Purpose Total Return Bond Fund January Commentary

Fund Highlights

  • The Fund ended in the red as high yield bonds continued their decline in the current rate environment. The Fund maintained the minimum allocation to high yield of 15% and the potential to capture any rally via an option strategy.
  • Strong U.S. Fundamentals supported expectations of further Fed hikes this year and credit spreads continued to widen on slowing global growth. Conflicting global growth patterns have strained credit spreads and investors continue to flock to safety evident in the yield decline of U.S. 10-Yr treasuries.
  • With crude oil sinking and concerns of economic slowdown looming, the Bank of Canada’s rate outlook remained dovish. Canadian governments bonds were the only positive allocation in January, benefiting from a flight to quality.
  • The Fund increased position in investment grade corporates to 45% and government bonds to 31%, drawing down the defensively positioned cash reserves. This in turn increased the duration and yield of the Fund.

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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