Purpose Total Return Bond Fund May 2016 Commentary

Fund Highlights

  • Better than expected data across U.S. manufacturing, retail sales, and job growth all bolstered calls for a rate hike by July.
  • Improving market-wide Fundamentals has led to tightening credit spreads in corporate and high yield bonds inciting a recent rally. Based on this, the Fund is now completely invested in only these two sleeves with no government bond exposure.
  • Over the month of May, the Fund re-allocated exposure towards high yield bonds from corporate bonds. Both these sleeves have been positive contributors to the Fund.
  • With diminishing upside potential and a possible Fed rate hike along the way in July, it is possible to expect declining returns from the credit spread going forward.

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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