RICHARDSON GMP ASSET MANAGEMENT. Cornerstone

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1 RICHARDSON GMP ASSET MANAGEMENT Cornerstone RICHARDSON GMP ASSET MANAGEMENT TEAM Craig Basinger, CFA Chief Investment Officer Gareth Watson, CFA Director, Investment Management Group Derek Benedet, CMT Chris Kerlow, CFA ADDITIONAL MACRO CONTRIBUTORS Michael Lynds, MBA Portfolio Manager Joey Mack, CFA Director of Fixed Income GMP Securities Introduction to Cornerstone Cornerstone is not a product, but an open and transparent process that represents the investment strategy of the RGMP Asset Management Team. Leveraging the skills and resources of the team, Cornerstone offers advisors and clients a comprehensive and thorough investment process. How advisors use this process is completely up to them. Some don t use it at all, some for ideas on portfolio construction or thematics in managing assets. Some advisors use in a guided format. Or the Cornerstone process can be implemented in its entirety via the SMA platform or coding a PMA account to follow Cornerstone, where we trade the account centrally. It is an open and transparent process, take as much or as little as you like to help your business. How to Use Cornerstone Cornerstone is an open and transparent top down investment process that is a low turnover and cost effective managed asset solution. Mandates encompass both Canadian and US equities including GARP and dividend focus. Plus both active and passive Canadian fixed income portfolios. Macro Strategy Cornerstone portfolios are managed and positioned based on the teams macro outlook subject to the parameters and objectives of specific mandates. This provides advisors insights for asset allocation within the Diversified Income balanced mandate, recommended sector over/under weights in equity mandates and bond positioning in the fixed income mandate. Portfolio Construction & Monitoring Cornerstone provides a comprehensive and thorough approach to portfolio construction. This incorporates various risk metrics at both the company and portfolio level. Additionally, the portfolios are constantly monitored, researched and tested. Comprehensive Solutions To benefit from all the work and analysis that goes into managing the Cornerstone mandates, the portfolios are available on the SMA and PMA platforms. Currently there are approximately $175m in SMA and $75m in PMA. MANDATE STRATEGY INCEPTION CODE Cornerstone Canada Canadian equity Jan 2013 RMODCORNCE Cornerstone Canadian Dividend Canadian equity focused on dividends Aug 2008 RMODCORNE4 Cornerstone Core Income Cornerstone Diversified Income Canadian equity with some US equity focused on dividends Canadian equity with some US equity focused on dividends plus bonds Apr 2011 Jan 2012 RMODCORNIN RMODCORNDI Cornerstone US US equity Jan 2010 RMODCORNE3 Cornerstone US Dividend US equity focused on dividends Jun 2011 RMODCORNE5 Cornerstone Laddered Bond Passive Canadian bond ladder Jun 2006 RMODCORNFI Cornerstone Fixed Income Canadian bonds, more active Feb 2009 RMODCORNE1 Cornerstone Tactical ETF Alternative trading strategy Sep 2011 RMODCORNTE

2 INVESTMENT PROCESS Getting the macro environment right goes a long way in helping successfully manage money. We focus a great deal of analytical energy and effort on making the correct macro calls about sector allocations and themes. While diversified and in line with specific mandate parameters, our investment process hones in on a number of key investment themes that are reflected in our sector and stock selection. Multidiscipline stock selection approach combines relative valuations and fundamental company analysis with technicals for timely entry and exit points. Macro Monday Portfolio review day Monday Movers review every individual stock holding for price rises or declines that may trigger action. Plus any holdings nearing revisit price zones. Week Ahead A schedule of any earnings, conference calls, conferences in the coming week that impact our current portfolio holdings. Tuesday Bull vs. Bear For any positions highlighted in Monday Movers, conduct an open discussion testing the hypothesis of why we own, should we continue to own, risk/reward balance, etc. Discussion takes on a Bull vs. Bear debate format. Wednesday New ideas Key themes Members bring new ideas not currently in any portfolios or on our radar. Names have to be circulated Tuesday. Fundamental / Quantitative/ Risk Management CORNERSTONE Investment Management Committee (IMC) The IMC is responsible for the management of the Cornerstone program. The seven member team headed by the Chief Investment Officer contains 3 portfolio managers, 5 holders of the CFA designation and 1 Chartered Market Technician. Brief bios of all IMC members are included at the end of this document. Structurally, the IMC is broken into a Macro IMC and a Micro IMC. The Macro IMC team focuses on bigger market trends and portfolio positioning. The Micro IMC is responsible for portfolio construction, monitoring and implementation. Thursday Sector / Thematics Review a sector or sub-sector testing current strategy, exposures, lack of exposures. We also test portfolio thematics. A list of companies researched, themes tested, conference calls listened to and other aspects will be included in an internal publication shortly. For more details on items researched, please contact any member of the IMC. TRADE COMMUNICATION Upon completion of trades for modeled portfolios in SMA and PMA, the IMC communicates trade rationales including the basis for the changes. Our objective is to communicate the trades as soon as possible either later that day or early the next day for those using Cornerstone as an input into their investment process. Macro IMC meets every 2nd week to discuss, debate, share views on macro landscape including broader indices, sectors, currencies, yields and commodities. This group is a key input that helps drive our macro views in regular publications and portfolio management strategies for the Cornerstone mandates. This team publishes an internal report sharing the key takeaways from the meeting. Micro IMC team meets four days a week and is responsible for the portfolio management of the Cornerstone portfolios. This includes portfolio monitoring and reviewing, performance monitoring and attribution, testing the basis for existing holdings, portfolio tilts, and new ideas.

3 CORNERSTONE MANDATES CORNERSTONE CANADA CORNERSTONE CANADIAN DIVIDEND SMA/PMA Code: RMODCORNE4 SMA/PMA Code: RMODCORNCE Capital appreciation is the primary objective of the actively managed Cornerstone Canada equity portfolio. The portfolio combines our key macro trends and thematics with bottom up analysis. Geographic: Canada Style: Primarily large cap with select smaller cap names Objective: Actively managed for capital appreciation Approx # Holdings: Estimated Annual Trades: Benchmark: TSX Total Return Macro views Getting the macro environment right goes a long way in helping successfully manage money. We focus a great deal of analytical energy and effort on making the correct macro calls about sector allocations and themes. Thematically driven While diversified, our investment process hones in on a number of key investment themes that are reflected in our sector and stock selection. Multidiscipline stock selection approach combines relative valuations and fundamental company analysis with technicals for timely entry and exit points. Attention users of the Previous Cornerstone Canada (RMODCORNE2) The two portfolios are approximately 80% inline and we continue to manage both. A final merge will occur in the coming quarters. Calculators will be posted for both portfolios on our intranet site until the portfolios merge. For those following on a guided basis, trade alerts for both will continue to be circulated firm wide. Trades for RMODCORNE2 will be labeled Former Cornerstone Canada. Any new money should be directed to Cornerstone Canada (RMODCORNCE). Sustainable dividends with moderate capital appreciation is the duel objectives of the Cornerstone Canadian Dividend Portfolio. Investing solely in Canadian dividend paying companies the portfolio is intended to have a below market level of risk and low turnover. The portfolio combines our macro view tilts where applicable in the Canadian dividend space. Additional key inputs include Bloomberg Dividend Health for sustainability and below market volatility measures. Geographic: Canada Style: Dividend Focus Objective: Actively managed focused on income generation with moderate capital appreciation Approx # Holdings: Estimated Annual Trades: Benchmark: TSX Total Return Dividend Quality Cornerstone Canadian Dividend focuses on dividend sustainability, quality and a company s ability to increase dividends over time. This approach places great emphasis on both the level and changes to payout ratios, free cash flow generation, leverage and earnings stability. Risk Management The Canadian dividend universe tends to be concentrated in a handful of sectors. This creates concentration risk that we attempt to mitigate by diversifying across sectors and limiting exposures. Plus, interest rate sensitivity varies across dividend paying companies. With bond yields likely to rise, we attempt to diversify this risk by balancing interest rate sensitives with cyclical yield. Note: we changed the name of this portfolio from Dividend Growth to Canadian Dividend and are changing the benchmark from the DJ Select Canadian Dividend to TSX Total Return.

4 CORNERSTONE CORE INCOME CORNERSTONE DIVERSIFIED INCOME SMA/PMA Code: RMODCORNIN Sustainable dividends with moderate capital appreciation is the duel objectives of the Cornerstone Core Income Portfolio. Investing primarily in Canadian dividend paying companies the portfolio can also invest in US dividend paying names and ETFs. The total US exposure neutral weight is 20% and can range from 0 to 35%, dependent on our outlook. The portfolio is intended to have a below market level of risk and low turnover. The portfolio combines our macro view tilts where applicable in the Canadian and US dividend space. Additional key inputs include Bloomberg Dividend Health and below market volatility measures. Geographic: Canada with some US Style: Dividend yield and sustainability Objective: Actively managed for primarily income with some capital appreciation Approx # Holdings: Estimated Annual Trades: Benchmark: TSX Total Return Dividend Quality Cornerstone Core Income focuses on dividend sustainability, quality and a company s ability to increase dividends over time. This approach places great emphasis on both the level and changes to payout ratios, free cash flow generation, leverage and earnings stability. Risk Management The Canadian dividend universe tends to be concentrated in a handful of sectors. This creates concentration risk that we attempt to mitigate by diversifying across more sectors and select US positions. Plus, interest rate sensitivity varies across dividend paying companies. With bond yields likely to rise, we attempt to diversify this risk by balancing interest rate sensitives with cyclical yield. SMA/PMA Code: RMODCORNDI The Cornerstone Diversified Income is an actively managed balanced portfolio of North American securities with an objective of maximizing income and capital preservation, with moderate growth as a secondary objective. With a 60% equity / 40% fixed income neutral position, the portfolio can be tilted up to +/- 15% based on our macro outlook. Focused on sustainable income/dividends, additional key inputs include Bloomberg Dividend Health and below market volatility measures. Asset Class: Balanced (equity and bonds) Geographic: Primarily Canadian with some US Style: Interest income, dividend yield and ability to grow dividends. Objective: Primarily income and capital preservation with capital appreciation potential. Approx # Holdings: Estimated Annual Trades: Benchmark: 60% TSX Total Return 40% Dex Income & Stability Cornerstone Diversified Income focuses on income stream sustainability and the quality of the underlying companies. Sources of income are diversified across asset type, geography and type of business to provide both stability of income and to reduce overall volatility. Risk Management The income universe tends to be concentrated in a handful of sectors. This creates a concentration risk that we attempt to mitigate by diversifying across more sectors, select US positions and asset classes. Attention users of the Cornerstone Balanced mandate (RMODCORNE6) we continue to manage both portfolios that are approximately 60% integrated. Given the lower turnover of these strategies, full integration will likely take a few more quarters. Commentaries will be based on Diversified Income but only reference companies held by both portfolios. For those following on a guided basis, we will continue to circulate trade rationales for both however any new money should be directed to the Cornerstone Diversified Income portfolio.

5 CORNERSTONE US SMA/PMA Code: RMODCORNE3 Capital appreciation is the primary objective of the actively managed Cornerstone US portfolio. The portfolio combines our key macro trends and thematics with bottom up analysis. Geographic: US Style: GARP Objective: Actively managed for capital appreciation Approx # of Holdings: Estimated Annual Trades: Benchmark: S&P 500 Total Return Top Down Getting the macro environment right goes a long way in helping successfully manage money. Cornerstone US is actively managed with a focus on identifying and positioning the portfolio to benefit or avoid key long term market trends. This results in key thematics within the portfolio that are tested and reassessed on a continuous basis. Bottom Up The stock selection approach for the Cornerstone US portfolio is growth at a reasonable price. The asset management team s primary input is our internal research capabilities and resources. Additionally we lever a number of external relationships. This fundamental approach is augmented with technicals for timely entry and exit points. Attention users of RGMP Core US this exmpw mandate is still managed and is 80% aligned with Cornerstone US. Over the coming quarters we will be completing the integration and merging of these mandates. CORNERSTONE US DIVIDEND SMA/PMA Code: RMODCORNE5 Sustainable dividends balanced with moderate capital appreciation are the duel objectives of the Cornerstone US Dividend Portfolio. Investing in US dividend paying companies while incorporating our macro views. Additional key inputs include Bloomberg Dividend Health and below market volatility measures. Geographic: US Focus: Dividend & ability to grow dividends Objective: Actively managed to provide income with some capital appreciation potential Approx # of Holdings: Estimated Annual Trades: Benchmark: S&P 500 Total Return Dividend Quality Cornerstone US Dividend focuses on dividend sustainability, quality and a company s ability to increase dividends over time. This approach places great emphasis on both the level and changes to payout ratios, free cash flow generation, leverage and earnings stability. Risk Management The dividend universe tends to be concentrated in a handful of sectors. This creates a concentration risk that we attempt to mitigate by diversifying across more sectors and limiting exposures. Plus, interest rate sensitivity varies across dividend paying companies. With bond yields likely to rise, we attempt to diversify this risk by balancing interest rate sensitives with cyclical yield. CORNERSTONE TACTICAL ETF SMA/PMA Code: RMODCORNTE Tactical ETF was designed to provide consistent long-term capital appreciation with lower volatility and correlation to the overall equity market. The portfolio is designed to add a tactical sidecar component to a traditionally managed portfolio for the purposes of reducing overall volatility, especially in big market swings. & Bonds Geographic: Canada & US Focus: Alternative, Defensive Objective: Long term capital appreciation with lower volatility and lower correlation to the overall equity market Approx # of holdings: 5-8 Benchmark: 75% TSX Total Return 25% S&P 500 TR Bigger Market Swings Market swings have become larger and more pronounced in recent years due to a combination of fund flows, high frequency trading and more fast money, both up and down. A static asset allocation appears ill-equipped for today s markets. Designed as a sidecar strategy for traditionally managed assets, the Tactical ETF Portfolio provides a tactical component with the objective of reducing volatility.

6 Systematic Approach Tactical ETF Portfolio utilizes a technical/quantitative approach to increase equity exposure in up markets and increase bond exposure in down markets. While the portfolio holds only a few key Exchange Traded Funds (ETFs), the holdings oscillate between 100% equity and 100% bonds depending on the signals for the market. CORNERSTONE LADDERED BOND SMA/PMA Code: RMODCORNFI Passive low cost investment approach to bond allocations in the form of a bond ladder. Asset Class: Bonds Geographic : Canada Objective: Capital preservation with income Approx # of holdings: 8-13 Benchmark: DEX Bond UniverseC CORNERSTONE FIXED INCOME SMA/PMA Code: RMODCORNE1 The approach is moderately active with respect to credit and duration management. By taking long term views of the relative value of credit (corporate and provincial bonds) vs. federal government bonds we will try to add value by selecting high quality investment grade issues. We will also manage the portfolio duration by taking a medium-term view of the interest rate environment and adjusting the term of the portfolio accordingly. Asset Class: Bonds Geographic : Canada Objective: Capital preservation with income Approx # of holdings: 8-15 Benchmark: Dex Team Bios Craig D. Basinger, CFA Chief Investment Officer, Portfolio Manager Beginning his investment career in 1995, Craig Basinger has focused on investment strategy and managing Canadian & US equity portfolios for Canadian investors. Craig believes that investment success begins with the big picture. If you are in the wrong sectors, the best stock picking in the world can t save you. A considerable amount of analytical energy is spent on economic expectations, asset allocation, sector views and style/quantitative tilts. These themes are developed and tested continuously. At the company level fundamental research is used in conjunction with a proprietary quantitative scoring system and technical analysis for entry/exit points. This multidisciplined investment approach combines economics, early foundations in quantitative research and fundamental analysis. Gareth Watson, CFA Vice President Gareth s extensive experience in equity research and private client advisory is integral in bolstering the capabilities of Richardson GMP s Investments & Advice Team. In support of his role as corporate spokesperson, Gareth s responsibilities include providing analysis and insight into the markets, working with print, radio, and television (BNN, CBC) media, and educating clients on the dynamics of the global economy. Most recently, Gareth held equity research roles with Scotia Capital from 2001 to In 2005, he joined the Portfolio Advisory Group of ScotiaMcLeod with a focus on large cap Canadian Equities. His responsibilities included developing sound investment strategies, presenting investment portfolio solutions, and assisting investment professionals across the country with their business development initiatives. As a graduate with high distinction from Wilfrid Laurier University in Waterloo, Gareth received his Bachelor of Business Administration degree. He is a member of the Toronto CFA Society as well as a CFA Charterholder. James Price, CFA Portfolio Manager Jamie runs the Richardson GMP trade desk. He is also the first point of contact for advisors whose clients wish to arrange margin loans to fund investments in special situations. In addition to these roles, Jamie contributes the bond portion to The Launch Pad, RGMP s daily market news and commentary, to keep our advisors and clients well informed. In collaboration with our research expert, Craig Basinger, Jamie also produces fixed income exports that include updates on the bond market and economic commentary.jamie graduated from Queen s University with an Honours BA in Economics and Geography in 1997and started in fixed income the same year at First Marathon Securities, which was later acquired by National Bank Financial. Jamie joined First Associates in 2003, which evolved into Blackmont Capital and then Macquarie Private Wealth. He was appointed Vice President, Fixed Income, in 2005 and became a Chartered Financial Analyst charter holder in A year later, he was appointed Director of Fixed Income. Chris Kerlow, CFA Chris graduated from Saint Mary s University with a Bachelor of Commerce Degree, double majoring in finance and entrepreneurship. He began his career with Scotia Asset Management in 2008 and had progressing roles before becoming a senior analyst in the Investment Consulting Group. Chris was awarded the Chartered Financial Analyst (CFA) designation in He brings a specialization in stock specific fundamental analysis. Analysing companies from the bottom up deriving fair value estimates and determining their relative attractiveness as either a stand-alone investment or in a portfolio context. He is also a contributing member in the asset allocation and sector selection process. Derek Benedet, CMT Derek Benedet graduated from Wilfrid Laurier University with a Honours Bachelor of Business Administration degree with a finance concentration. He has worked for the past eight years in the investment industry in various roles for CIBC Wood Gundy, TD Wealth Management and most recently for GMP Securities Inc. Derek is a Chartered Market Technician (CMT), a designation for obtained through expertise in technical analyses and granted by the Market

7 Technicians Association. He is also a Certified Financial Planner (CFP) and is also a Fellow of the Canadian Securities Institute (FCSI) holding the DMS (Derivatives Market Specialist) and FMA (Financial Management Advisor) designations. Derek brings a specialty in technical analyses and behavioral finance. He believes that careful study of historical price action can aid an investor to anticipate what is likely to happen in the future. Paying careful attention to momentum, market breadth, price patterns Derek identifies key support and resistance areas that brings a unique aspect to new idea generation and risk management in portfolio management. Michael Lynds, MBA, CIM, CIMA, AIF Head of Investment Management, Portfolio Manager Mike Lynds began his investment career in 1996 and has developed his investment skills as an analyst of Canadian, U.S. and internationally based money managers. His quantitative and qualitative skills focus on the assessment of managers in their ability to generate above average, riskadjusted returns for investors. Mike earned his MBA from the Rotman School of Business, and is a specialist in fiduciary best practices. Mike helps the investment team develop the investment themes and strategies at work within the portfolios. Joey Mack, CFA Director Fixed Income Joey is a Director, Fixed income, GMP Securities L.P. In his role, Joey supports the fixed income business of Richardson GMP by providing advisory and trading services in fixed income securities and preferred shares that create value added ideas. He works closely with Investment Advisors, discussing market strategy and recommending fixed income solutions. Joey holds a Bachelor of Commerce degree from the University of Toronto, and received the CFA designation in Prior to joining GMP Securities L.P., Joey was with a Canadian bank-owned dealer, where he headed up the retail fixed income trading desk, and was responsible for managing the working relationship between the Capital Markets and Wealth Management Divisions. Prior to this role, he held several progressive positions including roles as a credit research analyst and as trader in London, England, covering the dollar bloc Eurobond market and backing up dollar bloc government market making activity. Joey has been in the industry for over 14 years. The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Assumptions, opinions and estimates constitute the author s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.