Purpose Monthly Income 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 Fund has an income allocation to bonds and high-dividend equities, and has a real asset allocation for purchasing power protection.
The Fund was up for the month of June from all three of its allocations as the Fund’s exposure to real assets, bonds and dividend paying equities all generated positive returns during the month.

The best performing sectors for income equities were energy, utilities and consumer staples, while the worst performing sectors were real estate, telecommunications and consumer discretionary. Among real assets, the best sectors were energy and precious metals while the worst sectors were agriculture and real estate. The bond allocation was up in June. The Fund’s largest exposure was to high yield corporate credit which was also its best performing allocation.

The Fund continued to hedge its USD currency exposure, maintaining a 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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