Wednesday August 13th, 2014
July can be summarized as a volatile month which initially saw a continuation of the equity market rally, but ended with a sharp correction lower into month end. Consequently, volatility came off multi-year lows, rebounding higher as equity markets sold off. Geopolitical concerns in Ukraine were front and center with the EU and U.S. jointly increasing sanctions on Russian entities to put a stop to the escalating conflict.
The U.S. economy strengthened further, with improving employment, manufacturing and higher inflation increasing the probability of a rise in interest rates. China equities strengthened with stronger manufacturing numbers. Europe was volatile as markets reacted to a potential bank default in Portugal.
In commodities, base metals outperformed while energy, precious metals and agriculture declined. Copper outperformed on improving manufacturing data in the U.S. and China. Oil declined as supply was not impacted by rising tensions in the Middle East. Gold and silver were uncharacteristically lower even as rising inflation and major geopolitical events affected the markets. Corn continued to decline after the WASDE report showed a 9% increase in corn acreage, a potential bumper crop for 2014/15. Soy also declined in anticipation of a bumper 2014/15 harvest.
In the credit markets, high yield sold off as general risk aversion and anxiety over higher interest rates caused investors to pare back.
The U.S. dollar rebounded across major currencies on improving interest rate differentials and safe haven demand. The U.S. dollar was up to 1.09 levels versus the Canadian dollar by month end. The weaker Canadian dollar was attributed to weaker energy prices and the BoC’s continued commitment to low rates.
The Fund holds a risk-balanced portfolio diversified across agriculture, energy, base metals, precious metals, and real estate.
The Fund declined during the month of July as its exposure ito Base Metals gained, while its exposure to agriculture, energy, precious metals, real estate and dividend paying equities declined.
The best performing commodity for the month was copper which gained from improving fundamentals in China.
The worst performing commodities were corn, soy, gold, silver and oil. Corn continued to decline after the WASDE report showed a 9% increase in Corn acreage, a potential bumper crop for 2014/15. Soy also declined in anticipation of a bumper 2014/15 harvest. Gold and silver declined even though increasing geopolitical and inflation fears were front and center, attributed to increasing rates. WTI and Brent declined as Middle East tensions were contained.