Friday June 6th, 2014
The month of May saw equity markets reach new highs as central governments reiterated their commitment to low rates for a prolonged period of time. Geopolitical concerns in the Ukraine seemed to subside, and Russian equities rebounded. The benign macro environment caused volatility to sink to multi-year lows across most major asset classes. The U.S. continued to see improving indicators in employment, new orders, inventories and housing starts which pointed towards accelerating growth. China data continued to show weakness across purchasing and export data. The ECB is expected to launch additional easing in June where they hope to target deflation with near zero rates.
In commodities, energy and industrial metals gained, while agriculture and precious metals declined. Specifically, gold and silver declined as investors left safe haven investments and rushed back to the equity and high yield debt markets. The Canadian dollar strengthened against the U.S. dollar, ending the month around 1.08. Currency strategists forecast a weaker Canadian dollar in the 1.15 range by the end of the year.
The Fund was up for the month of May from all three of its allocations as the Fund’s exposure to real assets, bonds and dividend paying equities all generated positive returns during the month.
The best performing sectors for income equities were financials, consumer discretionary and telecommunications services, while the worst performing sectors were utilities, energy and materials. Among real assets, the best sectors were real estate and agriculture while the worst sectors were base metals and energy. The bond allocation was up in May with the largest exposure to high yield corporate credit which was also its best performing allocation.
The Fund also instituted a monthly rebalance in its dividend equity portfolio, real asset portfolio and bond portfolio. The Fund continued to hedge its U.S. dollar currency exposure, maintaining a net U.S. dollar exposure of approximately 10% of the Fund’s NAV.