Rising Interest Rates How to Adjust Your Financial

Rising Interest Rates How to Adjust Your Financial Strategy Presented by: David Cox, CFA, CMT, FCSI, FMA, BMath Portfolio Manager September 24, 2013 Cutten Fields, Guelph, ON

Who Am I? § Bachelor of Mathematics – University of Waterloo § My family recently relocated to Guelph § One of 206 dual holders, globally, of both the Chartered Financial Analyst (CFA) and Chartered Market Technician (CMT) designations § Passionate about the investment markets, skiing, golfing, mountain biking and poker 2

My Beliefs § Buy & Hold DOES NOT work § Stocks/markets/assets go through bullish (rising) periods, which are followed by bearish (falling) periods – extract profits regularly § Holding equities in a bear market/downtrend is akin to financial suicide § ANYTHING is possible § Small losses are preferred to big losses 3

Higher Interest Rates § What Does It/Can It Mean? § Economy is improving § Inflationary pressures are building § Concern about overheating § Currency weakness § Credit concerns/downgrades 4

20 -Year Yields: In Pictures Source: Martin Pring 5

Standard Asset Rotation Source: Martin Pring 6

Inflation vs. Deflation § Inflation: Real Return Bonds, Commodities, Basic Materials/Industry and Energy stocks § Deflation: Bonds, Preferred shares, REITs, Utilities and High Dividend stocks 7

Inflation vs. Deflation Source: Metastock, Reuters 8

Bonds: How to Adjust § Reduce fixed income exposure in a balanced asset allocation § i. e. , move from 60% equity/40% bond to 80% equity/20% bond § Switch perpetual/fixed-rate preferred shares into floating rate resets § Reduce term/shorten duration § i. e. , own shorter term bonds instead of longer-term bonds Source: Metastock, Reuters 9

Equities: How to Adjust § Reduce interest sensitive stocks as a % of your total portfolio § i. e. , utilities, pipelines, telecommunications, REITs, other high income/dividend/distribution securities § Increase exposure to inflation sensitive assets § i. e. , commodities, materials/basic industry, energy Source: Metastock, Reuters 10

Sector Rotation: Theory Source: Stockcharts. com, John Murphy 11

Sector Rotation (2011 -’ 13) Source: Stockcharts. com 12

Interest Sensitivity Source: Stockcharts. com 13

Why Dividend Stocks Fall § Example: § XDV-T – i. Shares S&P/TSX Dividend § Current Yield ~ 4. 4% § CDN 10 Year Bond Yield § Current Yield ~ 2. 8% § XDV Yields 1. 6% MORE than Bonds § (4. 4% - 2. 8% = 1. 6%) Source: Metastock, Reuters As at September 11, 2013 14

Understanding Numbers § Today Yield = 2. 8% = $2. 8/$100 Price % Depreciation % Yield $95 -5% 2. 8% (2. 8/95) $90 -10% 3. 1% (2. 8/90) $85 -15% 3. 3% (2. 8/85) $80 -20% 3. 5% (2. 8/80) $75 -25% 3. 7% (2. 8/75) $70 -30% 4% (2. 8/70) $65 -35% 4. 3% (2. 8/65) $60 -40% 4. 7% (2. 8/60) $55 -45% 5. 1% (2. 8/55) $50 -50% 5. 6% (2. 8/50) 15

REITs: A Scenario § TODAY: § REIT sector Yield ~5. 9% § CDN 10 -Year Bond Yield ~ 2. 8% § REIT spread ~3. 1% = (5. 9% - 2. 8%) § 3 Year from TODAY (Hypothetical) § REIT sector Yield ~ 12% § CDN 10 -Year Bond Yield ~4. 5% § REIT spread ~7. 5% = (12% - 4. 5% § Approximate REIT price depreciation = -50%!! Source: Metastock, Reuters As at September 11, 2013 16

REITs Yield Spread Source: CIBC 17

Commodities Source: Metastock, Reuters 18

Real Estate – Safe? § ~58. 6% of households have a mortgage § BIG proportion of variable rate mortgages § Debt/disposable income in Canada at record highs Source: Metastock, Reuters 19

Short Rates vs. Long Rates § Short Rates (< 3 months) – set by the Bank of Canada/foreign central banks § Avg tightening cycle ~ 14. 6 months ~ 170 bps (1. 7%) § Long Rates (> 10 years) – set by the investment market/demand/supply 20

Yield Curve: In Pictures Source: Metastock, Reuters 21

KEY Takeaways § Interest Rates Have Bottomed § Losses ahead for Fixed Income Investors § Sector Rotation very important 22

My Process + § EMOTION FREE+ § DISCIPLINED § NIMBLE = CONFIDENCE PEACE OF MIND GREATER STABILITY § INCREASED BOTTOM LINE RESULTS 23

What Do I Do? § Run a small niche investment business based on a process that I invented § The process and techniques are unique, in that, they bring institutional quality tools to the retail investor 24

Upcoming Seminars § “The Ingredients of a Successful Investment Plan” – Tuesday, October 8 th @ 7 pm § Kitchener/Waterloo Shareclub § Huether Hotel, Waterloo, ON § “The Key Components of a Disciplined Investment Plan” – Wednesday, October 9 th @ 7 pm § Oakville CSTA § QE Park Community Centre, Oakville, ON § “ 2 nd Annual Investment Strategy: The Road Ahead” § Cutten Fields, Guelph, ON (Tuesday, October 29 th @ 8 am) § The National Club, Toronto, ON (Tuesday, November 5 th @ 8: 30 am) 25

Useful Tidbits § Monthly Market Chit Chat – monthly e-publication that discusses the risks and opportunities facing investors – email me to subscribe § Twitter: @David. Cox. WG § www. davidcox. ca – a variety of seminars, webinars and publications are published 26

Thank You 42 Wyndham St. N, Suite 201 | Guelph | Ontario | N 1 H 4 E 6 (519) 823 -4411 | (855)-246 -4076 CIBC Wood Gundy is a division of CIBC World Markets Inc. , a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor. These calculations and projections are for demonstration purposes only. They are based on a number of assumptions and consequently actual results may differ, possibly to a material degree. This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc. , their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2013.