Purpose Tactical Hedged Equity Fund August Commentary

Fund Highlights

  • Although the Fund was negative for the month, its defensive posture – with average net market exposure of ~55% during the month – helped it to significantly outperform the broad U.S equity markets. The short equity futures hedge added 215bps of return. The Fund was down -3.2%, while the S&P 500 Index lost -6% and the VIX fear gauge spiked to 50, which had not occurred since the crisis in 2009.
  • The Fund completed a monthly rebalance, increasing its holdings to 72 names and adding exposure to Financials, thus improving the Fund’s sector diversification. The new Financial names were Bank of America, Citigroup, Cullen/Frost Bankers, JP Morgan, Lincoln National, MetLife, Prudential, Umpqua Holdings and Unum Group.
  • In August, the Fund increased the short equity futures hedge to give the Fund a net market exposure of ~52% at the end of the month.
  • This month, the CAD depreciated slightly against the USD providing tail-wind for the non-hedged long USD exposure of the Fund. The Fund continued to hedge USD currency exposure maintaining a net USD exposure at approximately 7% of the Fund’s NAV.
  • With respect to the non-currency hedged shares, the USD exposure provided some cushion against the backdrop in equities.

Market Commentary

Markets experienced a tumultuous decline this month as concerns over a slowdown in global growth and persistent worries over deflation triggered a dramatic fall in global equity prices. The S&P sank 6%, the SPTSX fell over 4% and the VIX fear gauge spiked to levels not seen since the crisis back in 2009. China was in the headlines as worsening economic data and a volatile stock market decline proved unnerving to investors. A surprise devaluation in the Chinese yuan shocked markets and provoked suspicions that the world’s second largest economy was in more distress than official figures might suggest. In the U.S, GDP surprised to the upside with a growth rate of 3.7%, however mixed messages from various Fed officials caused uncertainty as to the timing of potential interest rate hikes. Crude oil was extremely volatile, initially falling below $40 before spiking 25% in 3 days after OPEC suggested that they might be willing to discuss achieving “fair prices.” Currencies were mixed with most commodity and emerging currencies continuing to struggle vs the U.S dollar. CAD weakened off to new lows on the year, while euro and yen managed to rally.

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