Purpose Core Dividend 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 Fund gained in the month of June as equity markets continued to rally. The best performing sectors were energy, utilities and financials, while the worst performing sectors were telecommunications, real estate and consumer discretionary.

The best performing stocks were Integrys Energy, Cenovus Energy and Suncor. Integrys was a top performer as Wisconsin Energy made an acquisition bid for the company at a premium of over 19%. Cenovus Energy and Suncor were also top performers as the Canadian oil names benefitted from approval of the Northern Gateway pipeline which opens up an opportunity for Canadian oil to be exported from Kitimat B.C.

The Fund’s worst performing stocks were Telus, Shaw Communications and Rogers Communications which are all Canadian telecommunications companies. The Canadian telecommunications sector underperformed in June as Quebecor announced their intention to become Canada’s 4th major wireless competitor. The sector also declined with other dividend paying equities even though the companies themselves continued to show strong fundamentals with dividend growth and free cash flow growth.

The portfolio holds 18 U.S. equities and 22 Canadian equities, and continues to hedge USD currency exposure maintaining net USD exposure at 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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