Purpose Duration Hedged Real Estate 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 Duration Hedged Real Estate 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 will seek 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 June even though the real estate sector declined as a whole. The top performing sectors were residential REITs, office REITs and health care REITs. The bottom performing sectors were retail REITs, industrial REITs and diversified REITs.
The best performing stocks in the portfolio were Brookfield Canada Office Properties, Cyrus One Inc, and Rayonier. The worst performing stocks were Calloway REIT, Granite REIT and Canadian REIT.

The Fund is not currently deploying an interest rate hedge in the U.S or Canada. The Fund hedges its USD currency exposure, with a current net USD exposure of 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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