Market Update Eckler Ltd. collects information directly from sources believed to be reliable. Eckler Ltd. does not guarantee or warrant the accuracy, timeliness, or completeness of the information either collected, sourced or otherwise provided and is not responsible for any errors, omissions, uses and interpretations. September 30, 2014 1
Dec-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Apr-10 May-10 Jul-10 Aug-10 Oct-10 Nov-10 Jan-11 Feb-11 Apr-11 May-11 Jul-11 Aug-11 Oct-11 Nov-11 Jan-12 Feb-12 Apr-12 May-12 Jul-12 Aug-12 Oct-12 Nov-12 Jan-13 Feb-13 Apr-13 May-13 Jul-13 Aug-13 Oct-13 Nov-13 Jan-14 Feb-14 Apr-14 May-14 Jul-14 Aug-14 Market Update: Broad Market Returns and Indicators YTD 3 Year 5 Year 10 Year S&P/TSX Composite -0.59% 12.19% 20.37% 12.08% 8.67% 8.50% S&P/TSX Small Cap -9.36% 6.99% 14.37% 6.01% 7.49% 4.12% S&P 500 ($C) 6.17% 14.17% 30.47% 26.14% 16.73% 6.82% MSCI EAFE ($C) -1.19% 3.92% 13.61% 16.56% 7.51% 5.05% MSCI World ($C) 2.72% 9.48% 22.26% 20.94% 11.85% 5.85% MSCI ACWI ($C) 2.56% 9.31% 21.30% 19.59% 11.05% 6.00% MSCI Emerging Markets ($C) 1.46% 8.28% 14.06% 10.31% 5.69% 9.71% FTSE TMX Canada 91-Day T-Bill Index 0.24% 0.68% 0.93% 0.98% 0.87% 1.98% FTSE TMX Canada Universe Bond Index 1.06% 5.93% 6.33% 3.45% 4.85% 5.36% FTSE TMX Canada Long Term Bond Index 2.28% 11.62% 11.36% 4.96% 7.64% 7.39% FTSE TMX Canada Short Term Bond Index 0.37% 2.12% 2.90% 2.13% 2.90% 3.94% FTSE TMX Canada Corporate Bond Index 0.78% 5.61% 6.57% 4.75% 5.83% 5.94% CAD/USD -4.75% -5.10% -8.24% -2.50% -0.88% 1.21% Sources: evestment Alliance, FTSE TMX Global Debt Capital Markets, Bank of Canada Overview The Canadian equity market, as represented by the S&P/TSX Composite Index, declined 0.6% during the third quarter of 2014 largely due to losses in the Materials, Energy and Telecommunications sectors. U.S. equities rose 1.1% in U.S. dollar terms during the quarter as seven of the ten sectors saw gains. Returns were aided by a low level of jobless claims, increased manufacturing activity and retail sales growth. The S&P 500 ($C) Index was up 6.2% during the quarter as the Canadian dollar weakened. The Canadian fixed income market rose 1.1% during the third quarter as continued demand for bonds and accommodative monetary policy helped to bolster returns. Long-term bonds saw the largest gains during the quarter, followed by corporate bonds. International equities, as represented by the MSCI EAFE ($C) Index, fell 1.2% during the quarter, largely due to weak economic growth and low inflation in the Eurozone. The Canadian dollar declined 4.8% against the U.S. dollar during the quarter. Canada s unemployment rate was 6.8% at the end of September; down 0.3% from the end of June. Year-over-year inflation of 2.0% is in the middle of the Bank of Canada s target range of 1 to 3%. Inflation (Measured by CPI) The U.S. Federal Reserve and Bank of Canada held their overnight rates steady in the third quarter at 0-0.25% and 1.0% respectively. Overnight Rates 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% -0.5% -1.0% 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Quarterly Year over Year BoC Fed Source: Bank of Canada Sources: Bank of Canada, Federal Reserve Board September 30, 2014 2
Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Yield (%) Market Update: Canadian Fixed Income Overview The relationship between the yield to maturity and the term to maturity is outlined in the chart below. The September 2014 federal government yield curve was marginally flatter than the June 2014 curve as shorter-dated yields remained relatively flat while longerdated yields declined slightly. 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Source: Bank of Canada 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 September 2013 June 2014 September 2014 3 mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 30 Yr Source: FTSE TMX Global Debt Capital Markets Canadian Yield Curve Term "A" Corporate Yield Spread vs. Federals 1 8.0% 6.0% 4.0% 2.0% 12.0% 1 8.0% 6.0% 4.0% 2.0% 9.0% 6.0% 3.0% 1.1% 0.9% 0.9% 0.2% 0.4% 0.9% 6.3% FTSE TMX Universe Source: FTSE TMX Global Debt Capital Markets 4.5% Performance By Sector 4.5% Performance By Term Performance By Quality 0.5% 2.9% 4.0% Federal AAA/AA A BBB 0.8% 1.0% 6.7% 7.4% 2.3% 0.7% 11.3% 91 Day Treasury Bill Short (1-5 years) Mid (5-10 years) Long (10 + Years) Source: FTSE TMX Global Debt Capital Markets 1.6% 1.6% 8.4% 8.3% 0.8% 8.0% 6.6% Federal Provincial Municipal Corporate Source: FTSE TMX Global Debt Capital Markets Corporates September 30, 2014 3
Dec-09 Market Update: Canadian Equities Overview Seven of the ten sectors within the S&P/TSX Composite Index rose over the third quarter of 2014. Top performing sectors included Consumer Staples (12.47%), Industrials (9.44%) and Health Care (7.41%) Larger cap stocks outperformed smaller cap stocks during the quarter as investor confidence weakened. Sector Returns -25% -5% 15% 35% 55% -0.59% S&P/TSX Composite 20.37% 2 1 Large Cap vs. Small Cap S&P/TSX Composite less S&P/TSX Small Cap Large Wins Energy (25.5%) Materials (11.1%) Industrials (8.7%) -6.62% -10.11% 2.75% 9.44% 19.49% 42.45% -1-2 Small Wins Consumer Discretionary (5.6%) 3.88% 22.31% -3-4 Consumer Staples (3.0%) 12.47% 29.13% Source: evestment Alliance Quarterly Year over Year Health Care (3.2%) 7.41% 28.57% Top 5 Stocks Q3 Return Contribution to TSX Return CANADIAN NATIONAL RAILWAY 14.57% 0.45% CANADIAN PACIFIC RAILWAY 20.24% 0.33% ROYAL BANK OF CANADA 4.94% 0.29% TRANSCANADA CORP. 13.25% 0.26% TIM HORTONS 51.09% 0.21% Financials (34.7%) Info Technology (1.9%) Telecommunications (4.4%) -0.76% 2.67% 22.78% 3.92% 25.47% 11.43% Bottom 5 Stocks Q3 Return Contribution to TSX Return SUNCOR ENERGY -10.92% -0.39% CANADIAN NATURAL RESOURCES -11.26% -0.32% BARRICK GOLD -15.71% -0.19% CENOVUS ENERGY -12.89% -0.18% GOLDCORP -13.30% -0.17% Utilities (1.9%) Sources: TD Securities 0.40% 13.89% Sources: TD Securities, Yahoo Finance September 30, 2014 4
Dec-09 Dec-09 October 2010 January 2011 April 2011 July 2011 October 2011 January 2012 April 2012 July 2012 October 2012 January 2013 April 2013 July 2013 October 2013 January 2014 April 2014 July 2014 Market Update: Foreign Equities U.S. Equities International Equities Global Equities -15% -5% 5% 15% 25% 35% 45% -2 2 4-2 2 4 S&P 500 6.17% 30.47% MSCI EAFE -1.19% 13.61% MSCI World 2.72% 22.26% Energy (10.9%) -4.07% 21.89% Energy (6.9%) -6.89% 15.41% Energy (9.3%) -5.02% 19.53% Materials (3.5%) 5.21% 31.28% Materials (7.7%) -4.92% 6.40% Materials (5.5%) -2.05% 13.33% Industrials (10.5%) 3.84% 27.26% Industrials (12.5%) -2.48% 9.09% Industrials (10.9%) 0.84% 17.57% Consumer Discretionary (11.8%) 5.26% 21.80% Consumer Discretionary (11.6%) -3.94% 6.20% Consumer Discretionary (11.7%) 1.34% 14.94% Consumer Staples (9.5%) 7.03% 26.97% Consumer Staples (10.9%) -2.40% 11.60% Consumer Staples (9.7%) 2.54% 19.12% Health Care (13.3%) 10.72% 39.95% Health Care (11.2%) 5.34% 30.66% Health Care (12.4%) 8.55% 35.73% Financials (16.1%) 7.43% 29.15% Financials (25.7%) 0.03% 12.32% Financials (20.8%) 3.03% 19.13% Info Technology (18.8%) 9.99% 40.87% Information Technology (4.7%) 4.11% 17.36% Information Technology (13.0%) 8.78% 35.28% Telecommunications (2.4%) 8.21% 23.52% Telecommunication Services (4.9%) -0.56% 16.64% Telecommunication Services (3.5%) 2.45% 19.25% Utilities (3.2%) 0.83% 27.64% Utilities (3.9%) -0.81% 19.29% Utilities (3.3%) -0.29% 22.12% Sources: TD Securities Source: Pyramis Global Advisors Source: Pyramis Global Advisors Growth vs. Value ($US) Russell 1000 Growth less Russell 1000 Value Large Cap vs. Small Cap ($US) S&P 500 less Russell 2000 $US per $Cdn 2 15.0% 1 5.0% -5.0% -1 Growth Wins Value Wins 2 15.0% 1 5.0% -5.0% -1-15.0% Large Wins Small Wins $1.10 $1.05 $1.00 $0.95 $0.90 $0.85 Quarterly Year over Year Quarterly Year over Year Source: Russell Investments Sources: evestment Alliance, Russell Investments Source: Bank of Canada September 30, 2014 5
Avg Allocation as a Proportion of AUM Market Update: Emerging Markets and Alternatives Emerging Markets -15.0% -5.0% 5.0% 15.0% 25.0% 35.0% 45.0% 1.46% MSCI Emerging Markets 14.06% -3.13% Energy (10.2%) 3.07% -3.76% Materials (8.3%) 1.82% 1.35% Industrials (6.6%) 13.97% -1.63% Cons. Discretionary (9.0%) 12.88% 2.44% Cons. Staples (8.3%) 7.23% Real Assets YTD 2 Year 3 Year 4 Year 5 Year IPD Canada Annual Property Index ($C) 1.44% 4.89% 9.10% 10.89% 12.24% 12.64% 11.18% NCREIF Farmland Index ($US) 1.45% 5.69% 15.48% 18.33% 18.11% 16.58% 14.30% NCREIF Timberland Index ($US) 1.47% 4.21% 10.38% 10.03% 7.37% 5.55% 3.58% YTD 2 Year 3 Year 4 Year 5 Year S&P/TSX Capped REIT ($C) -0.94% 8.90% 12.35% 1.89% 8.57% 9.44% 14.01% EPRA/NAREIT Global Real Estate Index ($C) 0.27% 12.78% 16.01% 15.96% 18.31% 11.80% 12.08% Source: evestment Alliance, Investment Property Database Commodities ($US) Change Commodity 1-Year Gold 3.28% -7.83% Silver 3.83% -17.33% Copper 1.52% -1.26% Crude Oil -6.57% -10.86% Natural Gas -10.50% 13.52% Potash 7.89% 2.50% Source: TD Securities Health Care (2.1%) 15.36% 37.73% Hedge Funds ($US) Real Estate Financials (27.5%) Info Tech (16.7%) Telecom. Services (7.7%) -1.38% 2.97% 13.82% 11.19% 15.69% 27.40% YTD 3 Year 5 Year HFN Hedge Fund Aggregate Index 0.13% 3.40% 7.23% 6.82% 5.37% HFN Long/Short Equity Index -0.92% 1.79% 6.91% 9.26% 6.04% Investors' Average Current and Target Allocations to Real Estate 12% 9.5% 9.6% 9.7% 10% 9.1% 8% 7.6% 7.7% 7.6% Utilities (3.6%) 0.80% 24.67% HFN Market Neutral Equity Index 0.07% 2.09% 4.59% 4.69% 3.41% HFN Macro Index 1.44% 2.75% 4.85% 2.44% 2.65% HFN CTA/Managed Futures Index 3.80% 6.46% 9.20% -0.49% 1.11% 6% 4% 6.7% Avg Current Allocation Avg Target Allocation Source: Dimensional Fund Advisors HFN Fixed Income (non-arbitrage) Index 1.17% 6.43% 9.50% 9.86% 9.45% HFN Fund of Funds Aggregate Index 0.64% 2.80% 6.70% 5.34% 3.28% 2% 0% 2011 2012 2013 2014 MSCI Emerging Markets Country Allocation Source: evestment Alliance Source: Preqin Real Estate Spotlight, Q3 2014 Indonesia, 2.7% Malaysia, 3.9% Other, 12.5% China, 19.2% High Yield Bonds ($US) YTD 2 Year 3 Year 4 Year 5 Year Private Equity Announced/Expected Private Equity Fund Launches by Geographic Focus Russia, 4.6% Mexico, 5.4% India, 7.1% South Africa, 7.4% Brazil, 10.3% Korea, 15.0% Taiwan, 11.9% Source: Dimensional Fund Advisors BofA ML US High Yield Master II 2.90% 8.97% 16.58% 14.21% 13.57% 10.81% 11.30% BofA ML Global High Yield Constrained 1.44% 7.64% 15.51% 14.55% 14.19% 10.74% 11.10% Emerging Market Debt ($US) YTD 2 Year 3 Year 4 Year 5 Year JPMorgan GBI EM Global Diversified -1.02% 5.17% 7.04% 3.75% 4.62% 3.17% 5.28% JPMorgan EMBI Global Diversified 4.30% 13.62% 19.24% 9.32% 10.50% 8.40% 8.91% Source: evestment Alliance Latin America 3% Africa 3% Europe 23% Other 8% Asia 32% North America 31% Source: Preqin Private Equity Spotlight, Q3 2014 September 30, 2014 6