B.C. Pension Forum Economic Update February 2016 Presented by: Andrew Sweeney, Vice President
$50T Global Equity Market Canada is only 3% of the world MSCI All Country World Index Geographic Breakdown United States (53%) $26.2 Trillion 631 Companies EAFE (35%) $17.2 Trillion 928 Companies Canada (3%) $1.4T 94 Companies Emerging Markets (10%) $4.9 Trillion 837 Companies Source: MSCI, RBC GAM as of December 31, 2015. In Canadian dollars. 2
Global Equity Markets Strong Returns in C$, Canada Lagged S&P 500 Index Global Market Performance 1 Year to December 31, 2015 +1.4% +20.8% Global markets generated modest $U.S. returns MSCI EAFE Index -0.8% +19.0% Canadian investors benefited from 16% decline in Canadian dollar MSCI World Index -0.9% +18.9% S&P/TSX Index lagged due to Energy and Materials S&P/TSX Composite Index -8.3% Both Emerging Market currencies and share prices fell significantly Return in $U.S. MSCI EM Index -14.9% +2.0% Return in $Cad Source: MSCI, RBC GAM, Factset -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 3
Performance Indexed to 100 Volatility Has Returned Correction Began September 2014 Global Equity Market Performance Sep 30 2012 Present 210 190 S&P 500 MSCI World Index S&P/TSX Composite Index After 3 years of steady gains, markets began a correction in September 2014 170 Energy stock weakness has hit Canadian markets hard 150 130 A weakening Canadian dollar mitigated losses in non- Canadian stocks. 110 90 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Source: Factset as of February 2016. In Canadian dollar returns. 4
Integrating ESG into Investment Decisions Investment Pharma Sustainability of business model positively tied to cancer focus as opposed to lifestyle drugs Divestment Teen retailer Management incentivisation concerns insufficiently addressed Engagement Multiple industries Pay practices, access to medicines, board structure, disclosure Avoidance Consumer Nutritional supplement company concerns over sustainability of direct selling business model 5
Performance Relative to MSCI World Index Portfolio Weight % Anheuser-Busch Inbev Core Global Holding 150 Anheuser-Busch Inbev Performance Relative to MSCI World Index Global Portfolio Weight Relative to MSCI World Index (LHS) 5.0% 1 Business model High margin business with strong brands, efficient production assets and leading distribution channels 140 4.5% 130 4.0% 2 Market share growth World s largest brewer with exposure to deep and growing profit pools 120 110 3.5% 3.0% 3 End-market growth Developed markets: stable growth. Emerging Markets: volume growth drives profitability 100 2.5% 90 2.0% Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 4 Management & ESG Management has strong reputation of deal integration Source: MSCI, FactSet Performance, as of December 31, 2015 6
S&P/TSX Sector Performance One Year Ended December 31, 2015 UPDATED Performance of S&P/TSX Industry Sectors Source: RBC GAM 7
Marginal Breakeven Price Assuming a 10% Hurdle Rate on a Brent Equivalent Basis, US$bbl Opportunity in Energy Current Oil Prices Unlikely to be Sustained Indefinitely UPDATED $140 $120 Oil Price Required to Add Additional Production Market requires 7mln bbls/d of new production every year to meet demand growth and offset production declines $100 $80 Canadian In-Situ Oilsands Projects Permian, US Bakken, US Kearl, CA Current prices are insufficient to incent production to meet demand over the next 3-4 years $60 $40 Canadian Mining Oilsands Projects Timing of a recovery in oil prices is very difficult to predict $20 $0 Eagle Ford, US 0 4 8 12 16 20 24 28 32 Incremental Liquids Production Added 2014-2020, mmb/d We stress test companies to ensure they can survive a lower-for-longer scenario Source: Rystad, Wood Mackenzie, Morgan Stanley Commodity Research 8
Canadian Equity Outlook Valuations Getting More Attractive UPDATED S&P/TSX Composite Index Price-to-Forward Earnings Ratio Dec 1995 Dec 2015 25.0x Current Forward P/E - 14.6x Mean P/E (Last 20 Yrs) - 15.2x 20.0x 15.0x 10.0x 5.0x Dec-95 Dec-98 Dec-01 Dec-04 Dec-07 Dec-10 Dec-13 Source: TD Securities 9
Disclaimer This presentation is intended for institutional investors only. This document has been provided by Phillips, Hager & North Investment Management (PH&N IM) for information purposes only and may not be reproduced, distributed or published without the written consent of PH&N IM. It is not intended to provide professional advice and should not be relied upon in that regard. PH&N IM takes reasonable steps to provide up-to-date, accurate and reliable information, and believes the information to be so when printed. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by PH&N IM, its affiliates or any other person as to its accuracy, completeness or correctness. We assume no responsibility for any errors or omissions. The views and opinions expressed herein are those of PH&N IM as of the publication date and are subject to change without notice. This information is not intended to be an offer or solicitation to buy or sell securities or to participate in or subscribe for any service. No securities are being offered, except pursuant and subject to the respective offering documents and subscription materials, which shall be provided to qualified investors. This document is for general information only and is not, nor does it purport to be, a complete description of an investment in any RBC, PH&N or BlueBay funds. If there is an inconsistency between this document and the respective offering documents, the provisions of the respective offering documents shall prevail. Commissions, trailing commissions, management fees and expenses all may be associated with the funds mentioned in this presentation. Please read the offering materials for a particular fund before investing. The performance data provided are historical returns, they are not intended to reflect future values of any of the funds or returns on investment in these funds mentioned in this presentation. Further, the performance data provided assumes reinvestment of distributions only and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. The unit values of non-money market funds change frequently. For money market funds, there can be no assurances that the fund will be able to maintain its net asset value per unit at a constant amount or that the full amount of your investment in the fund will be returned to you. Mutual fund securities are not guaranteed by the Canada Deposit Insurance Corporation or by any other government deposit insurer. Past performance may not be repeated. The amount of risk associated with any particular investment depends largely on the investor s own circumstances. Investors should consult their professional advisors/consultants regarding the suitability of the investment solutions mentioned in this presentation. This document may contain forward-looking statements about general economic factors which are not guarantees of future performance. Forward-looking statements involve inherent risk and uncertainties, so it is possible that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution you not to place undue reliance on these statements as a number of important factors could cause actual events or results to differ materially from those expressed or implied in any forwardlooking statement. All opinions in forward-looking statements are subject to change without notice and are provided in good faith but without legal responsibility. PH&N IM is a division of RBC Global Asset Management Inc. (RBC GAM Inc.). RBC GAM Inc. is the manager and principal portfolio adviser of the Phillips, Hager & North (PH&N) investment funds. RBC GAM Inc. is registered with the various securities commissions of Canada as a portfolio manager, which permits it to provide discretionary investment management services to its clients, and as an exempt market dealer which permits it to act as a dealer for prospectus exempt trades in certain circumstances. RBC GAM Inc. is also registered as an Investment Fund Manager in Ontario, British Columbia, Quebec and Newfoundland and Labrador and as a Commodity Trading Manager in Ontario. Each of RBC GAM Inc. and BlueBay Asset Management LLP (BlueBay) is a wholly-owned subsidiary of Royal Bank of Canada, and an affiliated company and may be considered as related issuers and/or connected issuers under applicable securities legislation. / Trademark(s) of Royal Bank of Canada. Used under licence. RBC Global Asset Management Inc., 2016. 10
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