Purpose Tactical Investment Grade Bond Fund January Commentary

Fund Highlights

  • The Fund was slightly negative in January as investment grade bonds declined in current interest rate environment guided by a hawkish Fed and dovish Bank of Canada.
  • Canadian bonds provided negative returns while U.S. corporate bonds remained largely flat, and U.S. high yield was the largest detractor.
  • The Fund hedged duration risk by using Canadian 10Yr Treasury Futures and U.S. 10Yr Treasury options in January. The Canadian interest rate hedge ended in a small benefit to the Fund while the U.S. hedge position detracted significantly.
  • Energy and high yield were the worst performing sectors as credit spreads further widened on conflicting global growth patterns and investors continued to flock to the safety of U.S. 10Yr treasuries.

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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