Purpose Tactical Hedged Equity Fund December Commentary

Market Commentary

December saw Bernanke’s last Fed meeting on December 18th that unveiled the tapering program. The market reacted positively to the slow pace of tapering, as U.S. equities rallied into the holidays with the DJIA and S&P hitting new highs. USD/CAD continued its upward trajectory, breaching the 1.07 level by month end. Precious metals sold off again this month. Gold was down approximately 3.75%, and silver was down almost 2.75%, with gold equities performing poorly as investors unwound their holdings. On the other hand, base metals performed well in December as copper was up 1.78%. Looking ahead to 2014, there is improving economic data, along with the likelihood of a U.S. budget deal early in the year. This should point towards higher equity markets, strengthening USD versus CAD and weaker commodity markets. We expect commodities to remain pressured until we see growth signals from China or higher inflation forecasts.

Fund Commentary

The Fund holds a portfolio of fundamentally selected stocks together with a dynamic futures hedge. The Fund continues to benefit from the rally in the U.S. equity markets. The top performing sectors were materials, industrials and information technology. The bottom performing sectors were health care, consumer discretionary and consumer staples.
Seagate in the technology sector was the best performing stock in the portfolio, up 14.5% for the month as they bought back 32.7 million shares from Samsung. Dow Chemicals in the materials sector was up 14.49%, benefitting from better fundamentals after the early December spinoff of their chlorine business. Delek Holdings was up 13.71% as refinery spreads improved. Big Lots in the consumer sector was the worst performing stock in the portfolio, declining 15.76% for the month on weak earnings. Also in the consumers sector, American Eagle Outfitters was down 10.72% for the month as earnings from Black Friday sales were less than analysts’ expectations. Jabil Circuits was another underperformer as the company reduced their sales guidance by 18%. The stock was down 13.96% in December.
The Fund completed a monthly rebalance, adding Aaron’s Inc, Activision Blizzard, Baker Hughes, Big Lots, Crane, Marathon Oil, Noble Energy, Sandisk Corp, URS Corp, Whirlpool Corp. The Fund sold its position in Broadcom, Babcock and Wilcox, Delek, Emcor, Energy XXI, Foot Locker, Genesco, Macys, Seagate, Valero. The rebalance was guided by profit taking and sector rotation, switching positions in consumers, energy, industrials and information technology. The rebalance slightly updated the short futures position to -23.6% from -20.4%, resulting in a net long equities position of 66.4%. Currency exposure is hedged.
The Fund was also approved to hold Purpose High Interest Savings (TSX: PSA) in lieu of cash, and now holds the majority of its cash in PSA. The fund declared an annual dividend of $0.064/share in its ETF and F series.

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