Purpose Duration Hedged Real Estate Fund December Commentary

Purpose Duration Hedged Real Estate Fund December Commentary

Fund Highlights

  • The Fund ended in the red this month mainly due to a poor Canadian market.
  • U.S. REIT positions were positive for the month and comfortably outperformed the broad market as investors flocked to dividend yielding securities in face of the December rates hike.
  • A dovish outlook from the Bank of Canada meant that Canadian securities declined on weak economic prospects and declining crude oil price.
  • A duration hedge based on U.S. 10 Year futures was implemented for the month and provided positive contribution to the Fund as U.S. 10 Year rates increased after the Fed hiked mid-month.
  • The best performing sectors were residential, and specialized REITs, while the worst performers were diversified, commercial and retail REITs.
  • The best performing names were Mid-America Apartment and Corrections Corp while the worst ones were H&R Real Estate and Smart Real Estate Investment REIT.

Market Commentary

Stocks and bonds ended lower in December to close out generally choppy performance for 2015.[Add sentence or 2 on 2015 market performance for U.S. equities, Canadian Equities, MSCI EAFE (local currency) and Canadian Fixed Income and oil and gold.] The main focus this month was on the FOMC decision. After another solid U.S. job number gave the green light for “lift off” the Fed delivered by hiking rates by 0.25% for the first time in a decade. The Fed went on to assuage concerns over the pace of future hikes by promising that the path would be gradual and data consistent. In Europe, Draghi underwhelmed on the extent of rate cuts and further QE measures which sparked a sharp rally in the Euro and European yields. In Asia, Chinese growth concerns resurfaced as the central bank allowed the yuan to weaken to its lowest level in over 4 years. In commodities, oil sold off further to new lows on the year after OPEC maintained its current production rate which disappointed potential expectations for a potential supply cut. Canada traded poorly on the back of this as the loonie and the S&P/TSX both sold off to end the year.

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