Purpose Best Ideas Fund May Commentary

Market Commentary

The month of May saw equity markets reach new highs as central governments reiterated their commitment to low rates for a prolonged period of time. Geopolitical concerns in the Ukraine seemed to subside, and Russian equities rebounded. The benign macro environment caused volatility to sink to multi-year lows across most major asset classes. The U.S. continued to see improving indicators in employment, new orders, inventories and housing starts which pointed towards accelerating growth. China data continued to show weakness across purchasing and export data. The ECB is expected to launch additional easing in June where they hope to target deflation with near zero rates.
In commodities, energy and industrial metals gained, while agriculture and precious metals declined. Specifically, gold and silver declined as investors left safe haven investments and rushed back to the equity and high yield debt markets. The Canadian dollar strengthened against the U.S. dollar, ending the month around 1.08. Currency strategists forecast a weaker Canadian dollar in the 1.15 range by the end of the year.

Fund Commentary

The Fund was up for the month of May as the equity markets continued to have a strong appetite for M&A. The top performing sectors were information technology, consumer discretionary and industrials, while the bottom performing sectors were health care, real estate and financials.

The best performing stocks were Priceline, Monsanto and Micron Technologies, while the worst performing stocks where Dollar General, Valeant Pharmaceuticals and eBay.

Priceline outperformed this month as the company beat earnings from stronger than expected international bookings which grew 38% year over year. The stock also recovered along with the broader growth sector which had sold off in prior months. Monsanto was up as the company continued to perform on track with key 2014 growth metrics for corn and soy. The company is underleveraged versus peers, allowing it to deploy its balance sheet for incremental capital return in the form of share repurchases or accretive investments. Micron was also a top performer as the stock continued to appreciate following outstanding quarterly earnings showing strong margin growth.
Dollar General declined in the month of May on the back of weakness in same store sales from declining traffic, and uncertainty around the growth of their consumables business. Valeant Pharmaceuticals is currently in a takeover battle along with Pershing Square with both seeking to acquire Allergan. The stock declined after the board rejected their initial bid; however the situation is still very much in play with the deal seen as accretive to the Valeant rollup strategy. eBay declined as their 2014 revenue guidance of approx $4.4B came in below expectations. The lower guidance was from declining auctions, and tax charges on foreign earnings.

The Fund completed a rebalance at the end of May after incorporating the latest 13F holding information for select managers, adding eBay Inc. and selling its position in Metlife Inc.

The Fund hedges its U.S. dollar currency exposure, currently maintaining a net U.S. dollar exposure of approximately 10% of the Fund’s NAV.

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