Purpose Monthly Income Fund June 2016 Commentary

Fund Highlights

  • The Fund was positive for the quarter as yield providers were in the sweet spot for investors.
  • International equities was the only non-performing sleeve as European markets stumbled on Brexit and a concerns of slowing global growth.
  • In fixed income, yields declined as multiple central banks decided to implement negative rate policies, while credit tightened across high yield and investment grade bonds.
  • In equities, slow global growth and concerns around Brexit led investors into defensive sectors such as REITs & utilities, and out of cyclical sectors, such as materials and consumer discretionary.
  • Deflationary pressure and the uncertain effects of negative interest rate policies also spurred demand for hard assets as a store of value, providing the Fund with a boost from the real assets exposure.
  • During the quarter the Fund implemented additional sleeves into the Fund to help diversify holdings and increase yield.
  • The Fund added international dividend equity exposure and started writing cash-covered puts as part of the strategy mix.
  • Going forward, we expect the Fund to outperform as the developed market central bank policies converge to low/negative interest rates creating more demand for yield-oriented securities.

Market Commentary
This quarter, concerns over Brexit and uncertainty over the Federal Reserve’s interest rate policy outlook dominated global markets. The risk of potential events kept investors in a holding pattern ahead of the vote, prompting trading activity to move sideways in the months leading up to the U.K. referendum. The eventual decision to “leave” shocked the markets, which largely anticipated a “stay” vote in the preceding days. As a result, growth expectations for the Eurozone were lowered and the British Pound plunged as bond yields sank to multi-year lows. It also paved the way for possible additional exits from member countries which would exacerbate uncertainty for years to come.
In the U.S., the Feds’ path for another rate hike was shrouded in uncertainty. Therefore, the market had been priced in anticipation of multiple rate hikes this year. However, data that showed slowing employment, sluggish global growth and deflationary price pressures prompted Federal Reserve Chairman Janet Yellen to revert to a dovish stance.
Meanwhile, central banks in Europe and Japan initiated negative interest rate policies which accelerated a global hunt for assets with higher yields. The Canadian economy saw some slight upside surprises to GDP and jobs data. However, concerns over a housing bubble, and the expected drag to growth resulting from the Alberta wildfires in June dampened the country’s economic outlook for the remainder of the year.
Commodities rallied in general. Oil pushed through the $50 a barrel mark as supply and demand continued to adjust. Gold surged higher on safe haven flows and as a store of wealth in a negative yielding environment. Grains, specifically soybeans and corn, rallied as bad weather across South America and the U.S. negatively impacted the supply outlook.

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