The Harbour Group of RBC Dominion Securities All for One: You TM

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1 RBC Dominion Securities Inc. The Harbour Group of RBC Dominion Securities All for One: You TM Can January s momentum continue? February, 2019

2 Equities Strong Out of the Gate in December s volatility provided solid foundation for 2019 Investor sentiment became washed out in December, to levels that have historically been followed by market gains. Sharp declines such as those in December are troubling, but historically set markets up for better returns going forward. 2. Don t let short-term performance drive long-term thinking Heightened volatility can lead to short-term decision making which can have long-term implications for portfolios. A long-term focus is the best prescription to manage through short-term volatility. 3. Outlook for 2019 remains constructive for equities Economic data points to continued growth. TSX outperformed in January, a trend that has room to run. Fixed income markets face downside risk. Conditions are ripe for dividend growth investing. 4. Risks we are monitoring Risks often emerge in fixed income markets first, and we are seeking out opportunities to upgrade quality. Canadian housing market slowdown starting to emerge in GDP and consumer debt statistics. The U.S. dollar is the best hedge against downside risk to the Canadian economy. Source: RBC Wealth Management 2 Can January's momentum continue?

3 Theme #1 December s volatility provided solid foundation for Can January's momentum continue?

4 Nowhere to hide in global equities last year 4 Can January's momentum continue?

5 The price of panicking during a selloff can be high Quarters with larger pullbacks than Q Performance Following Quarter Following Year Following 3-years (annualized) Following 5- years (annualized) Q % 9.4% 38.1% 20.0% 16.9% Q % 5.7% 16.6% 14.1% 15.8% Q % -11.0% 26.4% 14.1% 17.9% Q % 3.7% 31.1% 19.1% 14.2% Q % 16.9% 41.8% 16.3% 9.3% Q % 8.4% 24.4% 16.7% 15.4% Q % 10.7% -20.5% 4.0% 7.0% Q % 11.8% 30.2% 23.0% 16.3% Q % 8.9% 31.1% 18.0% 17.2% Average 7.2% 24.4% 16.1% 14.5% Source: Bloomberg, RBC GAM. S&P 500 TR (USD). Data from January 1, 1950 to December 31, An investment cannot be made directly into an index. The graph does not reflect transaction costs, investment management fees or taxes. If such costs and fees were reflected, returns would be lower. Past performance is not a guarantee of future results 5 Can January's momentum continue?

6 Multiple down years in succession a rarity in the U.S. 6 Can January's momentum continue?

7 Presidential Cycle bodes well for stocks 7 Can January's momentum continue?

8 Theme #2 Don t let short-term performance drive long-term thinking 8 Can January's momentum continue?

9 Short term decisions have long term implications In a study by DALBAR, it was found that U.S. equity mutual fund investors underperformed the S&P 500 by nearly 200bps each and every year. Over time this makes a significant difference in market value, as shown below. The study found that the majority of the difference was explained by emotional reactions during periods of market stress, resulting in poor timing decisions Source: DALBAR; 20-year period ended December Can January's momentum continue?

10 While markets have been challenging, some long-term context is key Source: Mackenzie Investments 10 Can January's momentum continue?

11 The importance of perspective Volatility has abated for now but when it returns, keeping perspective is paramount. Historical odds of each holding period being positive In the short term, anything can happen. but wealth creation in equities is the result of longterm patience Source: Bloomberg, RBC GAM. S&P 500 TR (USD). Data as of January 1, 1950 to December 31, An investment cannot be made directly into an index. The graph does not reflect transaction costs, investment management fees or taxes. If such costs and fees were reflected, returns would be lower. Past performance is not a guarantee of future results 11 Can January's momentum continue?

12 Theme #3 Outlook for 2019 remains constructive for equities 12 Can January's momentum continue?

13 Economy is late cycle but no imminent recession seen 13 Can January's momentum continue?

14 TSX back on top in 2019 can the momentum continue? S&P 500 relative to S&P/TSX 14 Can January's momentum continue?

15 Prospective equity returns exceed bonds RBC Asset Management s projections for the next 12 months suggest equities have a higher potential return than fixed income. Non-U.S. equity markets are trading at more attractive valuations, and hence are poised to outperform should sentiment shift away from growth investing toward value. RBC Global Asset Management Forecast Estimated Price Return Forecasts 31-Dec-18 November 19 Change Estimate S&P 500 2,507 2, % S&P/TSX Composite 14,323 16,350 2,027 14% MSCI Europe % FTSE 100 6,728 7, % Nikkei 20,015 24,500 4,485 22% MSCI Emerging Markets 966 1, % Source: RBC Global Asset Management 15 Can January's momentum continue?

16 Bond yield risk skewed once again toward higher yields (and lower bond prices) Bond markets have quickly dismissed the notion of ANY rate increases in 2019 While this is certainly possible, we don t believe it is a 100% probability and there is a reasonable chance the pendulum has swung a bit too far 16 Can January's momentum continue?

17 Conditions ripe for dividend growth investing Dividend growth has outperformed in Canada over the long term. Reinvestment of dividend income in volatile markets can add meaningfully to return over time. Value of $1000 $29,012 Div. Growers $16,559 Div. Payers $5,996 TSX $1,675 Div. Cutters $935 Non-Payers As of November 31, Can January's momentum continue?

18 Theme #4 Risks we are monitoring 18 Can January's momentum continue?

19 Late cycle investing favours equities over credit Corporate bonds have been strong to start 2019, trading at levels that do not leave much of a margin of safety. We would rather spend our risk budget on equities in this environment. 19 Can January's momentum continue?

20 Housing slowdown going from forecast to reality Evidence is starting to mount that the Canadian housing market is slowing sharply. Sales activity fell first, followed by prices and now construction. 20 Can January's momentum continue?

21 Higher interest rates stressing Canadian consumers Consumer debt in Canada has long been a concern. It is early days, but it appears higher interest rates are starting to bite. 21 Can January's momentum continue?

22 U.S. Dollar Our Preferred Hedge to Canadian Risk Should the risks outlined above lead to a weaker overall economy, the most likely beneficiary is the U.S. dollar. Even if these risks don t materialize, it appears the new USMCA deal is being politicized, which creates headline risk for the Canadian dollar. 22 Can January's momentum continue?

23 History doesn t repeat, but it often rhymes When oil prices collapsed 2015/16, the U.S. dollar was one of the best investments a Canadian investor could have held. 23 Can January's momentum continue?

24 In summary With the reset in valuations in December, markets are off to a strong start in Volatility is likely to continue, and when short-term market moves are dominating the headlines, it is best to take a long-term view. Recession indicators remain benign and earnings growth is set to continue. Historically, weak quarters are followed by gains in equities. The TSX outperformed in January, a trend that just might have legs. Prospective returns continue to be higher in equity markets than fixed income. We believe a window is open to reduce risk in fixed income portfolios as interest rates have fallen sharply. Housing risks in Canada look closer to becoming a reality. Should this happen, the U.S. dollar is likely to be one of the most effective hedges we can hold in portfolios. 24 Can January's momentum continue?

25 Disclaimer There are many opportunities and solutions available to assist you in meeting your investment and estate planning goals. However, because of the complexity of integrating your corporate and personal goals, considering the different tax systems, it is essential that you involve the appropriate professionals in order to maximize these opportunities and accomplish your goals in the most tax-effective manner. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. Registered trademarks of Royal Bank of Canada. Used under licence Royal Bank of Canada. All rights reserved. 25 Can January's momentum continue?