Purpose Enhanced US Equity Fund July Commentary

Fund Highlights

  • The Fund was negative for the month as midcap value equities lagged large cap growth names which were the primary driver of U.S. equity markets in July. Russell 1000 Growth Index outperformed the Russell 1000 Value Index by 3.8% for the month. The Fund’s tilt towards midcap and value names explains the Fund’s July underperformance. Historically, value investing has experienced similar periods of underperformance, however we maintain conviction in this style of investing as it has outperformed over longer periods.
  • Consumer staples, technology and consumer discretionary were the best performing sectors. Commodity weakness across the oil and metals complex dragged on equity holdings in energy and materials which were the worst performers.
  • This month, the non-hedged long USD exposure was a tailwind as CAD declined over 5% against the U.S. dollar.
  • The Fund continued to hedge USD currency exposure for the currency hedged shares and took the opportunity to reduce USD exposure from approximately 10% to 7% of the Fund’s NAV.
  • With respect to the non-currency hedged shares, the U.S. dollar exposure provided a material boost that offset the weak equity returns for the month.

Market Commentary

In July, global stocks ended higher with strength in the U.S and Europe contrasted by weakness in Canada and China. The Greece overhang was temporarily resolved as Greece voted “yes” to more austerity and in return the ECB provided a bridge loan to tide debtors over until a 3rd bailout could be negotiated. In the U.S jobs data was slightly softer, nonetheless the Fed retained faintly hawkish overtones in its statement preparing the market for the possibility of a rate hike into the end of the year. In Canada, sluggish economic data and falling energy prices prompted the BOC to unexpectedly cut interest rates for a second time this year. Poloz went on to suggest that there were more tools at his disposable to fend off a potential recession.
Commodities ended lower this month. The announcement of a historic U.S backed nuclear deal with Iran caused crude to plummet in anticipation of more Iranian oil coming online. Inventory builds and weakening demand exacerbated the move lower as WTI closed below $50 for the first time in months. Gold plummeted to new multi-year lows as geopolitical fears over Greece waned and the dollar strengthened. Grains also reversed course as prices stabilized after experiencing heavy short covering the previous month.
Currency markets continued to see volatility. The U.S dollar saw broad strength after the Fed indicated a possible rate hike by year end. CAD was one of the worst performers this month falling over 5%.

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