Purpose Total Return Bond Fund August Commentary

Market Commentary

Early in the month, geopolitical issues worried markets as conflict in Russia/Ukraine and Gaza continued unabated, while U.S. military action escalated in Iraq. Nonetheless, markets eventually shrugged off these concerns, and resumed dip buying which propelled U.S. and Canadian markets to all-time highs. After much fretting over the recent strength of U.S. data, payrolls came in slightly less than expected. At Jackson Hole, Yellen continued to voice concern over labour market slack, which helped calm the hawkish calls and provide a relief rally for rates. Corporate earnings for Q2 were generally positive and GDP growth figures were also solid. In Europe, weak economic activity was troubling for the recovery and spurred more calls for further accommodative action from the ECB.
In commodities, crude sank lower despite the turmoil in Russia and the Middle East. Supply overhang, coupled with declining Asian demand, were headwinds for energy prices. Gold and copper declined while grains staged a slight bounce off the lows.
In the credit markets, high yield had a dramatic bounce from July’s sell-off, as investors stepped in and bought the dip.
The U.S. dollar continued to see strength against most major currencies, however the loonie was able to buck the trend. Strong Canadian jobs data and M&A flows provided a tailwind for CAD strength during the month.

Fund Commentary

The Fund tactically allocates across the credit spectrum including high yield, investment grade, government bonds and cash. The Fund was positive in August as credit, in particular high yield, rallied higher.

The current portfolio is positioned to benefit from increasing demand for corporate debt, with a tilt towards high yield over investment grade debt. With the Fed remaining highly accommodative and the outlook for low rates likely to extend further, the hunt for yield continues to drive demand. High yield saw liquidation flows in July, however dip buying emerged in August which saw prices surge higher for most of the month.

The Fund took advantage of the bounce in high yield and lightened up its position reducing it from approximately 66% to 60%. Exposure to investment grade credit was increased from 34% to 39%.

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