Purpose Tactical Investment Grade Bond Fund November Commentary

Purpose Tactical Investment Grade Bond Fund November Commentary

Fund Highlights

  • The Fund ended its first full month slightly positive, even as the broad fixed income markets declined, on the back of good security selection.
  • The portfolio has 51 investment grade corporate bonds with exposure of ~58% in Canada, ~23% in the U.S. and ~11% in U.S. high yield bonds.
  • Financial and consumer non-cyclical bonds were the best performing sectors while materials and high yield were the worst.
  • Duration management was initiated in November with the Fund establishing a 5% of NAV short position in 10 Year CAD treasury futures.
  • The Fund also implemented duration hedging strategy on the U.S. corporate bond exposure by overwriting calls on U.S. 10 Year Treasury Notes at ~12% of NAV, which also provides yield enhancement from the call premiums.
  • The Fund currently currency hedges U.S. dollar to 16% of Fund’s NAV, which is approximately equivalent to 70% of the total U.S. dollar exposure.

Market Commentary

Markets consolidated after experiencing heightened volatility over the last 3 months. The terror attack in Paris and the U.S. Thanksgiving holiday gave markets time for pause, especially ahead of an event filled December where the FOMC, ECB and OPEC all have significant meetings to close out the year. In the U.S., payroll data came in stronger than expected which fueled market expectations for a December rate hike. Despite the prospect for higher rates, the yield curve flattened as the Fed signaled a “dovish hike” and a gradual rise through 2016. Canada saw sluggish economic data as cyclical sectors continued to experience a gloomy outlook with no imminent signs of easing. Commodities faced further weakness as crude and copper fell over 10% for the month. In currencies, the loonie fell 2% as the U.S. saw broad strength. European equities outperformed while the Euro sold off near the lows of the year, as markets anticipated further dovish measures from the ECB.

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