Insights & Strategies

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1 Insights & Strategies March 6, 2015 Inside this Issue Income From Equities... 4 Maintaining the Bond... 5 One Stop Shop for Diversification... 6 A Tale of Two Currencies... 7 Charts of Interest... 8 Asset Class Weightings... 9 Important Investor Disclosures The Importance of Asset Allocation In this month's Insights & Strategies publication, we focus on the single most important driver of portfolio returns. No, it s not an exciting stock recommendation or hot IPO. It s asset allocation, and is absolutely critical to building well-diversified portfolios that can deliver the long-term returns required to meet one s investment objectives. Numerous academic studies have been published on the topic, but in simple terms, asset allocation combines different assets in an effort to maximize one s investment returns for a stated level of risk. One well-known study 1 found that asset allocation was the primary determinant of the variations of portfolio returns, with security selection and market timing playing minor roles. The study looked at a number of large US pension funds, and found that asset allocation explained 92.6% of the variation in portfolio returns. Given the importance of this investment topic, we wanted to focus this issue to the subject, and provide our asset allocation recommendations for Recap of 2014 Before providing our outlook for 2015, we wanted to recap 2014 market performance and see how our recommendations fared for the year. Our key calls last year were for equities to outperform bonds, developed equity markets to outperform the emerging markets (EM), and US stocks to outperform Canadian stocks. Thankfully we were three for three. For 2014 the FTSE TMX Canada Universe Bond Index returned a respectable 8.78%. Compared to the S&P/TSX Composite Index (S&P/TSX) total return of 10.55%, Canadian equities outperformed bonds by 177 bps. Looking at the S&P 500 Index (S&P 500), it provided a total return of 13.68%, which outperformed the S&P/TSX by 313 bps. Taking into consideration US dollar appreciation, the S&P 500 outperformed the S&P/TSX by a material 1,370 bps. Finally, EM significantly underperformed, with the MSCI EM Index down 1.93% in US dollars. So, where do we stand for 2015? Equities Outperform Bonds In % 10% 5% 0% -5% FTSE TMX Canada Universe Bond Return S&P/TSX Composite Total Return S&P 500 Total Return Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Source: Bloomberg, Raymond James Ltd. 1 Brinson, Hood and Beebower, Determinants of Portfolio Performance

2 Insights & Strategies March 6, 2015 Page 2 of 10 Equities Overweight Despite the strong equity gains seen in recent years, we continue to recommend an overweight in equities for Our more constructive outlook on equities relative to bonds is predicated on the following: Corporate earnings: We see stronger economic growth, particularly from the US, which should translate into mid-single digit earnings growth. Below we overlay earnings expectations for the S&P 500 and S&P/TSX with the relative price performance. We see stronger earnings from the S&P 500 which should drive continued outperformance relative to the S&P/TSX. Attractive dividend yields: The dividend yield on the S&P/TSX is currently at 2.78%, which is 136 bps above the GoC 10-year yield. Dividend yields on equity indices are rarely above longer-dated government bond yields which is one metric that captures the relative attractiveness of stocks to bonds. Valuations: While absolute equity valuations are becoming lofty, with the S&P/TSX trading at 18x forward earnings, relative valuations still look attractive with an S&P/TSX earnings yield of 5.25% versus the GoC 10-year yield at 1.42%. The current spread of 383 bps is well above the 20-year average of 1% and captures the relative attractiveness of equities. Potential for rising bond yields: We believe government bond yields could move higher as the economy picks up and the US Federal Reserve begins to hike rates. We see Canadian bond yields trailing the US given the divergence in monetary policy; however, we still believe the trend is to the upside. If correct, this could weigh on bond returns. Stronger Earnings to Drive S&P 500 Outperformance S&P 500 Forward EPS Rel. to S&P/TSX Forward EPS S&P 500 Price Rel. to S&P/TSX Price 0.07 '01 '03 '05 '07 '09 '11 '13 Prefer DM to EM Within equities, our preference remains with the developed markets over the EMs. While equity valuations are attractive for the EMs, there remain a number of headwinds which should result in continued underperformance. They include: Economic growth remains muted in the EMs. Capital Economics (a leading independent macro-economic research company) estimates EM growth at just 4% Y/Y, which is the slowest growth rate since There is a high negative (-0.78) correlation between the US dollar and EM equity performance, with a strong US dollar generally weighing on EM equities. Given our view of continued US dollar strength, we see this weighing on EM performance. Finally, the technicals remain negative with the MSCI Emerging Market Index contained in a long-term trading range. In recent reports we ve highlighted the improving outlook for European equities, which at present is our favourite developed equity market. Our bullish outlook for European equities is based on: 1) ECB stimulus; 2) attractive fundamentals with high dividend yields and lower valuations; and 3) bullish technicals. US equity markets also continue to be one of our favourite areas to invest in. US equities stand to benefit from an improving US economy, which should result in decent earnings growth. Admittedly, valuations are becoming rich, but we see further upside being driven by corporate earnings growth and positive global inflows. Given this outlook, we are making a few changes to our equity allocations in our Moderate, Growth and Global asset class weightings profiles. The changes include: Moderate: Reduce Canadian equity weight by 5% to 10%, while increasing US equity weight to from 15%. We are increasing our US weight to reflect our more upbeat outlook for US equities. Growth: Reduce Canadian equity weight by 5% (to 15%) and US weight by 5% (to 35%), while increasing International by 10% (to ). We remain overweight US but are moving some of the proceeds into International markets, with Europe being our preferred International market. Global : Similarly, we are reducing US weight by 5% (to 40%) and increasing International equity weight by 5% (to 25%). See page 9 for updated profiles. Source: Bloomberg, Raymond James Ltd.

3 Insights & Strategies March 6, 2015 Page 3 of 10 Bonds and Cash Underweight Global benchmark bond yields continue to decline, with many government bonds hitting new all-time lows. For example, the yield on the German 7-year bond recently went negative, meaning investors will earn a negative return if held to maturity. We believe three central factors are driving global bond yields lower. First are the growing deflationary pressures seen across much of the globe. For example, US headline CPI declined to -0.1% y/y for February, the lowest level since the financial crisis. Second is the continued anemic growth seen across many regions. Europe, China and Japan, to name a few, are seeing slowing growth or outright contraction. Third is the unprecedented amount of central bank stimulus from the ECB, Bank of Japan et al. which is helping to drive yields lower. Our Bond Model Suggests 3.14% For The GoC 10-Year Yield. However, Upside Likely Capped at 2% For 2015 % CAD Bond Yield Model "Fair value" is 3.14% GoC 10-Year Yield 0.00 '97 '99 '01 '03 '05 '07 '09 '11 '13 to remain contained, given a more dovish BoC. Based on these estimates, we see the potential for longer-term government bonds to decline roughly 5% through As such, we recommend an underweight in government bonds, seeing better value in other areas. Within fixed income, we continue to recommend investors look to high-quality corporate bonds given the yield pick-up, strong balance sheets, and low current default rates. With the low yields in bonds, we have seen a reach for yield with many investors looking to high-yield bonds to meet their cash flow needs. Given the current low rates in the high-yield market and where we are in the business cycle, we are generally avoiding this area. For investors who have exposure to the high-yield space, we recommend that the position be part of a broader, well-diversified bond portfolio. Finally, we continue to recommend an underweight in cash, given negative real rates after accounting for inflation. Conclusion We are making no changes to our equity/bond split, as we continue to prefer equities to bonds. Despite our underweight in bonds, we still see them playing a critical role in portfolios, as they help to smooth out returns, and provide that much needed portfolio insurance in these volatile times. With respect to our recommended equity split, we are lowering our Canadian equity exposure, while increasing our exposure to the International and US equity markets, given our more constructive outlook for those areas. Ryan Lewenza, CMT, CFA SVP, Private Client Strategist Source: Bloomberg, Raymond James Ltd. In Canada, benchmark yields have dropped to new lows following the recent surprise rate cut from the Bank of Canada (BoC). For example, the GoC 10-year yield declined to a new record low of 1.23% in early February. As a result of the very low yields in government bonds, their duration has increased significantly, making them very susceptible to a rise in rates. Looking at the 10-year GoC bond, if rates back up by just 1%, the price of the bond would decline by roughly $9 or 8%. Based on our Canadian bond model, we estimate fair value for the GoC 10-year yield at 3.14% versus 1.42% currently. However, given our expectations for the US 10-year Treasury yield, and the likelihood that the BoC will maintain a more dovish monetary stance over the next year, we see the potential for the GoC 10-year yield to rise to 2% by the end of the year, versus our model estimate of 3.14%. Essentially, we see the potential for yields to rise over the year, but for them

4 Insights & Strategies March 6, 2015 Page 4 of 10 Income From Equities In the previous section, our strategist laid out the case to overweight equities in portfolios. One important factor supporting this case is the higher dividend yield from the S&P/TSX at 2.78% compared to the GoC 10-year yield at 1.42%. This results in a 136 bps differential, in favour of stocks, and is something rarely seen. With government bond yields near record lows, we believe investors will continue to look to high-quality dividend paying stocks to meet a portion of their income needs. Below, we highlight some high-quality dividend payers from our Dividend Plus+ Guided Portfolio. S&P/TSX Comp s Dividend Yield > GoC 10-Year Yield S&P/TSX Yield (LS) Govt of Can 10-Year (LS) Spread (S&P/TSX - GoC 10 Year) Source: Bloomberg. Raymond James Ltd. Bank of Nova Scotia (BNS-T): Good International Exposure A low interest rate environment and weaker Canadian growth prospects leads us to prefer banks that have less exposure to domestic retail banking, generate a greater portion of their earnings from non-interest segments, and have strong international exposure. Of the Big 6 Banks, Bank of Nova Scotia has the least domestic retail exposure (27% of earnings) and focuses on international markets, having approximately 13.9 mln customers in over 55 countries. In addition, the bank derives over 45% of earnings from noninterest segments such as capital markets and wealth management. We believe these segments will be significant cash flow drivers and may lead to dividend growth. The bank has a dividend yield of 4.2% and has grown its dividend payment by 5.8% over the past five years. Finally, the stock has lagged in recent months around concerns over its global exposure, resulting in an attractive valuation relative to its history and peer group. Enbridge (ENB-T): Defensive Energy Play Enbridge has fared very well during this depressed oil price environment as the company has lower sensitivity to oil prices. This is due to the nature of its contracts (i.e. take or pay) and the fact that oil volumes remain strong. This was proven in the company s Q4/14 earnings release showing that demand to move oil along its pipeline networks actually increased. As Enbridge generates its revenues through takeor-pay contracts, their topline remains stable. In addition, with C$44 bln of commercial projects under development, Enbridge has a strong pipeline for future growth. Telus (T-T): Strongest Wireless Player Canada s telecom industry is projected to grow steadily over the next few years driven by strong growth in the wireless sector. (International Data Corporation forecasts a CAGR of 6.5% between ) Despite rising competition in the industry, Telus s wireless segment added 293,000 new subscribers in 2014, while Bell Wireless added 193,000 and Rogers Wireless lost 53,000. Management provided strong 2015 guidance for the wireless segment anticipating 3-5% growth. Telus offers a 3.7% dividend yield with a 5-year dividend growth of 9.9%. Within the Canadian telecom space, Telus remains our preferred pick. Loblaw (L-T): Growth Through Acquisition The Shoppers Drug Mart acquisition is a strong growth driver for Loblaw, adding ~14 mln square feet of selling space and over C$100 mln in synergies since the acquisition in Q2/14. The added space will allow Loblaw to incorporate its President s Choice products and increase revenue from its private label brand. Loblaw currently has a 1.6% dividend yield and has grown their dividend by 3.0% over the past 5 years. The company anticipates free cash flow in excess of $1 billion between 2015 and 2016, giving it the ability to deleverage its balance sheet and potentially increase its dividend. Cineplex (CGX-T): Great 2015 Movie Lineup Canada s leading film exhibitor has proven to be very resilient during weak economic environments, while also delivering strong earnings growth in recent years (CAGR of 29.9% over last three years). Cineplex generates revenue from ticket, concession, and advertising sales, providing it with multiple income streams and strong margins. The company s VIP theatres which offer alcoholic beverages could bring about increased customer traffic and stronger margins. In addition, an attractive 2015 movie lineup (e.g., Avengers, James Bond, and Hunger Games) could lead to robust box office sales. Cineplex is in a strong cash flow generating position, allowing it to increase its dividends in the future. Currently, the company pays an attractive 3.0% yield and grew its dividends by 3.4% over the past 5 years. Larbi Moumni PCG Research Associate

5 Jan-2008 Feb-2008 Mar-2008 Apr-2008 May-2008 Jun-2008 Jul-2008 Aug-2008 Sep-2008 Oct-2008 Nov-2008 Dec-2008 Jan-1998 Apr-1998 Jul-1998 Oct-1998 Jan-1999 Apr-1999 Jul-1999 Oct-1999 Jan-2000 Apr-2000 Jul-2000 Oct-2000 Jan-2001 Apr-2001 Jul-2001 Oct-2001 Insights & Strategies March 6, 2015 Page 5 of 10 Maintaining the Bond Everyone has heard the merits of having a proper asset allocation of equities, bonds and cash in a portfolio. While we continue to recommend maintaining an asset allocation strategy, we recognize it is difficult when one asset class (bonds) currently provides little cash flow to investors. Yields in the fixed income market are near record lows, forcing some bond investors to turn to higher alternative cash flowgenerating securities, such as preferred shares, convertible bonds, and dividend paying stocks. However, these investors may want to avoid putting all their eggs in these baskets. The most important benefit of asset allocation is that it reduces overall risk in a portfolio, providing an opportunity to earn higher returns with reduced risk. Asset allocation enhances performance because every asset class carries a different potential of risk and growth. For example, while stocks are considered risky investments, they could also offer the highest possible returns. Bonds are relatively lower risk, but they provide stability. Therefore, if one asset class fails to perform, in theory, the other asset classes should compensate for it. Raymond James current asset allocation for an investor with a moderate risk profile is 45% equities (overweight), 47% bonds (underweight), 5% cash (underweight) and 3% in alternative investments. With the FTSE TMX Universe Bond Index having a current weighted yield to maturity around 1.72%, it is very difficult for an investor to stick with the fixed income asset class. However, one way to look at bonds is as an insurance policy for your portfolio. As with all insurance products there is a premium that must be paid, and in this case, the premium is the opportunity cost of investing in alternative higher yielding securities. The merits of proper asset allocation aren t that noticeable until adverse events occur, such as the financial crisis of For example, if an investor invested $100,000 in the S&P/TSX at the beginning of 2008, they would have lost almost 33% or nearly $33,000 by the end of the year. If the investor instead implemented a typical balanced portfolio (60% equities, 40% bonds) strategy with no rebalancing, they would have lost ~$20,000 on the equity portion and gained $1,100 or 2.7% on their bond portfolio. The investor would have still lost money on their portfolio but the loss would have been reduced to $18,700 or 18.8%. What this example shows is that bonds are still necessary in any environment because they provide stability and diversification to a portfolio, in addition to cash flow. If an investor is uncertain of which asset allocation mix to use, a good starting point is to take the investor s age to determine the level of risk they should have in their portfolio. Asset Allocation Works Tech Bubble Canadian Bonds Canadian Equities Balanced (60 : 40 Bond) Financial Crisis Canadian Bonds Canadian Equities Balanced (60 : 40 Bond) Source: Bloomberg. Raymond James Ltd. The rule of thumb is that the fixed income portion of the portfolio should be roughly the same as the investor s age. In other words, a 60-year old investor should allocate about 60 per cent of their portfolio to bonds, and the rest to equities and cash. Although it may be difficult to stick with an asset allocation strategy especially when current bond yields are at record lows, history has proven that fixed income helps provide stability to a portfolio during times of uncertainty, and a welldiversified portfolio allows for the possibility of enhanced yields at reduced risk. Anderson Lam Fixed Income

6 Nov-03 Jun-04 Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Insights & Strategies March 6, 2015 Page 6 of 10 One Stop Shop for Diversification When it comes to asset allocation, there are generally two camps of thought. The first camp determines their own asset mix and populates the sleeves with securities or funds that have a relatively restrictive mandate (pure equity, pure fixed income, etc.) to gain that exposure. The second camp prefers to be more hands off and leave the asset allocation decisions to a money manager that has a flexible mandate. The latter can be accomplished through the purchase of a tactical balanced fund that covers equity, fixed income, and cash exposure in a single ticket item. When we evaluate a tactical balanced fund, we look for well experienced portfolio managers and a flexible mandate that allows the portfolio manager to adjust the asset mix to seize market opportunities. In this article, we focus on balanced funds that have a flexible mandate and a history of shifting the asset mix to add alpha. We highlight Signature Global Asset Management as well as Barometer Capital as two firms that will make the asset mix decisions for investors. Signature Global Asset Management Signature Global Asset Management makes use of a blended top-down and bottom-up investing philosophy. The process begins with the asset allocation committee led by Eric Bushell, CIO, who meets with team members regularly to assess the strength of the global outlook and determine the strategic asset mix monthly for each fund based on macro and fundamental factors. After the sector allocation for equity and fixed income sectors are determined, individual security selection responsibilities fall on a 30-member team of specialists who focus on specific equity or fixed income sectors to populate the sleeves with best ideas. The Ebb and Flow of Tactical Asset Allocation Source: Morningstar, 1/31/2015. Exposure Fixed Income Exposure We highly respect Signatures investment process as evidenced by the inclusion of CI Signature Income & Growth on the Raymond James Focus List of Mutual Funds. Lead Manager, Eric Bushell, has the ultimate decision on the asset mix of the fund, and has delivered impressive long-term results since taking over the fund in late Although categorized by the Canadian Investment Funds Standards Committee (CIFSC) as a global neutral balanced fund, this fund has historically been biased to overweight equities relative to their peer group (see chart). Even when comparing the fund to the global equity balanced category, they have delivered impressive long-term results outperforming the global equity balanced category median by 1.6% annualized over the past decade, producing an annualized return of 6.9% over that time period. It should also be noted that the fund has been biased to overweight Canadian equity relative to its peer group with exposure averaging 29.5% over the past five years (currently 22%) compared to the peer group average of 22.6% (currently 17%). However, Bushell has been decreasing Canadian equity exposure over the past year, which is consistent with our strategist s call. Nonetheless, this fund offers global diversification benefits and is deserving of a core holding that covers domestic and international exposure. Also of note, Signature runs a mandate using the same investment philosophy called CI Signature Global Income and Growth that has very little Canadian equity exposure (<1%). Barometer Capital Similar to Signature Global Asset Management, the investment process at Barometer begins with a top-down market and sector risk assessment model that determines the asset mix. This is followed by a bottom up quantitative security selection process. David Burrows, lead manager of the Barometer High Income Pool, has established himself as a tactical allocator through making asset mix shifts that have generated significant alpha during his tenure. The investment approach is style agnostic and stresses the defensive use of cash to preserve capital. The high income strategy garnered attention in 2008 when the Barometer High Income Pool produced a return of -7.0%, outperforming the tactical balanced category median by 12.8% which was majorly driven by the increase in allocation to cash that reached as high as 70%. Barometer has since launched the strategy in a prospectus based mutual fund available to non-accredited investors under the name Barometer Disciplined Leadership High income Fund. Raymond James additionally offers the Barometer High Income strategy through a Separately Managed Account on our Partners Platform. Andrew Clee Mutual Funds & ETFs

7 Insights & Strategies March 6, 2015 Page 7 of 10 A Tale of Two Currencies As mentioned previously, the outperformance of the S&P 500 relative to the S&P/TSX has been fundamentally driven but has also been greatly impacted by currency effects. As outlined in the cover article, our strategist remains overweight US equities for a myriad of reasons. One of those reasons is his belief that the Greenback will continue to outperform the Loonie. Our strategist s bullish view on the USD is echoed by the FX desk. In this article, we outline our long-term bullish outlook on USDCAD which is predicated upon the uncertainty surrounding oil prices, and the divergence in both the economic backdrop and central bank policies of the US and Canada. With a precipitous drop-off in oil prices since the summer, there has been a growing concern over the negative implications on the Canadian economy. The weakness in the oil markets has led to oil companies cutting their capital expenditure budgets and, if low prices continue, we can expect additional job cuts in response to extraction projects being put on hold. These are some of the downside risks Canada will be exposed to if oil prices remain depressed. At present, it seems that West Texas Intermediate (WTI) has found a bottom, with WTI presently trading around US$50/bbl. However, uncertainty still exists around the price of oil moving forward. This uncertainty revolves around many things. Chief among them are questions of what demand will look like in the near- and medium-term and how long will OPEC tolerate low oil prices. These uncertainties are no doubt on the minds of Governor Poloz and his fellow BoC members. The aforementioned uncertainties surrounding oil prices led the BoC to a surprise 25bps cut to its benchmark rate in its January meeting. The BoC also cited downward risks to inflation as an additional driver of their decision to cut rates. The surprise cut was seen as exceptionally dovish and the market promptly priced in a good probability of another 25bps rate cut at the March meeting. In his February 24th speech, however, BoC Governor Poloz stated that the downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds. The implication of this phrasing suggests that the BoC will wait to see what the real impact is on the economy before making any further changes to the policy rate. Nonetheless, there still exists the possibility of another rate cut from the BoC during While the BoC is considering the possibility of further easing measures, the US Fed is contemplating when it should commence its tightening cycle. Since the Fed removed the considerable time phrasing from their communiqué at their December 17th meeting, many have speculated that the first rate hike would occur in June. There is precedence for this timeline, as the last time the US Fed removed the considerable timing phrasing from their communiqué, they hiked rates six months later. There are many arguments for why the Fed may hike rates in June and there are many that suggest that the Fed should, and will, wait longer before hiking rates. Regardless of the timing of the Fed rate hike, assuming it occurs sometime between June and September, the Fed is in the process of commencing its tightening cycle, while the BoC is still thinking of further policy easing. This divergence in central bank policies will have effects on the respective currencies. These divergent policies are a function of divergent economic outcomes in the respective countries. As previously mentioned, depressed oil prices are weighing on the Canadian economy. While the housing activity was robust in 2014, employment grew just over 0.5% in 2014, the lowest in five years, and wage growth has been sluggish. While 2014 GDP growth is expected to come in around 2.5%, economists are projecting a pull back and see the Canadian economy growing by 2.0% in In contrast, the US economy continues its recovery and economists expect growth to be just above 3.0% in 2015, on the back of an improving employment market (unemployment rate y/y at 5.7%) and strengthening manufacturing production. USDCAD: Technical Pennant Forming $1.29 $1.27 $1.25 $1.23 $1.21 $1.19 $1.17 $1.15 1/1/2015 1/8/2015 1/15/2015 1/22/2015 1/29/2015 2/5/2015 2/12/2015 2/19/2015 2/26/2015 Source: Bloomberg, Raymond James Ltd. As there remains uncertainty around oil, a divergence in the economic backdrop of Canada and the US, and differences in central bank policy between the two countries, we remain bullish on USDCAD in the medium- to long-term. In the New Year, we have seen a sharp appreciation of the USD versus CAD and we have now entered a period of consolidation (see above chart). We believe that the uptrend in USDCAD will continue and we are looking for a breakout of the consolidation pattern to enter long positions targeting 1.30 by Q3/15. If correct, this should result in stronger returns on US equities. Andrei Bruno, MBA Foreign Exchange

8 Insights & Strategies March 6, 2015 Page 8 of 10 Charts of Interest Markets 16,000 S&P/TSX Composite 2,200 S&P ,000 Dow Jones Ind Avg 15,000 14,000 2,000 1,800 18,000 17,000 16,000 13,000 12,000 1,600 1,400 15,000 14,000 13,000 11,000 1,200 12,000 S&P/TSX Composite 200-Day MA 50-Day MA S&P Day MA 50-Day MA Dow Jones Ind Avg 200-Day MA 50-Day MA Commodities $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 Gold $120 $110 $100 $90 $80 $70 $60 $50 $40 Oil (WTI) $3.90 $3.70 $3.50 $3.30 $3.10 $2.90 $2.70 $2.50 $2.30 Copper Gold 200-Day MA 50-Day MA Oil (WTI) 200-Day MA 50-Day MA Copper 200-Day MA 50-Day MA Currencies $1.05 $1.00 $0.95 $0.90 $0.85 $0.80 $0.75 Canadian Dollar $1.45 $1.40 $1.35 $1.30 $1.25 $1.20 $1.15 $1.10 Euro Yen Canadian Dollar 200-Day MA 50-Day MA Euro 200-Day MA 50-Day MA Yen 200-Day MA 50-Day MA Source: Bloomberg, Raymond James Ltd. Performance as at February 28, 2015.

9 Insights & Strategies March 6, 2015 Page 9 of 10 Asset Class Weightings Profile Cash Bond Can. Intl. US Alternative Income & Capital Preservation 40% 40% 0% 0% 0% Conservative 15% 65% 0% 0% 0% Moderate 5% 47% 10% (was 15%) 15% (was 15%) 3% Growth 0% 15% (was ) (was 10%) 35% (was 40%) 10% Global 0% 0% 25% (was ) 40% (was 45%) 15% General Asset Class Ranges Cash Bonds Equities Alternative Income & Capital Preservation Conservative Moderate Growth Global Profile Descriptions Income & Capital Preservation Conservative Moderate Growth Global Can Income & Capital Preservation Cash 40% Bonds 40% Description Virtually any loss is unacceptable. Investors primary objective is to achieve a return that keeps pace with inflation. Fixed income and cash make up the largest portion of holdings. Losses can be tolerated, but erosion of regular income payments cannot. Stability of coupon or dividend is the primary concern as many investors will employ this income for cost-of-living expenses. Bonds tend to make up the largest proportion of holdings. Some higher risk positions tolerated but these are typically offset with blue-chip dividend paying equities or lowrisk bonds. Willingness to take speculative bond and equity positions though growth portfolios are typically biased towards equities. Strong earnings growth or high yields usually take preference over valuations. Some defensive constraints may be employed, but even these may be removed for highly risk-tolerant investors. A willingness to ignore home-country bias and allocate holdings internationally. International equities typically receive weightings equivalent to or greater than domestic securities. These investors recognize that Canada represents only ~3% of global equity markets and are willing to source investment opportunities outside our borders. Conservative Moderate Growth Global Can Cash 15% Bonds 65% US Intl 15% Can 10% Alt 3% Cash 5% Bonds 47% Intl US 35% Can 15% Alt 10% Bonds US 40% Alt 15% Intl 25% Can

10 Insights & Strategies March 6, 2015 Page 10 of 10 Important Investor Disclosures Complete disclosures for companies covered by Raymond James can be viewed at: This newsletter is prepared by the Private Client Services team (PCS) of Raymond James Ltd. (RJL) for distribution to RJL s retail clients. It is not a product of the Research Department of RJL. All opinions and recommendations reflect the judgement of the author at this date and are subject to change. The author s recommendations may be based on technical analysis and may or may not take into account information contained in fundamental research reports published by RJL or its affiliates. Information is from sources believed to be reliable but accuracy cannot be guaranteed. It is for informational purposes only. It is not meant to provide legal or tax advice; as each situation is different, individuals should seek advice based on their circumstances. Nor is it an offer to sell or the solicitation of an offer to buy any securities. It is intended for distribution only in those jurisdictions where RJL is registered. RJL, its officers, directors, agents, employees and families may from time to time hold long or short positions in the securities mentioned herein and may engage in transactions contrary to the conclusions in this newsletter. RJL may perform investment banking or other services for, or solicit investment banking business from, any company mentioned in this newsletter. Securities offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Insurance products & services offered through Raymond James Financial Planning Ltd., not a Member-Canadian Investor Protection Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The results presented should not and cannot be viewed as an indicator of future performance. Individual results will vary and transaction costs relating to investing in these stocks will affect overall performance. Information regarding High, Medium, and Low risk securities is available from your Financial Advisor. A member of the PCS team responsible for preparation of this newsletter or a member of his/her household has a long position in the securities of Cineplex (CGX-T). RJL is a member of Canadian Investor Protection Fund Raymond James Ltd.