Purpose Tactical Hedged Equity Fund January Commentary

Market Commentary

Global stock markets pulled back sharply after closing out 2013 at the highs, as heightened emerging market volatility triggered a broad sell off across risk assets. Destabilizing events in Turkey and Argentina received the majority of the headlines. Furthermore, weaker Chinese manufacturing data pointing towards a slowdown also fuelled negative sentiment. As a result, foreign investment flows broadly exited the emerging market (EM) space and into safe havens such as bonds and gold. In the U.S., an unexpectedly poor payrolls number was at odds with recent upward trends in economic data. Despite the market turbulence, the Fed tapered an additional $10 billion, signaling that it was staying the course for an eventual exit from its QE program. In Canada, weak employment and trade data suggested that the BOC would maintain a dovish stance going forward.

Fund Commentary

PHE holds a portfolio of fundamentally selected stocks together with a dynamic futures hedge. The Fund declined for the first time since inception as the end of month selloff in U.S. equities adversely affected the Fund. The futures hedge offset some of the Fund losses, and diversification into outperforming sectors helped manage risk. The best performing sectors were health care, information technology and industrials while the worst performing sectors were consumer discretionary, energy and consumer staples.

The best performing stocks were Health Net, Flextronics, and Express Scripts while the worst performing stocks were Noble Corp, Whirlpool, and Steel Dynamics. Health Net continues to benefit from outperformance in the health care sector from Obama care. Express Scripts benefitted from positive interpretation of their 2014 guidance, which expects double digit EBITDA growth from decreased costs and a focussed delivery pipeline. Flextronics was up at the end of the month from strong earnings as they saw sales growth across all their segments as recent acquisitions started to bear fruit and cost cutting increased their margins. Noble was the worst performing stock in the portfolio as the company announced a plan to spinoff rigs in late 2014. Steel Dynamics was down on the month as the company’s guidance was below expectations on decreasing steel prices, lower seasonal demand, and increased scrap costs. Whirlpool was down on the month as it missed expectations on earnings at month end, which coincided with market risk aversion after the FOMC meeting.

The Fund completed a monthly rebalance at the end of January, turning over 8 names in the portfolio. The equities rebalance targeted profit taking and diversification as the Fund added positions in the information technology, industrials, energy and telecom sector and sold positions in the consumer discretionary, energy, industrials and information technology sectors. The Fund added Broadcom, Cummins, Guess, Lockheed Martin, MRC global, Superior Energy Services, AT&T and Verizon Communications and sold its positions in Avnet, Big Lots, Amdocs, Jacobs Engineering, Manitowoc Company, Phillips 66, Valmont Industries and Xerox Corp. The rebalance also increased the sizing of the short futures hedge.

The Fund continues to hedge its USD currency exposure, maintaining a net USD exposure at approximately 10% of the Fund’s net asset value

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