Purpose Tactical Investment Grade Bond Fund February Commentary

Fund Highlights

  • The Fund was positive in February riding a rally in high yield bonds as the market priced in expectations of a second rate increase in 2016.
  • The Fund was positive even though Canadian corporates showed poorly in February (~60% of portfolio). Exposure to Canadian materials sector was the only positive contributor from Canadian corporate bonds.
  • The Fund is currently duration hedged for U.S. corporate bond exposure but this exposure worked against the Fund as the U.S. 10Yr note appreciated 1.02%.
  • The Canadian corporate exposure of the Fund was not duration hedged for the month of February, which was beneficial to performance.

Market Commentary
Markets tested lower early in February driven by heightened risk aversion. Risk assets have seen a strong correlation with oil in recent months as WTI sank to multiyear lows. However, as things looked bleakest, sentiment seemed to shift after rumours emerged that the largest oil producing nations were intent on meeting in March to discuss possible production cuts. Crude rallied over 30% off the lows which had a positive transmission effect across equity and high yield markets. Canadian equities outperformed as cyclical sectors saw a sizeable bounce. Talks of increased fiscal stimulus and a waning need for further rate cuts helped the loonie recover over 3%. US GDP and jobs growth was better than expected, and the Fed reiterated its outlook for a gradual liftoff in 2016. Europe still produced sluggish IP and PMI’s, while the threat of a UK Brexit was a further overhang for the Eurozone.

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