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Volatility is back, again
MONTHLY PERSPECTIVES PORTFOLIO ADVICE & INVESTMENT RESEARCH
November 2014
Martha Hill, CFA, Vice President, Portfolio Advice & Investment Research
In this issue
FIXED INCOME
Financial markets are mostly human�� 2
NORTH AMERICAN EQUITIES
Shifting expectations�� 3 - 4
MANAGED SOLUTIONS
Low volatility solutions for volatile times�� 5
THE LAST WORD
Volatility in perspective�� 6
A little thing called recency bias�� 6
PERFORMANCE MONITOR
Monthly market review�� 7
APPENDIX A
Important information�� 8
A return of concerns over slower global economic growth, the unwinding of
quantitative easing, and geopolitical tensions conspired to bring volatility back to
financial markets. After a prolonged period without a meaningful pullback, equity
markets dropped over the September to October period. Since the lows, the S&P
500 Index has once again reached new highs and the S&P/TSX Composite Index
has recovered roughly 40% of its losses.
In this issue of Monthly Perspectives, we examine the return of volatility and
highlight investment solutions designed to mitigate the downside risks associated
with equity markets. Additionally, we discuss what the shift in expectations for
global growth means for key sectors of the North American equity market and
uncover factors pointing to a positive, longer-term outlook for equities.
We remind investors that short-term volatility is an unavoidable part of investing,
however, they can be prepared for it by having a well-diversified portfolio with
an asset mix designed to meet their investment goals and risk tolerance. Doing
so, can mitigate market downturns and help investors remain focused on their
long-term goals.
This document is for distribution to Canadian clients only.
Please refer to Appendix A of this report for important
disclosure information.
2
MONTHLY PERSPECTIVES
November 2014
FIXED INCOME
Financial markets are mostly human
Sheldon Dong, CFA
“Financial markets are filled with non-intuitive relationships,
and what’s awesome is things are always changing.”
Joe Weisenthal
Financial markets are a lot like a dating service: a forum that matches
borrowers with investors, and buyers with sellers. Participants are
varied, with some looking for short-term romances while others are
looking for longer-term commitments. Just as in dating, engagement
in financial markets can be very stressful due to uncertainty, shaken
confidence and the possibility of being hurt by rejection. As human
beings, we are by design our own worst enemies, especially when it
comes to navigating the ups and downs of the market.
There are many forces that contribute to market volatility,
but the most significant is probably human emotion
Volatility in financial markets is the up-and-down movement of
underlying security prices. There are many forces that contribute
to market volatility, but the most significant is probably human
emotion. We are all imperfect. We all suffer from biases related to
our own experiences. We are subject to fear and greed. The longer a
person experiences prosperity and does not suffer any drawdowns,
the less risky they perceive the market to be. The reverse is true
after a person experiences large losses and severe drawdowns. High
volatility scares people. Fear can impact the market itself. Fear can
cause contagion.
Financial markets are mostly human. As in dating, participants in
financial markets consist of all types, but the main constituents
today can be classified as: 1) Passive investors, who take what the
market gives them, including periods of mispricing; 2) Machines,
that are driven by algorithmic trading strategies, based mostly on
what has worked and what is working; 3) Momentum traders/
investors, for whom price direction is the defining force that drives
behaviour (herd mentality); 4) Relative performance investors,
mainly professional asset managers, whose primary goal is to beat
their benchmark and their peer group; 5) Corporations, who tend
to buy back their own stock when prices are high, and less so
when prices are low; and 6) Governments, via their central banks,
sovereign wealth funds and pension funds, they set interest rate
policy and influence market prices and behaviour through asset
purchases. These market participants have different motives and
time horizons, not necessarily driven by inherent value. Like human
relationships, their interactions can be sporadic at any given point
but collectively, they set the clearing prices in financial markets.
As a result, short-term volatility has always been a part of financial
markets (and dating). It is normal.
Since the financial crisis began in 2007, central banks have been
playing a larger role in modifying financial markets’ behaviour
with their use of conventional and unconventional policies.
The world’s three largest central banks in the U.S., the euro zone
and Japan have not only cut conventional interest rates to virtually
zero, they have also interfered with natural market forces though
unconventional large-scale asset purchase programs (Quantitative
Easing (QE)). Like children who felt their parents were always there
to catch them when they fell, financial market volatility had been
suppressed by the belief that central bank and government support
would be sufficient and enduring until things returned to normal.
QE intentionally encouraged asset price inflation with the intent of
having “the wealth effect” spill into the broader economy. The plan
was to eventually hand off the support for lofty QE-fueled asset
prices to strong fundamentals backed by robust economic activity.
Recently, that belief has been shaken, as global economic growth
has turned unexpectedly downwards with concern that official
responses may be insufficient, particularly in Europe. Although the
U.S. Federal Reserve has long been weaning financial markets from
QE support, a recovering domestic economy has raised fears that it
may soon begin to reverse its policy of ultra-low interest rates that
has punished savers, such as pensions and retirees, while rewarding
speculators and debtors.
“The right asset allocation is the one that brings you to your
financial goal because you are able to maintain it during all
market conditions.”
Rick Ferri, author of “All About Asset Allocation”
When financial markets go up significantly for a period of time
without a serious pullback, most investors begin to forget about the
importance of risk management. This is normal human behaviour.
Typically, the only risk they think of is keeping up with the returns of
their peers—the fear of missing out. This results in investors pushing
further out on their inherent comfort levels of risk in an effort to
capture higher returns, an effort much more apparent in today’s
environment of historically low interest rates.
Nobody can predict what will happen in the future, life is about
continuous risk taking and risk management. With regard to
financial markets, short-term trading is always a gamble. Longerterm investing, while uncomfortable at times due to normal market
fluctuations, is less risky. Further, mitigation against volatile swings
in the valuation of investment portfolios can be achieved with
proper asset allocation. Finding the right asset allocation may not be
that simple for many investors, and those who do not feel confident
enough to sort this out on their own should seek advice. Financial
advice varies with your overall goals, personal circumstances, age,
investment horizon, and willingness to take risks. Similar to matchmaking, one size does not fit all. It never has.
3
November 2014
MONTHLY PERSPECTIVES
NORTH AMERICAN EQUITIES
Shifting expectations
Yogesh Oza, M.Econ, CFA; Robert Marck, CPA, CMA, CIM
Natural resource sectors adjusting supply to lower global
growth expectations
Recently, energy and industrial commodity prices have come
under substantial pressure on the view that moderating economic
growth outside of the U.S. could lead to excess supply situations.
Such worries were stoked by a number of bearish data points.
In early October, the International Monetary Fund (IMF) reduced its
2014 global growth forecast by 0.4% to 3.3%, while the outlook
for 2015 was nudged lower by 0.1% to 3.8%, compared to its
April forecasts. A primary concern is that the euro zone might
be on the verge of another recession as anemic growth may not
ward off disinflationary forces. Additionally, China’s economy has
been showing signs of moderating growth and the leadership has
indicated a reluctance to provide additional material monetary
stimulus in fear of fueling already hot credit markets.
With global growth expectations being downgraded, the Parisbased International Energy Agency (IEA) also took a cautious stance.
The IEA reduced its forecast for global oil demand for 2014 by 0.2
million barrels per day (mb/d) to 92.4 mb/d, less than the worldwide
supply, which in September stood at 93.8 mb/d. Thanks in part to
rising Libyan production, OPEC’s (Organization of the Petroleum
Exporting Countries ) crude oil output surged to a 13-month high.
The same global growth concerns also weighed on industrial metal
prices. Many mining projects that were shelved during the Great
Recession have been ramping up to commercial production levels.
A Reuters survey indicates that over the next six months, more than
one million tons of new copper capacity will come on stream at a
time when ex-U.S. growth expectations are slowly moving lower.
Synchronization of base metal production growth with projected
global demand over a multi-year time horizon is a challenge for
mining companies, given the long lead times required to build new
mines. As such, near-term supply and demand mismatches can result.
While there might be a short-term oversupply situation in some
commodity markets, ultimately, energy and base metal mining
companies tend to adjust their production profiles to line up with
a more modest growth outlook. This generally means that those
projects that were marginally economic will either come off line
or be ramped up at a more gradual pace. In turn, as companies
expand production at a more measured pace, supply eventually
balances out with demand at a global level.
Figure 1
A Challenging Year for Commodities
160
140
120
100
Index to 100
From the Ebola outbreak to slowing global growth, news items
have played a significant role in bringing volatility back to the
financial markets. To address this development, we explore the
potential effect of the softer global growth outlook for some
key North American market segments, such as natural resources,
financials, consumer staples and consumer discretionary sectors.
At a time when negative headlines seem to regularly make the front
page of many newspapers, we read the fine print to discover the
silver lining and uncover reasons why investors with a longer-time
horizon should remain positively inclined.
80
60
40
20
0
31-Dec-13
Iron Ore
Nickel
Copper
28-Feb-14
WTI Oil
Brent Oil
NYMEX Natural Gas
30-Apr-14
30-Jun-14
31-Aug-14
Source: Bloomberg Finace L.P. As at October 27, 2014.
In the energy sector, given the high production decline rates that
shale resource wells experience in the first year of production, more
gradual development schedules might ultimately prove to be more
prudent in terms of putting less stress on company balance sheets,
improving cash flow predictability, and dividend sustainability.
In addition to production growth rates being adjusted lower,
Canadian energy prices may also find support as companies take
steps to diversify end-markets for their production. For example,
British Columbia’s liquefied natural gas (LNG) projects are moving
forward, albeit slowly, to ship Canadian natural gas to Asia. Canadian
energy companies are also keen on helping Europe safeguard more
reliable energy supplies. As North American energy infrastructure
capacity continues to increase and more global markets are made
available over time, it is expected that prices realized by Canadian
energy producers will trend closer to global benchmarks.
With recent global growth woes stoking fears of potential excess
supply, volatility returned in a big way to North American natural
resource sectors. As commodity producers adjust production
profiles, commodity prices may be supported by moderating supply
growth. The sharp downturn in natural resource stock prices
suggests that softer growth expectations may already be priced in.
Declining interest rate expectations not bad for all financials
The recent slowing economic data out of Europe and other
international economies has tempered economists’ rate-hike
expectations and raised the possibility of low rates continuing
for the foreseeable future. The low rate environment has been
prevalent for the past five years and while there had been some
expectation that the economy would strengthen enough in 2015
to allow central banks to increase rates, it appears this view may
have been premature.
4
November 2014
MONTHLY PERSPECTIVES
NORTH AMERICAN EQUITIES
Shifting expectations (cont’d)
Yogesh Oza, M.Econ, CFA; Robert Marck, CPA, CMA, CIM
To illustrate the divergence in stock performance of interest
sensitive financial sub-sectors in Canada, we take a look at real
estate companies, banks and insurance companies from the end
of Q2/14 to today (figure 2). Generally, a rising rate environment
has a positive effect on some companies and a negative effect on
others. For example, Real Estate Income Trusts (REITs) are negatively
impacted by rising interest rates because they increase the cost of
debt used to finance the real estate assets. Conversely, rising rates
are generally positive for banks and insurance companies. Banks are
able to earn a better return when interest rates increase (assuming
a normal shaped yield curve) as they can lend money at higher rates
(mortgages, loans) than they are paying for the deposits to fund
the loans. This increases the net interest margin (spread) the banks
earn. Life insurance companies are able to discount future liabilities
further with increased interest rates and generally benefit from a
higher rate environment.
Figure 2
Canadian Interest Sensitive Stocks
8%
6%
4%
Figure 3
Retail Sales vs. Consumer Confidence Index
US$
100
90
80
Retail Sales (US$ billions) (RHS)
440
Consumer Confidence Index (LHS)
420
400
70
60
380
50
360
40
340
30
320
20
1-Dec-08
300
1-Dec-09
1-Dec-10
1-Dec-11
1-Dec-12
1-Dec-13
Source: Bloomberg Finance L.P. As at September 30, 2014.
First, let’s look at retail sales. Following seven consecutive monthly
gains, U.S. retail sales fell by 0.3% in September—creating
negative sentiment in the market. Retail monthly sales increased
from US$332 billion in December of 2012 to US$442 billion by the
end of September 2014, a significant increase. The key message,
however, is that while volatility in monthly economic data is back,
the direction of retail sales in the U.S. from late 2009 until now is
undeniably positive.
2%
0%
-2%
-4%
-6%
-8%
30-Jun-14
Reduced interest-rate-hike expectations create a
divergence in REIT share price perfomance versus
banks and insurance companies.
Banks
31-Jul-14
Insuarance Cos.
31-Aug-14
REITs
30-Sep-14
Source: Bloomberg Finance L.P. As at October 21, 2014.
Figure 2 shows that share price performance of the three subsectors followed a similar path until the end of September, at which
time, interest rate hike expectations became subdued. What
followed was a noticeable divergence of stock performance with
REITS, which benefit from low rates, outperforming banks and
insurance companies. We believe this is due to rate hike expectations
being pushed into the future. Not all financial companies react the
same way to changing interest rates and a well-diversified portfolio
of financial holdings will help to mitigate volatility in pricing from
changing rate expectations.
The U.S. consumer recovery has paused but the trend is
undeniably positive
Finally, we review the health of the consumer in the U.S. Elevated
fears of slowing global growth outside of the U.S. may spill over and
affect the U.S. economy, thus dampening the recent resurgence
of the U.S. consumer. To help understand the state of the U.S.
consumer, we take a look at two key economic indicators: retail
sales and consumer confidence.
A low rate environment is not necessarily a negative for
financial stocks
Another economic indicator we considered is the U.S. consumer
confidence index. Consumer confidence is an indicator that
measures the degree of optimism consumers feel about the overall
state of the economy. This helps determine potential spending in
the economy because with increased confidence usually comes the
willingness to purchase additional goods. Although confidence has
been flattening over the past three months, it has steadily improved
since 2008. Additionally, while choppy consumer economic data
may also be back, leading to some volatility in share prices of
consumer companies, we believe the U.S. consumer is healthy
overall, which should be a tailwind for the consumer discretionary
and staples sectors.
Although market volatility is back, there are reasons to
remain positive
As mentioned earlier, the bevy of bearish headlines has led to
an increase in market volatility and caused investors to be more
cautious. On a positive note, we believe that falling commodity
prices will lead to more measured production growth, supporting
commodity prices. Further, a low rate environment is not necessarily
a negative for financial stocks and is a tailwind for the consumer
sectors.
5
MONTHLY PERSPECTIVES
November 2014
MANAGED SOLUTIONS
Low volatility solutions for volatile times
Badan Fong, CFA; L.J. (Ketan) Desai, CFA
After several years of relative market stability, the recent spike in
volatility sent a chill through markets in September and October.
While sharp downswings in the markets are never comfortable,
some investors are able to tolerate the volatility. However, for those
investors who determine they have a lower tolerance for risk than
a typical equity allocation requires, but still need equity exposure to
meet their investment objectives, low volatility strategies can offer
an effective solution.
Low volatility investing
Low volatility strategies aim to provide some downside protection
when investing in equities, while retaining the ability to participate
in rising markets. These strategies can be considered within the
equity allocation of a portfolio to help generate superior returns
versus bonds, while reducing the overall risk profile of the portfolio
relative to equities alone.
TD Asset Management was the first to launch a low
volatility fund in Canada and is a leader in this segment
Low volatility strategies tend to have a higher weighting in dividendpaying, non-cyclical stocks in sectors such as utilities, health care
and consumer staples. These strategies typically exhibit a value
style that—as studies have shown—tends to outperform a growth
approach in the long run. Collectively, these exposures tend to
result in a portfolio that is less sensitive to market fluctuations.
All low volatility strategies are not created equal
While low volatility strategies tend to demonstrate common
characteristics, investors should keep in mind that differences can
exist between solutions. For example, some low volatility solutions
are constructed using stocks that have demonstrated the lowest
volatility over a specified period of time with little regard to other
elements of portfolio construction, such as sector or regional
diversification. The PowerShares Canadian Low Volatility Index
Fund has a significant relative overweight to Canadian financials
with approximately 56% exposure versus the S&P/TSX Composite
Index of approximately 35% (Source: Morningstar® Direct, as at
September 30, 2014).
It is important to note that while targeting lower volatility is a
compelling investment objective, there is no guarantee that this
goal will be met in all time periods. In addition, investors should be
aware that during periods of sustained rising equity markets, low
volatility strategies are expected to lag the performance of a broader
market.
Low volatility mutual funds
For investors seeking a low volatility fund, TD Asset Management
(TDAM) is a leader in this segment and was the first to launch a
low volatility fund in Canada. TDAM currently manages four low
volatility strategies: TD Canadian Low Volatility, TD U.S. Low Volatility,
TD Global Low Volatility and TD Emerging Markets Low Volatility.
In addition to TDAM’s offerings, Royal Bank of Canada offers
the RBC QUBE Low Volatility funds and Mackenzie Investments
launched the Mackenzie U.S. Low Volatility Fund in April of this year.
For those investors approaching or currently in retirement, and who
are looking for a fund-of-funds solution as a core building block for
their portfolio, the TD low volatility series of funds can be found in
the TD Retirement Portfolios. These portfolios use a combination
of low volatility equities and a flexible fixed income approach that
focuses on corporate bonds. They also hold the TD Risk Reduction
Pool, which employs both equities and options to help limit the
portfolios’ downside while seeking long-term capital appreciation.
Low volatility Exchange Traded Funds (ETFs)
In addition to actively managed low volatility funds, investors can
gain access to North American and international low volatility
strategies using passive ETFs. Broadly speaking, ETF providers use
one of two key ways to construct low volatility portfolios. One is
to rank stocks in a given universe based on their past volatility.
For example, the BMO Low Volatility Canadian Equity ETF screens
the 100 largest and most liquid equity securities in Canada to
construct a portfolio of the 40 least market sensitive stocks based
on their sensitivities to market movements. Similarly, the First Asset
MSCI Canada Low Risk Weighted ETF re-weights all the constituents
of the market capitalization weighted MSCI Canada Index such that
stocks with lower historical return variance over a three-year period
are given higher weights in the portfolio.
Low volatility strategies can offer an effective solution for
investors with a lower tolerance for risk who need equity
exposure to meet their investment objectives
Despite being relatively more complicated, we prefer the MSCI
Minimum Volatility Indices’ methodology, which uses a proprietary
methodology to optimize a parent MSCI index for the lowest
absolute volatility subject to certain rules. These rules include limits
on index turnover, as well as maximum and minimum weights for
stocks and sectors. For example, the iShares MSCI USA Minimum
Volatility Index ETF tracks the performance of the MSCI USA
Minimum Volatility Index. This index measures the performance of
the top 85% U.S. listed equity securities by market capitalization
that have lower volatility relative to the companies included in the
parent MSCI USA Index.
Understanding your goals and risk tolerance, and selecting
investments that suit your circumstances are key to achieving your
investment objectives. If periods of volatility make you uneasy,
consider adding low volatility strategies as part of the equity
allocation in your portfolio.
6
November 2014
MONTHLY PERSPECTIVES
THE LAST WORD
Volatility in perspective
Scott Booth, CFA
S&P/TSX Composite Index: Day Count of Movements Exceeding +/-1.5%
Days
60
Daily Moves > 1.5%
Daily Moves < -1.5%
50
40
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Bloomberg Finance L.P. As at October 28, 2014.
Markets have tread a steady upward path for quite some time and the recent divergence from that path has resulted in some discomfort
for many investors who have grown accustomed to the positive trend. While the recent turmoil in markets has led many financial pundits to
make claims that volatility is back, the reality is that the market has been experiencing much milder swings than it has during many periods
since the turn of the millennium.
A little thing called recency bias
Art Czyzyk
The human brain is one of the most fascinating, interesting and incredibly complex machines known to exist. From walking down stairs
(which in itself is an extremely complicated act) to juggling knives to, well, studying themselves, our brains perform tasks that are nothing
short of a miracle. Unfortunately, when it comes to investing, they (and you) are not as rational as you think.
Here’s the problem: we are creatures of habit. We grab the milk out of the fridge in a well-practiced manner, we take the same route to
work, we eat and sleep at a certain time, and we even sit in a certain way when we read. The reason is simple, our brains are smart. They
outsource their neuron labour so they can focus on more complex (new) issues at hand. This habitual behaviour allows our brain to reduce
the amount of information it has to store, i.e., we don’t need to remember the route we took to work three months ago; we just need
to remember yesterday. Unfortunately, the brain’s preference for remembering and recalling only the most recent occurrences biases our
thinking, creating a contextual drift commonly known as the recency bias.
The recency bias is pretty simple. We’re inclined to use our recent experience as the baseline for what will happen in the future. This bears
repeating: you are naturally inclined to use your recent experience as the baseline for what will happen in the future. This means that the
context we apply to our thinking at any given moment can be thought of as a recency-weighted sum of previous experiences or memories.
This works fine for our everyday lives but when it comes to investing, you can see how it can cause problems. The most obvious of which
is that it blinds us from the big picture.
So what can you do about it? First, be aware. The recency bias is sub-consciously marinating on the back burner. Bringing it to the front
(consciousness) allows us to figure out how it works. Once you know that, you can not only compensate for its shortcomings but use it to
your advantage. For example, we tend to remember the last item on a list, or the last thing we hear or read. Why not be strategic about it?
Think long term.
7
November 2014
MONTHLY PERSPECTIVES
PERFORMANCE MONITOR
Monthly market review
Canadian Indices ($CA) Return
S&P/TSX Composite (TR)
S&P/TSX Composite (PR)
S&P/TSX 60 (TR)
S&P/TSX SmallCap (TR)
Index Level
44,318
14,613
2,082
843
(%)
1 Month
-2.07
-2.32
-1.42
-8.30
(%)
3 Month
-4.01
-4.68
-3.25
-14.72
(%)
YTD
9.88
7.28
11.08
-1.89
(%)
1 Year
12.57
9.37
13.95
0.93
(%)
3 Year
9.29
6.05
10.06
-0.18
(%)
5 Year
9.11
6.02
8.64
5.64
(%)
10 Year
8.02
5.12
8.27
3.32
(%)
20 Year
8.73
6.32
9.39
-
U.S. Indices ($US) Return
S&P 500 (TR)
S&P 500 (PR)
Dow Jones Industrial (PR)
NASDAQ Composite (PR)
Russell 2000 (TR)
Index Level
3,680
2,018
17,391
4,631
5,520
1 Month
2.44
2.32
2.04
3.06
6.59
3 Month
5.05
4.53
4.99
5.97
5.11
YTD
10.99
9.18
4.91
10.87
1.90
1 Year
17.27
14.89
11.87
18.14
8.06
3 Year
19.77
17.21
13.31
19.93
18.18
5 Year
16.69
14.26
12.36
17.76
17.39
10 Year
8.20
5.97
5.66
8.90
8.67
20 Year
9.60
7.53
7.75
9.33
9.40
U.S. Indices ($CA) Return
S&P 500 (TR)
S&P 500 (PR)
Dow Jones Industrial (PR)
NASDAQ Composite (PR)
Russell 2000 (TR)
Index Level
4,149
2,275
19,608
5,221
6,224
1 Month
3.05
2.93
2.65
3.67
7.23
3 Month
8.77
8.23
8.71
9.72
8.83
YTD
17.66
15.74
11.21
17.54
8.02
1 Year
26.79
24.21
20.95
27.73
16.84
3 Year
24.93
22.26
18.19
25.10
23.27
5 Year
17.76
15.31
13.38
18.83
18.47
10 Year
7.35
5.13
4.82
8.03
7.81
20 Year
8.60
6.56
6.77
8.34
8.41
MSCI Indices ($US) Total Return
World
EAFE (Europe, Australasia, Far East)
EM (Emerging Markets)
Index Level
6,353
6,543
2,034
1 Month
0.67
-1.45
1.19
3 Month
0.18
-5.34
-4.14
YTD
5.03
-2.42
3.97
1 Year
9.25
-0.17
0.98
3 Year
15.02
10.17
3.59
5 Year
12.02
7.00
4.98
10 Year
7.52
6.29
10.90
20 Year
7.36
5.31
5.58
MSCI Indices ($CA) Total Return
World
EAFE (Europe, Australasia, Far East)
EM (Emerging Markets)
Index Level
7,163
7,377
2,293
1 Month
1.27
-0.86
1.80
3 Month
3.73
-1.99
-0.75
YTD
11.35
3.44
10.22
1 Year
18.12
7.93
9.18
3 Year
19.97
14.92
8.05
5 Year
13.04
7.97
5.94
10 Year
6.67
5.45
10.02
20 Year
6.38
4.36
4.63
Level
88.69
1 Month
-0.59
3 Month
-3.42
YTD
-5.67
1 Year
-7.51
3 Year
-4.13
5 Year
-0.91
10 Year
0.80
20 Year
0.91
Index Level
6,546
23,998
16,414
1 Month
-1.15
4.64
1.49
3 Month
-2.73
-3.06
5.08
YTD
-3.00
2.97
0.75
1 Year
-2.75
3.41
14.56
3 Year
5.70
6.50
22.23
5 Year
5.35
1.98
10.34
10 Year
3.54
6.28
4.30
20 Year
3.81
4.66
-0.98
Currency
Canadian Dollar ($US/$CA)
Regional Indices (Native Currency) Price Return
London FTSE 100 (UK)
Hang Seng (Hong Kong)
Nikkei 225 (Japan)
Bond Yields
Government of Canada Yields
US Treasury Yields
Canadian Bond Indices ($CA) Total Return
FTSE TMX Canada Universe Bond Index
FTSE TMX Canadian Short Term Bond Index (1-5 Years)
FTSE TMX Canadian Mid Term Bond Index (5-10)
FTSE TMX Long Term Bond Index (10+ Years)
3 Month
0.89
0.01
Index Level
941.10
667.78
1020.21
1434.90
1 Month
0.57
0.30
0.65
0.90
5 Year
1.54
1.61
3 Month
1.00
0.51
1.00
1.72
YTD
6.53
2.43
6.99
12.62
10 Year
2.05
2.34
1 Year
5.83
2.56
6.02
10.71
3 Year
3.79
2.27
4.42
5.64
As at 10/31/2014
Sources: TD Securities Inc., Bloomberg Finance L.P. FTSE TMX Global Debt Capital Markets Inc. TR: total return, PR: price return.
30 Year
2.59
3.07
5 Year
4.98
2.92
5.83
7.96
10 Year
5.31
3.92
5.91
7.26
8
MONTHLY PERSPECTIVES
November 2014
APPENDIX A
Important information
The information has been drawn from sources believed to be reliable. Where
such statements are based in whole or in part on information provided by third
parties, they are not guaranteed to be accurate or complete. Graphs and charts
are used for illustrative purposes only and do not reflect future values or future
performance of any investment. The information does not provide financial,
legal, tax or investment advice. Particular investment, trading, or tax strategies
should be evaluated relative to each individual’s objectives and risk tolerance.
TD Wealth, The Toronto-Dominion Bank and its affiliates and related entities
are not liable for any errors or omissions in the information or for any loss or
damage suffered.
Full disclosures for all companies covered by TD Securities Inc. can be viewed
at https://www.tdsresearch.com/equities/welcome.important.disclosure.action
Research Ratings
Action List BUY: The stock’s total return is expected to exceed a minimum of
15%, on a risk-adjusted basis, over the next 12 months and it is a top pick
in the Analyst’s sector. BUY: The stock’s total return is expected to exceed
a minimum of 15%, on a risk-adjusted basis, over the next 12 months.
SPECULATIVE BUY: The stock’s total return is expected to exceed 30% over
the next 12 months; however, there is material event risk associated with the
investment that could result in significant loss. HOLD: The stock’s total return is
expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12
months. TENDER: Investors are advised to tender their shares to a specific offer
for the company’s securities. REDUCE: The stock’s total return is expected to be
negative over the next 12 months.
Distribution of Research Ratings
REDUCE
2%
BUY
59%
80%
Percentage of subject companies
67%
70%
under each rating category—
60%
BUY (covering Action List BUY,
50%
BUY and Spec. BUY ratings),
40%
HOLD and REDUCE30%
(covering
TENDER and REDUCE
ratings).
20%
As at November 3,10%
2014.
HOLD
39%
0%
Investment Banking Services Provided
80%
70%
67%
60%
50%
40%
31%
30%
20%
2%
10%
0%
BUY
HOLD
BUY
Percentage of subject companies
within each of the three
categories (BUY, HOLD and
REDUCE) for which TD Securities
Inc. has provided investment
banking services within the last
12 months.
As at November 3, 2014.
REDUCE
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contained in this report without our prior written consent.
Analyst Certification
The Portfolio Advice and Investment Research analyst(s) responsible for this report
hereby certify that (i) the recommendations and technical opinions expressed in
the research report accurately reflect the personal views of the analyst(s) about
any and all of the securities or issuers discussed herein, and (ii) no part of the
research analyst’s compensation was, is, or will be, directly or indirectly, related
to the provision of specific recommendations or views expressed by the research
analyst in the research report.
Conflicts of Interest
The Portfolio Advice & Investment Research analyst(s) responsible for this report
may own securities of the issuer(s) discussed in this report. As with most other
employees, the analyst(s) who prepared this report are compensated based upon
(among other factors) the overall profitability of TD Waterhouse Canada Inc.
and its affiliates, which includes the overall profitability of investment banking
services, however TD Waterhouse Canada Inc. does not compensate its analysts
based on specific investment banking transactions.
Mutual Fund Disclosure
Commissions, trailing commissions, performance fees, management fees and
expenses all may be associated with mutual fund investments. Please read the
prospectus, which contains detailed investment information, before investing.
The indicated rates of return (other than for each money market fund) are the
historical annual compounded total returns for the period indicated including
changes in unit value and reinvestment of distributions. The indicated rate of
return for each money market fund is an annualized historical yield based on the
seven-day period ended as indicated and annualized in the case of effective yield
by compounding the seven day return and does not represent an actual one year
return. The indicated rates of return do not take into account sales, redemption,
distribution or optional charges or income taxes payable by any unitholder that
would have reduced returns. Mutual funds are not covered by the Canada
Deposit Insurance Corporation or by any other government deposit insurer and
are not guaranteed or insured. Their values change frequently. There can be no
assurances that a money market fund will be able to maintain its net asset value
per unit at a constant amount or that the full amount of your investment will be
returned to you. Past performance may not be repeated.
Corporate Disclosure
TD Wealth represents the products and services offered by TD Waterhouse
Canada Inc. (Member – Canadian Investor Protection Fund), TD Waterhouse
Private Investment Counsel Inc., TD Wealth Private Banking (offered by
The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The
Canada
31% Trust Company).
The Portfolio Advice and Investment Research team is part of TD Waterhouse
2%
Canada Inc., a subsidiary
of The Toronto-Dominion Bank.
Trade-mark Disclosures
HOLD
REDUCE
FTSE
TMX Global
Debt Capital Markets Inc. (“FTDCM”), FTSE International
Limited (“FTSE”), the London Stock Exchange Group companies (the “Exchange”)
or TSX INC. (“TSX” and together with FTDCM, FTSE and the Exchange, the
“Licensor Parties”). The Licensor Parties make no warranty or representation
whatsoever, expressly or impliedly, either as to the results to be obtained from
the use of the index/indices (“the Index/Indices”) and/or the figure at which the
said Index/Indices stand at any particular time on any particular day or otherwise.
The Index/Indices are compiled and calculated by FTDCM and all copyright in
the Index/Indices values and constituent lists vests in FTDCM. The Licensor
Parties shall not be liable (whether in negligence or otherwise) to any person
for any error in the Index/Indices and the Licensor Parties shall not be under any
obligation to advise any person of any error therein.
“TMX” is a trade mark of TSX Inc. and is used under licence. “FTSE®” is a trade
mark of the London Stock Exchange Group companies and is used by FTDCM
under licence.
Bloomberg and Bloomberg.com are trademarks and service marks of Bloomberg
Finance L.P., a Delaware limited partnership, or its subsidiaries. All rights reserved.
2014 Morningstar is a registered mark of Morningstar Research Inc. All rights
reserved.
®©
TD Securities is a trade-mark of The Toronto-Dominion Bank representing
TD Securities Inc., TD Securities (USA) LLC, TD Securities Limited and certain corporate
and investment banking activities of The Toronto-Dominion Bank.
All trademarks are the property of their respective owners.
® The TD logo and other trade-marks are the property of
The Toronto-Dominion Bank.

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