December 31, 2017
Managing Downturns 2
Number of Months 1902 1907 1910 1913 1918 1920 1923 1926 1929 1937 1945 1948 1953 1957 1960 1969 1973 1980 1981 1990 2001 2007 2017 Expansion vs. Recession in the US 140 120 100 80 Expansions Recessions Current Expansion 60 40 20 0 Average, all cycles: 1854-2009 (33 cycles) 1854-1919 (16 cycles) 1919-1945 (6 cycles) 1945-2009 (11 cycles) Recession Expansion 16 42 22 27 18 35 11 59 Recession is the number of months from peak to trough. Expansion is the number of months from the previous trough to latest peak. For example: 120 months March 1991 to March 2001 expansion 3 Source: National Bureau of Economic Research
S&P/TSX Declines Greater Than 30% Period Months from Price Return (from trough) Peak Date Trough Date Peak Value Trough Value Decline Peak to Trough 3 months 1 year 10 years Sep 2 1929 Jun 1 1932 332.61 64.20 (80.7%) 33 45.8% 79.2% 37.9% Jul 3 1956 Dec 3 1957 617.67 432.11 (30.0%) 17 5.8% 26.8% 108.1% Oct 1 1973 Sep 3 1974 1,329.28 832.98 (37.3%) 11 1.4% 17.2% 186.5% Nov 28 1980 Jul 8 1982 2,402.23 1,346.35 (44.0%) 19 26.2% 84.1% 153.7% Aug 13 1987 Oct 28 1987 4,112.86 2,837.79 (31.0%) 3 7.9% 20.0% 137.4% Apr 22 1998 Oct 5 1998 7,822.25 5,336.15 (31.8%) 6 24.8% 31.0% 102.5% Sep 1 2000 Oct 9 2002 11,388.80 5,695.33 (50.0%) 25 18.9% 33.5% 115.5% Jun 18 2008 Mar 9 2009 15,073.13 7,566.94 (49.8%) 9 39.4% 57.5% N/A Average: (43.5%) 16 18.7% 41.7% 121.0% Ex-Period 1 (Great Depression): (37.4%) 13 14.2% 35.4% 137.6% Annualized Price Return (excludes dividends) Average: 8.00% Ex-Period 1 (Great Depression): 9.00% 4 Source: Datastream
Staying invested may improve returns Crisis Market Low 1 Year Later 2 Years Later The Korean War 7/13/1950 28.8% 39.3% Cuban Missile Crisis 10/23/1962 33.8% 57.3% JFK Assassination 11/23/1963 25.0% 33.0% 1969 to 70 Market Break 5/26/1970 43.6% 53.9% 1973 to 74 Market Break 12/6/1974 42.2% 66.5% 1979 to 80 Oil Crisis 3/27/1980 27.9% 5.9% 1987 Stock Market Crash 10/19/1987 22.9% 54.3% Desert Storm 10/11/1990 21.1% 30.2% Soviet coup d'état attempt 8/19/1991 11.1% 21.2% Asian Financial Crisis 4/2/1997 49.3% 76.2% Dot-com Bubble Crash / Sept 11 / Enron 10/9/2002 33.7% 44.8% Invasion of Iraq 3/11/2003 38.2% 50.6% North Korean Missile Test 7/17/2006 25.5% 2.1% Subprime Mortgage Crisis 3/9/2009 68.6% 95.1% Average Appreciation 33.7% 45.0% Snapshots in time of significant negative international events from 1950 to March 2009, and the subsequent change in market value from the S&P 500 low in that calendar year to one and two years hence. 5 Source: Datastream
Bear market decision in September 1974 $10,000 invested in the S&P 500 on January 31, 1973 $80,000 $70,000 $60,000 $50,000 Invested another $10,000 in the S&P 500 on Sept 30, 1974 Stayed invested in the S&P 500 Removed from market and invested in a GIC $34,254 $67,091 $40,000 $30,000 $20,000 $10,000 $0 $10,000 $9,285 $9,465 $9,545 $8,587 $10,000 Invested on Jan 31, 1973 3 months later 6 months later 9 months later 12 months later $5,816 20 months later (Market Low - Sept 1974) $21,266 $21,846 $7,820 $8,033 $28,465 $10,468 $12,596 $6,121 $6,426 $7,101 $9,581 6 months after market low 12 months 2 years after 5 years after after market low market low market low $24,671 $16,145 10 years after market low 6 Source: Bloomberg (Dec 2017)
Bear market decision in September 2002 $10,000 invested in the S&P 500 on August 31, 2000 $35,000 $30,000 $25,000 $20,000 Invested another $10,000 in the S&P 500 on Sept 30, 2002 Stayed invested in the S&P 500 Removed from market and invested in a GIC $16,306 $19,315 $21,992 $24,685 $31,842 $15,000 $10,000 $5,000 $0 $10,000 $8,688 $8,216 $8,349 $7,561 $10,000 Invested on Aug 31, 2000 3 months later 6 months later 9 months later 12 months later $5,527 2 years, 1 month later (Market Low - Sept 2002) $5,804 $6,875 $7,829 $8,788 $11,337 $5,618 $5,708 $5,895 $6,087 $6,493 6 months after market low 12 months 2 years after 3 years after 5 years after after market low market low market low market low 7 Source: Bloomberg (Dec 2017)
Bear market decision in March 2009 $10,000 invested in the S&P 500 on January 31, 2007 $50,000 $46,776 $40,000 $30,000 $20,000 Invested another $10,000 in the S&P 500 on March 31, 2009 Stayed invested in the S&P 500 Removed from market and invested in a GIC $21,211 $23,703 $27,411 $29,752 $17,220 $10,000 $5,826 $7,809 $8,726 $10,091 $10,953 $0 $10,000 $10,353 $10,210 $10,921 $9,769 $10,000 Invested on Jan 31, 2007 3 months later 6 months later 9 months later 12 months later 2 years, 2 month later (Market Low - Mar 2009) $5,883 $5,941 $6,057 $6,176 $6,642 6 months after market low 12 months after market low 2 years after market low 3 years after market low 6 years, 6 months after market low 8 Source: Bloomberg (Dec 2017)
Confidence & Volatility 9
Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 US Consumer Confidence Conference Board s US Consumer Confidence Index 140 120 100 80 60 40 20 0 10 Source: Bloomberg (Dec 2017)
Investor Confidence State Street Investor Confidence Index (Reflects Institutional Investors) 150 140 130 120 110 100 90 80 70 Global Europe North America Asia 60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 11 Source: Bloomberg (Dec 2017)
Market Volatility CBOE Volatility Index vs. S&P 500 Index Avoid an on risk / off risk approach: think strategically 70 60 50 CBOE Volatility Index (lhs) S&P500 (rhs) 3,100 2,600 40 2,100 30 1,600 20 10 1,100 0 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 600 12 Source: Bloomberg (Dec 2017)
Mutual Fund Sales (net sales $ billion) S&P/TSX Index Value Investing & emotions Buying high, selling low 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 $35.4 $17.7 $21.8 $28.9 $2.5 ($1.4) $14.3 $22.6 $20.8 $34.9 $0.1 $1.5 $12.0 $21.2 $30.4 $41.9 $57.6 $57.9 $30.1 $90.0 Mutual Fund Sales S&P/TSX Composite Index 60,000 50,000 $70.0 $57.6 $57.9 40,000 30,000 $50.0 $41.9 20,000 $30.0 $10.0 $35.4 $17.7 $21.8 $28.9 $2.5 $14.3 $22.6 $20.8 $34.9 $0.1 $1.5 $12.0 $21.2 $30.4 $30.1 10,000 - (10,000) (20,000) ($10.0) ($1.4) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (30,000) 13 Source: Bloomberg (Dec 2017)
Diversification 14
A Balanced Approach For potential growth and preservation of capital Growth of $10,000 over the past 10 years as at December 31, 2017 $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 S&P/TSX Composite Index Bloomberg Barclays GlobalAgg Total Return Index Value Unhedged CAD Balanced (60% TSX/40% Bond Index) $4,000 $2,000 $0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 15 Source: Bloomberg (Dec 2017)
Long Term Investing 16
Change 1956 1958 1959 1961 1962 1964 1965 1967 1968 1970 1971 1973 1974 1976 1977 1979 1980 1982 1983 1985 1986 1988 1989 1991 1992 1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012 2013 2015 2016 Bull & Bear Markets S&P/TSX Composite Index to December 31, 2017 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% 288% 253% 203% 85% 81% 82% 63% 44% 168% 159% 109% 16% -26% -17% -15% -25% -35% -39% -25% -20% -27% -21% -38% -43% Bull & Bear Facts Average gain in bull market: 127% Average length of bull market: 52 months Average loss in bear market: (28%) Average length of bear market: 9 months 17 Source: Bloomberg (Dec 2017)
Bull & Bear Markets: S&P/TSX Composite The Risks and Rewards of Investing: This chart represents the bull and bear markets in the S&P/TSX Composite Total Return since 1956. All bars above the line are bull markets; all bars below are bear markets. For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months. Investor Behaviour: According to the chart, markets spend more time in positive territory (bull) than negative (bear). Bull markets are, on average, longer and more intense, providing a more significant percentage change. On average bear markets are more brief, and yet engender fear. It is during these periods that there are significant investment bargains to be found. Investor discipline during bear markets is critical. 18
Change 1956 1958 1959 1961 1962 1964 1965 1967 1968 1970 1971 1973 1974 1976 1977 1979 1980 1982 1983 1985 1986 1988 1989 1991 1992 1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009 2010 2012 2013 2015 2016 Bull & Bear Markets S&P 500 Index to December 31, 2017 600% 500% Bull & Bear Facts Average gain in bull market: 145% Average length of bull market: 48 months 526% 400% Average loss in bear market: (27 %) Average length of bear market: 14 months 300% 280% 338% 200% 100% 104% 90% 52% 76% 86% 87% 72% 108% 0% -100% -14% -22% -16% -29% -43% -14% -17% -30% -15% -45% -51% 19 Source: Bloomberg (Dec 2017)
Bull & Bear Markets: S&P 500 The Risks and Rewards of Investing: This chart represents the bull and bear markets in the S&P 500 Total Return since 1956. All bars above the line are bull markets; all bars below are bear markets. For the purposes of this illustration, a bull (bear) market is defined as a positive (negative) move greater than 15% that lasts at least 3 months. Investor Behaviour: According to the chart, markets spend more time in positive territory (bull) than negative (bear). Bull markets are, on average, longer and more intense, providing a more significant percentage change. On average bear markets are more brief, and yet engender fear. It is during these periods that there are significant investment bargains to be found. Investor discipline during bear markets is critical. 20
Total Returns Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Real Return of a GIC 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% 1 Yr GIC Returns 1 Yr GIC After 40% Marginal Tax 1 Yr GIC Real Return (After Inflation) -6% 21 Source: Bloomberg (Dec 2017)
22 U.S. Stock Market Annual Total Return More than 190 years of history Positive Years: 136 (71%) Negative Years: 56 (29%) Source: Universal Economics 2015 2011 2007 2005 1994 1993 1992 2016 1987 2014 1984 2012 1978 2010 1970 2006 1960 2004 1956 1988 1948 1986 1947 1979 1923 1972 2000 1916 1971 1990 1912 1968 1981 1911 1965 1977 1906 1964 1969 1902 1959 1962 1899 1952 1953 1896 1949 2009 1946 1895 1944 2003 1940 1894 1926 1999 1939 1891 1921 1998 1934 1889 1919 1996 1932 1881 1918 1983 1929 1877 1905 1982 2001 1914 1875 1904 1976 1973 1913 1874 1898 1967 2013 1966 1903 1872 1897 1963 1997 1957 1890 1871 1892 1961 1995 1941 1888 1870 1886 1951 1991 1920 1887 1869 1878 1943 1989 1917 1883 1868 1864 1942 1985 1910 1882 1867 1858 1925 1980 1893 1876 1866 1855 1924 1975 1884 1861 1865 1850 1922 1955 1873 1860 1859 1849 1915 1950 2002 1854 1853 1856 1848 1909 1945 1974 1841 1851 1844 1847 1901 1938 1958 1954 1930 1837 1845 1842 1838 1900 1936 1935 1933 1907 1831 1835 1840 1834 1880 1927 1928 1885 2008 1857 1828 1833 1836 1832 1852 1908 1863 1879 1931 1937 1839 1825 1827 1826 1829 1846 1830 1843 1862-50 to -40-40 to -30-30 to -20-20 to -10-10 to 0 0 to 10 10 to 20 20 to 30 30 to 40 40 to 50 50 to 60 Annual Return Range (%)
Staying the Course 23
20 years of the S&P 500 You can t afford to miss the best weeks Value of $10,000 invested from December 31, 1997 to December 31, 2017 i $30,000 $24,597 $22,421 $20,000 $16,391 $11,998 $10,000 $- 4.6% 4.1% 2.5% 0.9% Fully invested all weeks Missed best 1 week Missed best 5 weeks Missed best 10 weeks 24 Source: Bloomberg (Dec 2017)
20 years of the S&P/TSX Composite You can t afford to miss the best weeks Value of $10,000 invested from December 31, 1997 to December 31, 2017 i $40,000 $30,000 $20,000 $24,086 $21,189 $14,700 $10,000 $10,529 $- 4.5% 3.8% 1.9% 0.3% Fully invested all weeks Missed best 1 week Missed best 5 weeks Missed best 10 weeks 25 Source: Bloomberg (Dec 2017)
When is the right time to invest? Five approaches. Two are easy, repeatable & proven Investing $2000/yr in S&P/TSX over 20 years $125,000 $100,000 $104,103 $85,984 $95,724 $81,628 Even terrible timing trumps not investing $75,000 $54,003 $50,000 $25,000 $- Perfect Timer Dollar Cost Averager New Year's Investor Terrible Timer Bought T-Bills not Stocks 26 Source: Bloomberg (Dec 2017)
Always remember it s only a cycle Market cycle relative to economic cycle... but each has differences Stock Market Cycle Economic Cycle Top Peak Late Bull Early Bear Early Bull Mid Recovery Mid Recession Bottom Trough Late Bear 27 For illustrative purposes only 27
MF3919 12/17 DISCLAIMER This document includes forward-looking information that is based on forecasts of future events as of December 31, 2017. Mackenzie Financial Corporation will not necessarily update the information to reflect changes after that date. Forward-looking statements are not guarantees of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Some of these risks are changes to or volatility in the economy, politics, securities markets, interest rates, currency exchange rates, business competition, capital markets, technology, laws, or when catastrophic events occur. Do not place undue reliance on forward-looking information. In addition, any statement about companies is not an endorsement or recommendation to buy or sell any security." The content of this document (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it. Unlike mutual funds, the returns and principal of GICs are guaranteed. The information contained in this document is proprietary to Mackenzie Investments and is being provided to you solely for the purposes of helping you to evaluate Mackenzie Investments' investment management expertise. By accepting this information, you are deemed to have acknowledged that any other use or disclosure to anyone else without Mackenzie's permission may cause damage to Mackenzie Investments and that you agree to use the same degree of care in protecting this information as you apply to your own proprietary information. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Index performance does not include the impact of fees, commissions, and expenses that would be payable by investors in the investment products that seek to track an index. The rate of returns shown is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of returns on investment." 28