PURPOSE. Interim Management Report of Fund Performance

Transcription

1 PURPOSE Interim Management Report of Fund Performance PURPOSE DIVERSIFIED REAL ASSET FUND For the financial period ended June 30, 2015

2 PURPOSE DIVERSIFIED REAL ASSET FUND PURPOSE INVESTMENTS TABLE OF CONTENTS This interim management report of fund performance ( MRFP ) contains financial highlights but does not contain interim financial statements of the investment fund. You can get a copy of the interim financial statements at your request, and at no cost, by visiting our website at or SEDAR at by calling or by writing to us at Purpose Investments Inc., 130 Adelaide Street West, Suite 1700, P.O. Box 83, Toronto, Ontario M5H 3P5. In addition, shareholders may also contact us using one of these methods to request copies of the Fund s annual financial report, proxy voting policies and procedures, proxy voting disclosure records, and quarterly portfolio disclosures. For more information on the Fund s current and historical net asset value per share, please visit Caution regarding forward-looking statements Inside front cover Interim management report of fund performance 1 Financial highlights 2 Summary of investment portfolio 6 Corporate information Back cover CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements about the Fund, including its strategy, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as expects, anticipates, intends, plans, believes, estimates, or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future action, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties, and assumptions about the Fund and economic factors. Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made by the Fund. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the abovementioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decisions, and urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware of the fact that the Fund has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, prior to the release of the next Management Report of Fund Performance. ii PURPOSEINVEST.COM

3 PURPOSE INVESTMENTS PURPOSE DIVERSIFIED REAL ASSET FUND INTERIM MANAGEMENT REPORT OF FUND PERFORMANCE The interim management report of fund performance presents the views of the portfolio management team concerning significant factors and developments that have affected the Fund s performance and outlook. Please read the caution on the inside of the cover page regarding forward-looking statements. INVESTMENT OBJECTIVES AND STRATEGIES Purpose Diversified Real Asset Fund (the Fund ) seeks to provide shareholders with exposure to a diversified portfolio of asset classes that are directly or indirectly linked to physical assets with positive correlation to inflation and are expected to maintain their real (after inflation) value over time. These assets may include precious metals and related equities; industrial, energy and agricultural commodities and related equities; real estate investment trusts ( REITs ); emerging market ( EM ) currencies; real return bonds and treasury inflation-protected securities ( TIPS ) and cash. Purpose Investments Inc. ( Purpose or the Manager ) is the manager of the Fund. Breton Hill Capital Ltd. acts as the investment sub-advisor ( Investment Sub-Advisor ) to the Fund. The investment strategy of the Fund is to invest in a risk-balanced portfolio diversified across inflation-sensitive assets in order to achieve its investment objectives. The Fund may also hold cash and cash equivalents or other money market instruments in order to meet its current obligations. The Fund may use various asset classes to provide positive correlation to inflation including: precious metals and related equities; industrial, energy and agricultural commodities and related equities; REITs; emerging market currencies; real return bonds and treasury inflation-protected securities TIPS and cash. The Fund is tactically rebalanced on a quarterly basis with a risk-parity based asset allocation. Risk-parity is a core risk-focused asset allocation strategy targeting equal volatility contributions by asset classes held in the Fund. By combining these potential benefits, the strategy can serve as a compelling, comprehensive investment for those seeking to not only hedge inflation, but also potentially benefit from trends and changes in inflation. All or a portion of the foreign currency exposure of the Fund may be hedged back to the Canadian dollar. The Fund will employ commodity futures but will not employ leverage. RISK The risks of investing in the Fund are disclosed in the Fund s prospectus. The Fund improved its diversification by increasing the number of real estate holdings and commodity holdings. Commodity holdings are now dynamically rebalanced on a monthly basis based on factors such as momentum and roll yield. Previously, commodity holdings were static. These changes should improve the overall risk profile associated with the Fund. RESULTS OF OPERATIONS The net asset value per share as at: Series June 30, 2015 December 31, ETF Share Series A Series F Series D Series I Series XF From the period January 1, 2015 to June 30, 2015, the Fund s overall returns were negative. Though the Fund s strongest performing sectors were from real estate, Agricultural equities and precious metals equities while the worst performing sectors were commodities, base metals equities and energy equities. Canadian REITS outperformed after the Bank of Canada took a dovish stance and unexpectedly cut rates. Grains and agricultural equities rallied after poor weather negatively impacted the outlook for crop yields in North America. Base metals and mining equities were the worst performers. Copper made new cycle lows on waning Chinese demand and overhang from large stockpiles. Energy equities sank as crude prices languished from large global oversupply. Canadian energy names saw further decline after the new NDP government in Alberta promised additional tax cuts and increased royalties on companies. During the first half of the year, the US dollar appreciated relative to the Canadian dollar by approximately 7% and the unhedged U.S exposure within the fund was a strong tailwind. During the period ended June 30, 2015, the Fund paid dividends as follows: Month ETF Series A Series F Series D Series I Series XF March June Total RECENT DEVELOPMENTS The first half of 2015 was dominated by central bank actions with most of the focus on the Federal Reserve as it moved closer to hiking interest rates later in the year. This was in stark contrast to other developed nations which conducted massive monetary easing in order to lower bond yields and weaken their currencies in hopes of spurring domestic growth. Canada fell in this group as the Bank of Canada announced a surprise 0.25% cut to the Bank of Canada rate in order to stave off further economic drag caused by declining energy prices. Global growth was generally lacklustre although there were signs of economic traction in Europe and Japan which benefitted from domestic stimulus programs. Geopolitical tail risk re-emerged with the increasing likelihood that Greece would default on its loan payments at the end of June. The ramifications of a Greece exit on the future solidarity of the Euro heightened uncertainty and risk aversion across markets. Stock markets reflected the divergence in monetary policy rewarding Europe and Japan which outperformed U.S markets. Currency markets were volatile as the U.S. dollar continued to rally against most major currencies although not in a straight line. Commodity prices were mixed. After seeing a correction higher on evidence of declining U.S production, crude prices remained heavy on the back of slowing demand and OPEC overhang. Copper prices fell on signs of weakening Chinese demand. Grain prices bucked the trend seeing a large rally after poor weather and planting unexpectedly lowered the outlook for crop yields. In general, we expect that the Fed is on a path to hike rates in the latter half of the year which may keep U.S risk assets neutral or range bound in the short term. This could prove to be an overhang for dividend paying stocks and rates sensitive sectors as bond yields become relatively more attractive. Canadian markets will continue to face headwinds from weak energy prices and the vulnerability of the banking system to housing and sluggish growth. The U.S dollar should maintain its outperformance vs other major currencies as monetary policies will likely remain divergent. We expect that commodities will continue to face headwinds in 2015 from sluggish global demand and large supply imbalances. RELATED PARTY TRANSACTIONS Purpose is deemed to be a related party as Manager of the Fund. Please refer below to the Management Fee section for fees paid to Purpose. Purpose has also appointed an Independent Review Committee ( IRC ) as required by National Instrument Independent Review Committee for Investment Funds. The mandate of the IRC is to review, and provide input on, the Manager s written policies and procedures that deal with conflict of interest matters in respect of the Funds. IRC members receive fees and reimbursement of expenses for services provided to the Fund and other Purpose managed funds and such costs are allocated among all the funds on a fair and reasonable basis. To date the Purpose IRC has met two times in The fees for services rendered to the Funds are reported in the Statements of Comprehensive Income. There are no other related party transactions for the Fund. PURPOSEINVEST.COM 1

4 PURPOSE DIVERSIFIED REAL ASSET FUND PURPOSE INVESTMENTS FINANCIAL HIGHLIGHTS The following tables show selected key financial information about the Fund and are intended to help you understand the Fund s financial performance for the period ended June 30, ETF Share 2013 (b) Net assets, beginning of period (c) Increase (decrease) from operations: Total revenue Total expenses (0.11) (0.18) (0.05) Realized gains (losses) for the period 0.21 (0.22) (0.23) Unrealized gains (losses) for the period (0.22) (0.31) 0.48 Total increase (decrease) from operations (2) 0.06 (0.34) 0.32 From dividends (0.16) (0.17) (0.03) Return of capital (0.26) (0.07) Total dividends (3) (0.16) (0.43) (0.10) Net assets, end of period (b) Information presented is for the period September 3, 2013 to December 31, ETF Share Total net asset value (000s) (1) $ 3,759 $ 4,756 $ 9,094 Number of shares outstanding (000s) (1) Management expense ratio (2) 0.74% 0.77% 0.73% Management expense ratio before waivers or absorptions (2) 0.74% 0.77% 0.75% Trading expense ratio (3) 0.23% 0.06% 0.09% Portfolio turnover rate (4) 40.26% 46.15% 17.62% Closing market price $ $ $ net asset value calculated for fund pricing purposes ( ) and is provided as at December 31 of the commissions and other portfolio transaction costs, for the stated period and is expressed as an annualized percentage of the average daily of the Fund. The Manager, at its sole discretion, may waive management fees or absorb expenses. Such waivers and absorptions can be terminated at any time. If the Fund invests in underlying funds managed by the Manager, the Manager does not charge management fees and administrative fees that would result in the duplication of a fee for the same services. as an annualized percentage of the Fund s daily average. The trading expense ratio is calculated at the portfolio level and Series A 2013 (b) Net assets, beginning of period (c) Increase (decrease) from operations: Total revenue Total expenses (0.22) (0.41) (0.12) Realized gains (losses) for the period 0.21 (0.22) (0.23) Unrealized gains (losses) for the period (0.29) (1.05) 2.30 Total increase (decrease) from operations (2) (0.12) (1.31) 2.07 From dividends (0.16) (0.17) (0.01) Return of capital (0.09) (0.04) Total dividends (3) (0.16) (0.26) (0.05) Net assets, end of period (b) Information presented is for the period September 3, 2013 to December 31, Series A Total net asset value (000s) (1) $ 380 $ 421 $ 173 Number of shares outstanding (000s) (1) Management expense ratio (2) 1.84% 1.86% 1.73% Management expense ratio before waivers or absorptions (2) 1.84% 1.86% 1.76% Trading expense ratio (3) 0.23% 0.06% 0.09% Portfolio turnover rate (4) 40.26% 46.15% 17.62% net asset value calculated for fund pricing purposes ( ) and is provided as at December 31 of the commissions and other portfolio transaction costs, for the stated period and is expressed as an annualized percentage of the average daily of the Fund. The Manager, at its sole discretion, may waive management fees or absorb expenses. Such waivers and absorptions can be terminated at any time. If the Fund invests in underlying funds managed by the Manager, the Manager does not charge management fees and administrative fees that would result in the duplication of a fee for the same services. as an annualized percentage of the Fund s daily average. The trading expense ratio is calculated at the portfolio level and 5. The Series A, Series F, Series D, Series I, and Series XF of the Fund are not traded on a stock exchange. 2 PURPOSEINVEST.COM

5 PURPOSE INVESTMENTS PURPOSE DIVERSIFIED REAL ASSET FUND Series F 2013 (b) Net assets, beginning of period (c) Increase from operations: Total revenue Total expenses (0.11) (0.18) (0.05) Realized losses for the period 0.21 (0.21) (0.23) Unrealized gains (losses) for the period (0.34) (1.29) 2.24 Total increase (decrease) from operations (2) (0.06) (1.31) 2.08 From dividends (0.16) (0.16) (0.01) Return of capital (0.27) (0.09) Total dividends (3) (0.16) (0.43) (0.10) Net assets, end of period (b) Information presented is for the period September 3, 2013 to December 31, Series F Total net asset value (000s) (1) $ 1,822 $ 1,909 $ 1,394 Number of shares outstanding (000s) (1) Management expense ratio (2) 0.75% 0.77% 0.70% Management expense ratio before waivers or absorptions (2) 0.75% 0.77% 0.72% Trading expense ratio (3) 0.23% 0.06% 0.09% Portfolio turnover rate (4) 40.26% 46.15% 17.62% net asset value calculated for fund pricing purposes ( ) and is provided as at December 31 of the commissions and other portfolio transaction costs, for the stated period and is expressed as an annualized percentage of the average daily of the Fund. The Manager, at its sole discretion, may waive management fees or absorb expenses. Such waivers and absorptions can be terminated at any time. If the Fund invests in underlying funds managed by the Manager, the Manager does not charge management fees and administrative fees that would result in the duplication of a fee for the same services. as an annualized percentage of the Fund s daily average. The trading expense ratio is calculated at the portfolio level and 5. The Series A, Series F, Series D, Series I, and Series XF of the Fund are not traded on a stock exchange. Series D (b) Net assets, beginning of period (c) Increase from operations: Total revenue Total expenses (0.14) (0.04) Realized losses for the period 0.22 (0.04) Unrealized losses for the period (0.38) (0.25) Total decrease from operations (2) (0.12) (0.27) From dividends (0.16) (0.03) Return of capital (0.08) Total dividends (3) (0.16) (0.11) Net assets, end of period (b) Information presented is for the period November 5, to December 31. Series D 2015 Total net asset value (000s) (1) $ 1 $ 1 Number of shares outstanding (000s) (1) Management expense ratio (2) 1.03% 1.05% Management expense ratio before waivers or absorptions (2) 1.03% 1.05% Trading expense ratio (3) 0.23% 0.06% Portfolio turnover rate (4) 40.26% 46.15% net asset value calculated for fund pricing purposes ( ) and is provided as at December 31 of the commissions and other portfolio transaction costs, for the stated period and is expressed as an annualized percentage of the average daily of the Fund. The Manager, at its sole discretion, may waive management fees or absorb expenses. Such waivers and absorptions can be terminated at any time. If the Fund invests in underlying funds managed by the Manager, the Manager does not charge management fees and administrative fees that would result in the duplication of a fee for the same services. as an annualized percentage of the Fund s daily average. The trading expense ratio is calculated at the portfolio level and 5. The Series A, Series F, Series D, Series I, and Series XF of the Fund are not traded on a stock exchange. PURPOSEINVEST.COM 3

6 PURPOSE DIVERSIFIED REAL ASSET FUND PURPOSE INVESTMENTS Series I 2013 (b) Net assets, beginning of period (c) Increase from operations: Total revenue Realized losses for the period 0.19 (0.20) (0.20) Unrealized gains (losses) for the period (0.39) (0.79) 0.40 Total increase (decrease) from operations (2) (0.01) (0.60) 0.40 From dividends (0.22) (0.16) (0.13) Return of capital (0.42) Total dividends (3) (0.22) (0.58) (0.13) Net assets, end of period (b) Information presented is for the period September 3, 2013 to December 31, Series I Total net asset value (000s) (1) $ $ $ Number of shares outstanding (000s) (1) Management expense ratio (2) 0.00% 0.00% 0.00% Management expense ratio before waivers or absorptions (2) 0.00% 0.00% 0.02% Trading expense ratio (3) 0.23% 0.06% 0.09% Portfolio turnover rate (4) 40.26% 46.15% 17.62% net asset value calculated for fund pricing purposes ( ) and is provided as at December 31 of the commissions and other portfolio transaction costs, for the stated period and is expressed as an annualized percentage of the average daily of the Fund. The Manager, at its sole discretion, may waive management fees or absorb expenses. Such waivers and absorptions can be terminated at any time. If the Fund invests in underlying funds managed by the Manager, the Manager does not charge management fees and administrative fees that would result in the duplication of a fee for the same services. as an annualized percentage of the Fund s daily average. The trading expense ratio is calculated at the portfolio level and 5. The Series A, Series F, Series D, Series I, and Series XF of the Fund are not traded on a stock exchange. Series XF Net assets, beginning of period (b) Increase from operations: Total revenue 0.18 Total expenses (0.05) Realized losses for the period 0.07 Unrealized losses for the period (0.83) Total decrease from operations (2) (0.63) Return of capital (0.08) Total dividends (3) (0.08) Net assets, end of period (a) Information presented is for the period April 29, 2015 to June 30, (b) Initial offering price. Series XF 2015 Total net asset value (000s) (1) $ 419 Number of shares outstanding (000s) (1) 22 Management expense ratio (2) 1.25% Management expense ratio before waivers or absorptions (2) 1.25% Trading expense ratio (3) 0.23% Portfolio turnover rate (4) 40.26% net asset value calculated for fund pricing purposes ( ) and is provided as at June 30, commissions and other portfolio transaction costs, for the stated period and is expressed as an annualized percentage of the average daily of the Fund. The Manager, at its sole discretion, may waive management fees or absorb expenses. Such waivers and absorptions can be terminated at any time. If the Fund invests in underlying funds managed by the Manager, the Manager does not charge management fees and administrative fees that would result in the duplication of a fee for the same services. as an annualized percentage of the Fund s daily average. The trading expense ratio is calculated at the portfolio level and proceeds of sales of securities for the period, excluding cash, short-term notes, and bonds having maturity dates at acquisition of one year or less, divided by the average value of the portfolio securities for the period. The Fund s portfolio turnover rate indicates how actively the Fund s investment sub-advisor manages its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Fund buying and selling all of the securities in its portfolio once in the course of the year. The higher the portfolio turnover rate in a year, the greater the trading costs payable in the year and the greater the chance of taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and fund performance. The portfolio turnover rate is calculated at the portfolio level and 5. The Series A, Series F, Series D, Series I, and Series XF of the Fund are not traded on a stock exchange. 4 PURPOSEINVEST.COM

7 PURPOSE INVESTMENTS PURPOSE DIVERSIFIED REAL ASSET FUND MANAGEMENT FEES Purpose manages and administers the business, operations and affairs of the Fund. As compensation for the services it provides to the Fund, Purpose is entitled to receive an annual management fee in an amount equal to 0.60% of the of the ETF, 1.60% of the Series A, 0.60% of the Series F, 0.85% of the Series D, and the management fee for the Series I is negotiated between the investor and Purpose. The management fees are calculated daily and paid monthly in arrears. Purpose utilizes 100% of the management fees to pay investment subadvisory fees, service fees to registered dealers of Series A shareholders, general and administrative expenses and earn revenue. In addition Series XF will pay an additional fee of up to 0.65% per annum on the of the Purpose In-Kind Exchange Fund on a pro-rata basis. The Fund may from time to time invest in the Purpose High Interest Savings ETF ( HIS ), a money market investment fund, which is a related fund managed by Purpose. An investment in HIS may be made where it is an efficient and cost effective way for the Fund to invest cash it may hold from time to time. The investment may only be made on the basis that there shall be no duplication of management fees. PAST PERFORMANCE Please note that the performance information shown in this section assumes that all dividends made by the Fund, if any, in the periods shown were reinvested in additional securities of the Fund. It does not take into account sales, redemptions, distributions or other optional charges, or income taxes payable by any investor, which would have reduced the returns. The performance of the Fund in the past does not necessarily indicate how it will perform in the future. YEAR-BY-YEAR RETURNS The bar charts show the performance of each Series of shares for the financial period in percentage terms, indicating how much an investment made on the first day of the period would have grown or decreased by the last day of the period. 5% 0% 5% 10% ETF Market Value 2.1% 3.4% 1.4% 0.4% ETF 3.9% 2015 (1) 2013 (2) 1.5% 1. Return for the period January 1, 2015 to June 30, Return for the period September 3, 2013 to December 31, % 0% 5% Series F Series D (3) 0.4% 0.6% 2.2% 3.9% Series A 1.0% 4.9% 1.2% Series I 1.6% 1.8% 0.1% 3.2% 10% 2015 (1) 2013 (2) 1. Return for the period January 1, 2015 to June 30, Return for the period September 3, 2013 to December 31, Return for the period November 5, to December 31,. 5% Series XF (1) 0% 5% 3.9% 10% Return for the period April 29, 2015 to June 30, PURPOSEINVEST.COM 5

8 PURPOSE DIVERSIFIED REAL ASSET FUND PURPOSE INVESTMENTS SUMMARY OF INVESTMENT PORTFOLIO As at June 30, 2015 ASSET MIX % of Fund s Net Asset Value Canadian Equities U.S. Equities Canadian REITs U.S. REITs Commodity Futures 0.97 Cash and Cash Equivalents (1) Net Other Assets (0.44) Total Net Asset Value SECTOR MIX % of Fund s Net Asset Value Materials Real Estate Energy Consumer Staples 4.92 Consumer Discretionary 0.15 Agricultural Futures 1.23 Metal Futures (0.10) Livestock Futures (0.16) Cash and Cash Equivalents (1) Net Other Assets (0.44) Total Net Asset Value (1) Cash and cash equivalents includes investment in Purpose High Interest Savings ETF. TOP 25 HOLDINGS % of Fund s Net Asset Value Cash and Cash Equivalents (1) SPDR Gold Trust 6.31 Monsanto Co i Silver Trust 3.10 Archer-Daniels-Midland Co Potash Corp. of Saskatchewan Inc First Quantum Minerals Ltd Mosaic Co. (The) 1.95 RioCan REIT 1.87 Agrium Inc CF Industries Holdings Inc Teck Resources Ltd., Class 'B' 1.68 Suncor Energy Inc Calloway REIT 1.56 Hospitality Properties Trust 1.55 Corrections Corp. of America 1.52 Imperial Oil Ltd Home Properties Inc Canadian Natural Resources Ltd CREIT 1.29 Turquoise Hill Resources Ltd Ingredion Inc Cominar REIT 1.24 Boardwalk REIT 1.21 Lundin Mining Corp (1) Cash and cash equivalents includes investment in Purpose High Interest Savings ETF. For investments in other investment funds, their prospectus and other information is available at The investment portfolio may change due to ongoing portfolio transactions. An updated listing is available quarterly. 6 PURPOSEINVEST.COM

9 CORPORATE INFORMATION MANAGER Purpose Investments Inc. 130 Adelaide Street West Suite 1700, P.O. Box 83 Toronto, ON M5H 3P5 INVESTMENT SUB-ADVISOR Breton Hill Capital Ltd Yonge Street, Suite 704 Toronto, ON M4S 3C4 LEGAL COUNSEL Osler, Hoskin & Harcourt LLP 1 First Canadian Place Toronto, ON M5X 1B8 AUDITOR Ernst & Young LLP Ernst & Young Tower 222 Bay Street Toronto, ON M5K 1J7 CUSTODIAN CIBC Mellon Trust Company 320 Bay Street P.O. Box 1 Toronto, ON M5H 4A6 REGISTRAR AND TRANSFER AGENT Equity Financial Trust Company 200 University Avenue, Suite 300 Toronto, ON M5H 4H1 SHAREHOLDER AND RECORDKEEPING CIBC Mellon Global Securities Company 320 Bay Street P.O. Box 1 Toronto, ON M5H 4A6 TORONTO STOCK EXCHANGE LISTING Ticker Symbol: PRA BOARD OF DIRECTORS AND INDEPENDENT REVIEW COMMITTEE OF PURPOSE FUND CORP. SOM SEIF President, Chief Executive Officer, Chairman of the Board of Directors and Director DOUGLAS G. HALL Director, Member of the Independent Review Committee RANDALL C. BARNES Director, Member of the Independent Review Committee MICHAEL HOLLEND Director, Member of the Independent Review Committee OFFICERS AND DIRECTORS OF PURPOSE INVESTMENTS INC. SOM SEIF President, Chief Executive Officer, Chairman of the Board of Directors and Director SCOTT BARTHOLOMEW Chief Financial Officer, Chief Operating Officer and Director LARA MISNER Chief Compliance Officer DANIEL RUBIN Vice President, Marketing and Director PURPOSE Purpose Investments Inc. 130 Adelaide Street West Suite 1700 P.O. Box 83 Toronto, ON M5H 3P5 T: TF: F: info@purposeinvest.com