Purpose Duration Hedged Real Estate Fund July Commentary

Market Commentary

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.

Fund Commentary

The Fund seeks to provide shareholders with long-term capital appreciation by investing in a portfolio of real estate focused equities listed in North America. The Fund aims to reduce the risk of rising interest rates associated with real estate equity securities by tactically hedging the duration of the portfolio.

The Fund was up for the month of July even though equity markets declined. The top performing sectors were residential, office and industrial REITs. The bottom performing sectors were diversified, hotel & resort and specialized REITs.

The best performing stocks in the portfolio were Apartment Investment & Management Co., Himedics Inc. and Equity Commonwealth. The worst performing stocks were Hospitality Properties Trust, Lexington Realty Trust and Dream Global REIT.

The Fund completed a monthly rebalance at the end of July, turning over 6 names in the portfolio. The rebalance used a quality ranking screen which added attractively valued real estate equities and sold overvalued real estate equities. Positions were added in Innvest REIT, The Geo Group and Lexington Realty Trust and positions were sold in Apartment Investment & Management Co, Dream Global REIT and Investors REIT.

The Fund continues to have no interest rate hedge in the U.S and Canadian 10 year treasury notes. USD currency exposure is hedged, with a net long USD exposure of approximately 10% of the Fund’s NAV.

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