QUARTERLY UPDATE. Winter Recommended Funds Outlook

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1 QUARTERLY UPDATE Winter Outlook

2 WELCOME TO THE FUNDS OUTLOOK Winter Inside this issue: Long-term performance summary What happened over Q4 Highest & lowest returning funds What funds are you buying? Our Outlook for Funds Morningstar Rating Changes Winter 2016 NEW Investment Picks Despite a challenging year with plenty of market ups and downs, our Recommended Funds list continued to deliver good performance for our customers. of the list with a positive absolute 77% return over the course of 2016 While the nature of offering a list diversified across a broad range of asset classes means not all funds will outperform at all times, we are pleased with the long-term track record of the funds on the list. 91% of the delivered a positive 5-year return 50% outperformed their respective benchmarks over the long-term Investing across different asset classes and geographies remains a key component in building a fully diversified portfolio. We ensure our list comprehensively represents skilled fund managers noted for their active investment strategies across a broad range of asset classes. Take a look at the latest issue of our Outlook to explore new investment opportunities in a pro-growth environment. Click here to learn more about the service

3 LONG-TERM PERFORMANCE SUMMARY In considering the 35 funds in our list over a five-year period, only three funds have delivered a negative absolute return. A 68.8% return was delivered by the MSCI World Index over this time frame, a figure bettered by 14 of these funds covering a diverse array of asset classes. Over the five year period to 31 December 2016, Fidelity World secured the top spot with a return of 121%. A holding in Fidelity Global Financial Services, Jupiter European Growth or BGF World Healthscience over the same timeframe would also have doubled your investment. Furthermore, the following funds all rose by more than 70%: Allianz Europe Small Cap Equity, Schroder ISF Euro Equity, Vanguard US 500 Stock Index, Invesco Global Smaller Companies Equity, Candriam Equities L Sustainable World, BGF European Equity Income, BGF US Basic Value, Fidelity American Growth, Henderson Horizon Global Technology and Schroder ISF UK Equity. > European funds have a strong representation at the top of the list, with successful growth strategies ensuring they make up four of the top 10 positions. Over this five-year period, US and global funds are also notable for their exceptional returns. Our Recommended List also includes some more specialist funds and within this area, healthcare, sustainability and technology funds outperformed the MSCI World Index over five years. BGF World Energy, First State Global Resources and BGF World Gold are the only three funds which failed to deliver a positive return. These funds have suffered from depressed commodity prices in recent years. However, the picture is completely transformed when considering 2016 in isolation as the same funds occupy the top three spots in the performance list. Commodity prices are starting to firm up and the BlackRock fund s 12 month performance has weathered recent safe haven outflows into riskier asset classes. Past performance is not a reliable indicator of future results Source: Morningstar Direct as at 31 December Total returns in base currency.

4 WHAT HAPPENED OVER THE QUARTER? The European market, as measured by the FTSE Europe All Cap Ex UK index, was down 0.3% over the quarter. As banks are likely to benefit under a Trump administration and with US interest rates on the rise, financials strongly outperformed. As infrastructure spending is also a priority for the incoming president, materials and industrials rallied. Oil made gains of over 15% as the OPEC oil production cut agreement was also supported by non-members. Gold was the biggest faller over the quarter as a renewed appetite for riskier investments weighed heavily on demand for this safe haven asset. Most fixed income classes delivered negative returns due to the prospect of higher inflation in 2017 and the US interest rate rise. Asian and emerging markets both lost ground after a third quarter rally with the latter suffering from increased sales levels after the US election. Approximately two thirds of the funds on the Recommended list generated a positive return. The top performers covered a range of asset classes including global bonds, financials, global equities, energy and European equities. > As we have previously stressed, considering performance numbers from one quarter in isolation does not paint a full picture. These figures should always be considered from an investment perspective which is consistent with your long-term goals. Past performance is not a reliable indicator of future results Source: Morningstar Direct as at 31 December Total returns in USD.

5 HIGHEST & LOWEST RETURNING FUNDS Highest returning funds last quarter The best performing fund in our list over the fourth quarter was Templeton Global Bond, which rose 15.8%. The fund s bias towards emerging markets debt means it has a comparatively higher correlation towards riskier asset classes such as equities, which benefited performance. The fund has been positioned for some time with shorter duration on the expectation that interest rates would rise. The December rate rise by the Federal Reserve was beneficial for the fund. The second best performing fund over the period was Fidelity Global Financial Services. Again this fund has benefited from a rise in interest rate expectations. Banks in particular should be boosted this year by higher interest rates, and should provide solid dividends and dividend growth. Other funds which did well during the quarter included Fidelity World, BGF World Energy and Franklin Mutual European. Fidelity World is a global equity fund, and developed equity markets in general had a strong end to the year. The energy sector has bounced back after a long period in the doldrums, which has been a positive for BGF World Energy. The Franklin fund, meanwhile, built on solid performance in the previous quarter, with its deep value approach to identifying undervalued European companies with a focus on the ongoing integration of the EU serving it well. Many of its holdings have seen a recovery in their share price of late. Lowest returning funds last quarter BGF World Gold was the lowest returning fund in our list over the quarter, falling 17.9% as gold was negatively impacted by an increased appetite in investment risk. Nevertheless, the fund was still the top performer for 2016 as a whole, up more than 50% over the year. Emerging market equities had a weak quarter, and this is reflected in negative returns from funds such as Franklin India, Fidelity Emerging Markets, Schroder ISF Asian Equity Yield and Aberdeen Global Asia Pacific Equities. Asian and emerging markets both suffered following a rally in the third quarter, with emerging markets negatively impacted by increased sales levels following the US election. Over the longer term, however, we remain upbeat about the prospects for emerging markets and for these funds. Henderson Horizon Global Property Equities also underperformed in line with a -5.4% return from the global property market sector.

6 HIGHEST & LOWEST RETURNING FUNDS Past performance is not a reliable indicator of future results Source: Morningstar Direct as at 31 December Total returns in base currency.

7 WHAT FUNDS ARE YOU BUYING? > Assets in our Recommended Funds list continue to grow > 68% of subscriptions over the quarter into equity funds, 26% into specialist funds and 6% into fixed income > Some of the new funds that we added to the list, such as Franklin India and Candriam Equities L Sustainable World have proved popular with customers > The most popular categories were US Large-Cap Equity, UK Large-Cap Blend followed by EUR Large-Cap Equity, Global Large-Cap Equity and India Equity MOST POPULAR FUNDS Once again the most bought fund both in terms of assets and number of trades was Vanguard US 500 Stock Index. The fund tracks the S&P 500 index. It reflects the increasing move in the US from active to passive investment strategies as market efficiency has made it ever more difficult for active managers to outperform the large-cap benchmark. Schroder ISF UK Equity was the second most popular fund based on both criteria. The fund invests predominantly in large-cap UK companies, with significant weightings in financials, industrials, consumer services and oil & gas. Other funds which saw high subscriptions volume over the quarter include Franklin Templeton India, Schroder ISF QEP Global Quality, Vanguard European Stock Index Investor, Invesco Global Smaller Companies Equity, Fidelity Global Financial Services, Fidelity Emerging Markets, Fidelity American Growth and HSBC GIF Euro High Yield Bond.

8 WHAT FUNDS ARE YOU BUYING? Top Traded Funds Net Buy and Sell Trades 1. Vanguard US 500 Stock Index 2. Schroder ISF UK Equity 3. Vanguard European Stock Index 4. Franklin India 5. Fidelity World 6. Schroder ISF QEP Global Quality 7. Fidelity American Growth 8. BlackRock GF World Healthscience 9. Jupiter Global Fund European Growth 10. BlackRock GF World Gold Top Traded Funds Net Subscriptions 1. Vanguard US 500 Stock Index 2. Schroder ISF UK Equity 3. Franklin India 4. Schroder ISF QEP Global Quality 5. Vanguard European Stock Index 6. Invesco Global Smaller Companies Equity 7. Fidelity Global Financial Services 8. Fidelity Emerging Markets 9. Fidelity American Growth 10. HSBC GIF Euro High Yield Bond Most purchased funds in net purchases and subscription value by TD customers over the fourth quarter 2016.

9 OUR OUTLOOK FOR FUNDS Overall, the backdrop for 2017 is shaping up into a pro-growth environment, tempered by higher input prices (in the shape of oil), higher inflation and interest rates. > Trump s election in the US and UK Prime Minister Theresa May s pro-growth stance have improved our global growth outlook. > In both countries there will be more emphasis on government fiscal stimulus (reducing central bank monetary stimulus) and changing policy to growth from austerity via infrastructure spend and tax cuts. > In Europe, equities have continued to make gains, with financials performing well amid higher bond yields and the European Central Bank extending its quantitative easing programme. Pro-business world being led by the US. We are seeing increased Government spending in the UK and US. Both stock markets are in the midst of the third longest bull market in history, which was a concern. However the markets still have potential to go higher in this new pro-growth environment. The major indices may not move that much overall, but we are expecting a broader rally from companies whose shares have been rather stagnant for the last few years. > INVESTMENT PICKS 5Y Return Fidelity American Growth 75.8% Fidelity World 121% Sector rotation - from defensives to cyclicals. Many of the cyclical and utility-like companies, such as industrials, construction, chemicals, etc. have remained cheap while the market has been led higher by the faster growing tech and consumer discretionary stocks like Amazon, Netflix, Nestle and Colgate. Some of these shares are now trading on very high premiums while the cyclical stocks are looking cheap. These are the ones which should benefit from the infrastructure spend specifically. Banks and Oil are also representative of the move to cyclicals. Both are recovery plays. Banks will benefit from higher interest rates, while oil companies will benefit from higher oil prices. Both should also provide solid dividends and dividend growth. > INVESTMENT PICKS 5Y Return Fidelity Financial Services 115.3% First State Global Resources -34.3%

10 OUR OUTLOOK FOR FUNDS Disruption and sustainability. Technology is driving innovation and change and ultimately spurring global growth. Despite US president-elect Trump s rhetoric on global warming we expect to see more focus on sustainable investing in 2017, as a result of commitments made by the rest of the world s biggest powers to reduce their impact on global warming. We would therefore advise investors to include sustainable funds in their portfolio, especially those with a focus on making the world a better place by developing renewable energy, supplying us with healthier food and improving the workplace. The successful companies are profitable and increasingly outperforming their less environmentally aware competitors. A recent Morgan Stanley study reported 71% of individuals are interested in sustainable investing, with millennials and females twice as interested as other groups. This, and the huge leaps forward in technology that we ve come to expect, are only going to keep growing this investment category. Emerging markets. Markets sold off after US election so emerging markets look reasonable value again. The oil-reliant countries have recently perked up with the revival in the oil price. They have great long term potential, and are suitable as long-term holdings in your portfolio, though expect short-term turbulence as markets assess the Trump effect. China is becoming interesting again. The world has underestimated how carefully this country is managing its growth. It stated that it wanted to be less reliant on exports and more focused on domestic growth and the data is showing that they are rebalancing faster than expected. President Xi Jinping is interacting with the world in a proactive way and starting to behave as a statesman for the world s second largest economy should do. He has indicated he is pro trade agreements and pro battling climate change. > INVESTMENT PICKS 5Y Return > INVESTMENT PICKS 5Y Return Candriam Eq Sustainable World 86.5% Fidelity Emerging Markets 17.6% Henderson H Global Technology 73.9% Franklin India 58.7% Europe. Accommodative monetary policy should provide some support to European economies. Investors could finally unlock the value to be found in financials. > INVESTMENT PICK 5Y Return Franklin Mutual European 53.1% Currencies. Currency is an important consideration for international investors who invest in multi-currency assets. The US dollar performed strongly versus other major currencies following Trump s election win and the potential stimulus programme that should lead to higher inflation and push the Fed into more rate hikes. Going forward, better growth prospects in the US continue to make the dollar attractive compared to currencies such as sterling and the euro. Past performance is not a reliable indicator of future results Source: Morningstar Direct as at 31 December Total returns in base currency.

11 OUR OUTLOOK FOR FUNDS THE CHALLENGES Politics. There are a number European elections in 2017 in Germany, France and the Netherlands. Countries in the Eurozone will be watching them closely. The outcomes could have wide implications for the future strength of the union, with the rise of populism giving an outside chance of a European breakup. Uncertainty over International trade agreements and Trump s irregular methods of communication are also not helping. However many of these concerns have been priced in by the market. Rising inflation, oil prices and interest rates. All add to the uncertainty, but we believe they will rise to manageable levels rather than presenting a threat. Currency moves. The value of sterling is a concern for UK investors investing abroad. Sterling could be whipsawed and move suddenly as it is being driven by sentiment rather than fundamentals. Bonds. Fixed income could be a tricky asset class to invest in a rising interest rate and inflation environment. It could be time to take some profits. Brexit. A survey of more than 1000 TD Direct Investing customers in December 2016 showed the biggest concern remains Brexit. This is not so much related to the outcome but to the perceived resistance to the decision and the potential inability of the government to swiftly exit the EU. SUMMARY These are the areas we are most excited about for investment in the coming year. We also see opportunities in other areas. We continue to like income funds, for example, and believe funds that have an absolute return mandate (i.e. to beat cash in all markets conditions) have their place in a well-diversified portfolio. While the outlook is bright, predicting the exact movements of the stock market is never easy. Active security (and fund) selection will be important in 2017, but trying to be too clever and precise can often backfire it is better to invest across a range of themes and adopt a long-term approach.

12 MORNINGSTAR RATING CHANGES Rating upgrades Fidelity US High Yield Upgrade from Bronze to Silver Manager Harvey Lank has run the fund since 2003 and is supported by Fidelity s high income team which includes more than 20 high yield credit analysts. The team focuses on identifying companies whose debt is undervalued, based on its medium-term outlook for the business and detailed analysis of its capital structure. The fund has performed strongly versus its peers and Morningstar believes Lank s experience is valuable. His effective execution of the research-intensive strategy has led Morningstar to increase its level of conviction in the fund. Rating downgrades Henderson Horizon Global Technology Downgrade from Silver to Neutral Stuart O Gorman has managed this strategy since 2001 using a benchmark-aware approach, leading to a portfolio with a larger-cap bias compared with the category average and with a relatively low active share. The increasing prevalence of passive funds in the technology sector has made it a more competitive area of the market, particularly for an index-aware strategy such as this. The strategy has underperformed the index over three and five years, and its volatility has also increased. Morningstar says it now finds the fund a less compelling proposition relative to other options available to investors seeking dedicated technology exposure and has moved the rating from Silver to Neutral.

13 TD RECOMMENDED FUNDS - WINTER 2016 TD Recommended Equity Funds GLOBAL Growth Fidelity World Income Blend Small Cap Invesco Global Equity Income Schroder QEP Global Quality Invesco Global Small Cap Equity US Growth Fidelity American Growth Value Blend BlackRock Global Funds US Basic Value Vanguard US 500 Stock Index EUROPE Growth Schroder ISF Euro Equity Growth Jupiter European Growth Class Value Income Blend Small Cap Franklin Mutual European BlackRock Global Funds European Equity Income Vanguard European Stock Index Allianz Europe Small Cap Equity UK Blend Schroder UK Equity ASIA Growth Aberdeen Global Asia Pacific Equity Income Schroder ISF Asian Equity Yield EMERGING MARKETS Growth Growth Fidelity Emerging Markets Franklin India TD Recommended Fixed Income Funds EUR Corporate Bond Invesco Euro Corporate Bond High Yield HSBC GIF Euro High Yield Bond USD High Yield Fidelity US High Yield GLOBAL Global Bond Templeton Global Bond Global Emerging Markets Bond Global Emerging Markets Bond TD Recommended Specialist Funds Templeton Emerging Markets Bond Pictet Global Emerging Debt PROPERTY Indirect Henderson Horizon Global Property Equities SECTOR Technology Henderson Horizon Global Technology MULTI ASSET Financial Energy Healthcare Luxury Brands Infrastructure Natural Resources Gold Ethical Fidelity Global Financial Services BlackRock Global Funds World Energy BlackRock Global Funds World Health Science Pictet Premium Brands First State Global Listed Infrastructure First State Global Resources BlackRock Global Funds World Gold Candriam Equities Sustainable World Fidelity Euro Balanced Click on the funds to invest

14 LEGAL DISCLOSURE Bank Services provided by TD Bank International S.A. (a subsidiary of The Toronto-Dominion Bank). Registered in Luxembourg under No. B Registered office: 46a avenue J.-F. Kennedy L-2958 Luxembourg. Regulated by the Commission de Surveillance du Secteur Financier (CSSF). VAT Registration No. LU TD Direct Investing International S.A. is the brand name of the services and information provided by TD Bank International S.A., (hereafter the Bank ) through all available communication channels. Please note that none of the opinions we provide in the Outlook are a personal recommendation, which means that we have not assessed your investing knowledge and experience, your financial situation or your investment objectives. Therefore, you should ensure that any investment decisions you make are suitable for your personal circumstances. If you are unsure about the suitability of a particular investment or think that you need a personal recommendation, you should speak to a suitably qualified financial adviser. This document does not constitute financial advice. The value of your investments and your income may fall or rise, you may not get back all your invested capital. Past performance is not a reliable indicator of future results. The following information is accurate as at