Purpose Tactical Investment Grade Bond Fund May 2016 Commentary

Fund Highlights

  • Investment grade bonds had a mixed May with Canadian and U.S. issues diverging. Canadian Corporate Bond Index was up +0.45% for the month as the U.S. Investment Grade Corporate Bond Index was down -0.51%.
  • The Fund maintained positive returns in both the U.S. and Canadian sleeve, which was directly attributable to quality security selection.
  • Credit spreads in the U.S. are very tight with little room for upward movement in bond prices.
  • High yield performed and contributed positively to Fund returns.
  • A duration hedge applied to the Canadian portion of the portfolio and equivalent to 20% of Fund’s NAV detracted from Fund performance as Canadian interest rates remained rather volatile and declined late in the month.
  • The U.S. duration hedge equivalent to 7% of Fund’s NAV, was accretive to Fund performance.

Market Commentary
Markets ended higher this month on the back of general positive sentiment. Despite numerous macro overhangs, such as possible Fed rate hikes, a weaker yuan and an impending Brexit vote markets continued to climb the wall of worry. US data was better than expected across manufacturing, retail sales and jobs which bolstered calls for a rate hike by July. Canadian GDP and trade data were worse than expected, with the negative effects of the Alberta fires yet to filter into the data. The divergent economic pictures caused the loonie to sell off 4% on the month. Commodities continued to grind higher with crude finding comfort near $50. Investment grade credit and high yield remained in the sweet spot for investors wanting to own risk while also earning an attractive yield.

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