Purpose Investments Inc., whose products are offered in either mutual-fund or exchange-traded-fund options, today launched a pair of alternative-strategies funds. They are Purpose Multi-Strategy Market Neutral and Purpose Enhanced U.S. Equity. As with other funds offered by Purpose, portfolio management will be carried out by Breton Hill Capital Ltd., which holds a minority stake in Purpose. Both companies are privately owned and based in Toronto.
Som Seif, president, CEO and majority shareholder of Purpose, said the two new offerings provide retail investors more accessible and lower-cost alternatives to traditional hedge funds.
Unlike most hedge funds, which are sold via offering memorandum, have high minimum investments and are available only to accredited investors, the Purpose funds are offered by prospectus and are more affordable. For the mutual-fund units, the minimum investment and the minimum balance that must be maintained is $5,000. Purpose said it will provide daily liquidity and daily transparency of holdings, and no performance fees will be charged.
Purpose Multi-Strategy Market Neutral (PMM/TSX) is the first market-neutral ETF in Canada. It seeks to provide positive absolute returns, regardless of market conditions, by taking long and short positions in various asset classes including equities, fixed-income securities, currencies and commodities.
Breton Hill's selection of individual stocks and other securities is based on multi-factor, rules-based methodologies. The fund's equity exposure will range from zero to 50%, according to the prospectus, with hedging accomplished through the use of market-index futures contracts. The fund is starting out with 35% equity net exposure.
The other new fund, Purpose Enhanced U.S. Equity, has received a regulatory exemption to allow it to employ leverage to increase its exposure to its portfolio securities to up to 130% of the fund's net assets. The 130% long position will generally be offset by holding short positions amounting to 30% of fund assets. This is known as a 130-30 strategy.
The goal of Breton Hill's multi-factor, rules-based approach is to provide long-term capital appreciation and superior risk-adjusted returns relative to the broad U.S. equity market.
As with the market-neutral fund, Breton Hill's stock selection will emphasize factors that have been shown historically to be effective at differentiating between strong and weak performing stocks. These factors include those based on valuations, growth and quality. Market-index futures contracts may be used to adjust the fund's equity exposure. Portfolio holdings will normally be reconstituted and rebalanced monthly, but Breton Hill may vary the frequency at its discretion.
There are two ETF share classes of Purpose Enhanced U.S. Equity. They are PEU (currency hedged) and PEU.B (non-currency hedged), respectively. The "non-hedged" ETF class is permitted to make active decisions on currency exposure.
The management fee for the ETF units is 0.95% for Purpose Multi-Strategy Market Neutral and 0.80% for Purpose Enhanced US Equity. For the mutual-fund series, the management fee is the same for the Class F units, and one full percentage point higher for Class A, which pays an annual 1% trailer fee to distributors.
Purpose has also created Class D units for distribution through discount brokers. Their management fees are 75 basis points lower than Class A because the trailer fee has been discounted to 0.25%.
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