Purpose Best Ideas Fund June Commentary

Market Commentary

The month of June saw a continuation of the equity markets rallying to new highs as central governments reaffirmed their commitment to low rates for a prolonged period of time. Geopolitical concerns in Iraq and the U.S. stance on crude oil exports caused volatility in the energy sector but had little effect on the general equity markets. Volatility continued to sink to multi-year lows across most major asset classes.

The U.S. continued to see improving employment, ISM and PMI, which pointed towards a recovery back to pre-financial crisis levels. Chinese data showed some improvement which served as a reaffirmation of a recovery from pre-financial crisis levels. The ECB launched additional easing in June where they instituted negative rates for the first time in their Deposit Facility and maintained policy to target deflation in the area.

In commodities, energy and precious metals gained while agriculture and base metals declined. Specifically, gold and silver gained as investors rushed back into safe haven investments after renewed conflict in Iraq and the prolonged outlook for a low rate environment. Oil was also up as both WTI and Brent spiked following supply disruption in the Middle East resulting from escalating Middle East tensions.

The Canadian dollar strengthened against the U.S. dollar. The U.S. dollar ended the month at six month lows at levels around 1.06. Previous forecasts had called for a 1.15 U.S. dollar, but the current strength in the Canadian dollar can be attributed to higher WTI oil, and a better than expected May CPI report in Canada, which showed 2% plus inflation for the first time in 2 years. This pointed towards rising inflation in Canada, but did not shake the BoC’s general view of a prolonged low inflation environment. They attributed the 2% plus move to a spike in energy costs which is not indicative of core inflation, and kept rates at 1%.

Fund Commentary

The Purpose Best Ideas Fund seeks to provide shareholders with attractive long-term capital appreciation by investing in a high conviction portfolio of North American equities. The Fund invests in a portfolio of North American equities held by some of world’s most renowned investment managers.

The Fund was up for the month of June as the equity markets continued to have a strong appetite for M&A, which is turning into a major theme across many sectors. The top performing sectors were information technology, industrials and financials, while the bottom performing sectors were health care, consumer staples and consumer discretionary.

The best performing stocks were Micron Technologies, Dollar General and Baidu Inc., while the worst performing stocks where Valeant Pharmaceuticals, Priceline.com and Liberty Global.
Micron was a top performer as the stock continued to appreciate from strong NAND and DRAM growth and strong margin growth, which featured in their month-end earnings that beat analyst expectations. Dollar General outperformed as Carl Icahn took a stake in the company seeking to extract more value. Baidu continued to outperform as the company announced plans to spin out their video business in an IPO within the near term. This is right on the heels of the pending Ali Baba IPO, which is another large Chinese internet company.

Valeant Pharmaceuticals is currently in a takeover battle along with Pershing Square, seeking to acquire Allegran. The stock declined after the board declined their initial bid; however the situation was still very much in play with the deal seen as accretive to the Valeant rollup strategy. Priceline declined after they bid $2.6 billion for OpenTable, a 53% premium over OpenTable’s average stock price. The deal was viewed as accretive for Priceline, which should be able to scale the business internationally. OpenTable currently seats over 15 million diners a month across 31,000 restaurants via online and mobile device bookings. Liberty Global declined as they prepared to participate in a syndicate which includes Discovery Communications to acquire a 49% stake in Formula One racing from CVC Capital and Lehman Brothers Holdings. The deal is valued at approximately $4 billion. The acquisition will give Liberty Global and Discovery sports content to bolt-on to their existing European cable TV assets.

The Fund hedges its USD currency exposure, and currently has net USD exposure of approximately 10% of the Fund’s NAV. This month, the Fund’s USD hedging strategy contributed positively to the Fund’s performance as the U.S. dollar declined from the 1.08 level to the 1.06 level by month end.

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