Purpose Tactical Hedged Equity Fund January Commentary

Fund Highlights

  • Pressure from cyclical sectors continued on the Fund’s equal weight mandate as energy and materials pulled the Fund into the red.
  • Value and growth returns converged this month as volatility took over and correlations increased.
  • Short futures position counteracted market volatility and provided downside protection for the Fund this month. The short position was further increased to -52% from -31% of Fund NAV. The Fund currently has ~39% net market exposure.
  • Financials had outperformed going in to the Fed meeting on prospects for a steepening yield curve, however, this trade quickly reversed as the curve flattened and yields sank in January.
  • Macy’s was the top performer this month as the company announced that it would close around 40 stores and cut jobs in order to reduce costs. Investors called for the firm to leverage its real estate assets to maximize shareholder value, creating positive outlook in the market.
  • Ensco was largest detractor this month as the continued slump in oil prices caused a decline in demand for its offshore drilling services. Notably, Petrobras cancelled a large contract in the Gulf of Mexico.
  • The Fund completed a monthly equity rebalance in January replacing one name. Synnex Corp was removed from the portfolio in favour of Western Digital.
  • With respect to the currency-hedged shares, the Fund continued to hedge U.S. dollar currency exposure maintaining a net U.S. dollar exposure of approximately 7% of the Fund’s NAV.

Market Commentary
2016 had a tumultuous start as markets sold off in one of the worst January performances on record. China was a catalyst as markets became unnerved by the rapid devaluation of the yuan which potentially signalled a slowdown in world’s growth engine. Oil sold off to new cycle lows touching $26 which put further pressure on commodity producing nations and exacerbated concerns of global deflation. After the Fed move in December, the market digested the prospect of another series of hikes which led to further uncertainty. Safe haven assets saw inflows as US 10yr yields sank below 2% and gold rallied 5%.

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