to see volatility. The U.S dollar saw broad strength after the Fed indicated a possible rate hike by year end. CAD was one of the worst performers this month falling over 5%.

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