Purpose Core Dividend Fund September Commentary

Fund Commentary

The Fund was negative in September as most equity markets closed lower. As markets pulled back on uncertainty, cyclical commodity sectors were generally sold while money rotated into defensives. The best performing sectors were staples, utilities, and healthcare while energy, materials and financials ended lower.

The best performing stocks were Altria Group (MO), Lockheed Martin (LMT) and Reynolds American (RAI). Altria and Reynolds continued to benefit from large free cash flows, high dividend yields and strong profit margins. The industry continued to receive a lift from the proposed merger between Reynolds and Lorillard. MO was also given a boost as acquisition rumours surrounding SABMiller plc intensified with MO owning roughly 28% of the company. LMT could be perceived as benefitting from increasing global conflict, however, this month it also announced a 13% dividend increase and a $2bn share buyback which helped support its share price.

The Fund’s worst performing stocks were Cenovus Energy, Canadian Oil Sands and Suncor Energy. The energy sector saw a large downdraft this month. Fears of a Chinese slowdown weighed on demand, while large builds in crude inventories and returning Libyan production provided a supply overhang. There were hopes for a potential production cut from OPEC, however this never materialized. As a result, WTI fell 5% and Brent crude was down over 8%. Analysts issued negative revisions for oil prices lowering expectations for 2014 and 2015. Our energy holdings were caught up in the overall weakness across the sector.

The portfolio holds 20 US equities and 20 Canadian equities, and continues to hedge USD currency exposure maintaining a net USD exposure at approximately 10% of the Fund’s NAV.

Market Commentary

Geopolitical concerns in Russia/Ukraine and the Middle East continued to overhang markets this month. Pro-democracy protests in Hong Kong and an independence referendum in Scotland also contributed to the general sense of unease. Economic data pointed towards slowdown in China, and European data was also sluggish. In response, the PBOC added liquidity to support China’s 5 largest banks, while the ECB made a surprise rate cut and added almost $1tr in stimulus in an attempt to fend off deflationary pressures. Canadian markets fell on weakness experienced across cyclical commodity sectors. The US continued to diverge from other developed nations and posted a strong Q2 GDP, as well as improving economic activity. Speculation over the path of future US interest rate hikes continued to weigh on investors’ minds.

Commodities experienced heavy selling this month as the S&P GSCI closed down 6%. The combination of supply overhang, weak Chinese demand and a strong US dollar saw negative performance across grains, metals and energy.

The US dollar had another month of strong gains. The diverging interest rate and growth outlook between the US and other developed countries saw the US dollar appreciate against every G10 currency. The loonie fell 3% this month to 1.1200.

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