Stock market performance in the first half of 2016 can be characterized by significant weakness to start off the year due to stagnant economic growth and increasingly ineffective monetary policy which led to a lack of investor confidence. However, after most stock markets hit new lows in early February, they staged a meaningful recovery which continued through the second quarter of 2016. Oil prices which declined over 30 percent to a low of $26.21 on February 11, 2016 have maintained a steady uptrend since, topping US$50 per barrel by mid-June and brought much of the energy complex along with it. Soft commodities were also generally higher during the first six months of 2016. The main commodity story, however, was gold. It is the best performing asset class so far in 2016, up over 24% per cent. One might expect to see elevated volatility as investors often flock to gold in times of crisis, however, this was not the case. Interest rates remain low and have even gone into negative levels in some regions, notably Europe and Japan. Surprisingly, stock markets have been calm allowing the VIX to drift lower through much of the period. The first half of 2016 was punctuated with “Brexit.” The word was coined to describe Great Britain’s exit from the European Union. A referendum was held on June 23 and the people voted 52-48 percent to leave the EU in a surprise upset. The news roiled global markets immediately following the event but North American markets have since fully recovered. The longer term impacts on the region and the world are not yet known.
On February 1, 2016, the Gold Participation and Income Fund changed its name to the U.S. Tactical Allocation Fund and adopted its new investment objective to provide stable long term returns over the course of a full market cycle with a focus on capital preservation. To this end, the Fund invests in a diversified basket of exchange traded funds (ETFs) that provide direct or indirect exposure to U.S. equity and fixed income markets. Strathbridge Asset Management Inc. (“Strathbridge”), the manager of the Fund, believes that the change to the investment objectives and investment strategy of the Fund will enhance returns and lower volatility going forward. On April 20, 2016, the fund successfully converted from a closed-end fund into an open-end mutual fund. Upon conversion, the Fund consolidated its Class A units on a 0.374038 to 1 basis, resulting in an initial net asset value of $10.00 per Class A unit.
For the period ended June 30, 2016, the net asset value per Class A unit of the U.S. Tactical Allocation Fund was $9.79 compared to $10.27 per unit on February 1, 2016 (adjusted for the Class A unit consolidation on April 21, 2016). The total return of the Fund since the inception date on February 1, 2016 to June 30, 2016 was negative 4.6 percent per Class A unit. The total return for the S&P 500 Index in Canadian dollar terms was 1.0 percent over the same period, while the total return for the Barclays U.S. Aggregate Bond Index was negative 3.9 percent. The best performing sector ETF during the period was the Materials Select Sector SPDR Trust (XLB) which rose 11.5 percent while the Consumer Discretionary Select SPDR Trust (XLY) lagged the group, down 1.8 percent. The U.S. dollar exposure of the Fund was actively hedged back into Canadian dollars throughout the period and ended June with approximately 50 percent of the U.S. dollar hedged.