strictly private and confidential

Managing Banking Relations in a Transparent World

RBC Capital Markets – Global Investment Solutions

Strictly Private and Confidential

October 28, 2013

Scott McBurney & Cindy Hansen - RBC Capital Market

Patrick J. Hickey & Joseph Sardo - RBC Dominion [email protected] Phone 905 546 5677 www.joe.sardo.com

mailto:[email protected]

2

● Structured Notes – A Primer

● PPNs

● Option-based NPPNs

● Long Equity NPPNs

● Ground-breaking New Product

“Tactical Equity Allocation Model” Security

Outline

RBC Structured Notes

3

Structured Notes – A Primer

44

What are structured notes?

● SNs are senior unsecured debt obligations of RBC

Rank equally with RBC deposit obligations

No CDIC insurance

● Pay-off at maturity linked to the change in the price of a market asset

● Market assets can include

Equities, commodities, currencies, interest rates

● SNs may or may not pay coupons

● Two main types

Principal protected notes (PPNs)

Principal guaranteed to be repaid at maturity

Non principal protected notes (NPPNs)

Principal not guaranteed to be repaid at maturity

Designed to be attractive alternatives to traditional equity investments


55

What are structured notes?

● SNs are very flexible investment vehicles

Represent a powerful “tool kit” for investors

Can be created to reflect a specific investment view of a client

Virtually all aspects of a SN can be customized

Term

Level of principal protection

Underlying market asset and currency

Upside participation

IA compensation


66


What makes a “good” structured note?

● Purpose

Should have an investment premise or purpose

Should represent a strategy that the client cannot replicate cost effectively on his / her own

● Simple and transparent

Should be easy for the client to understand

It should be easy to calculate, for various outcomes

What the coupon payments (if any) will be

What the payment at maturity will be

The simplest notes are generally “passive” strategies linked to public market assets

● Low cost

The total cost of a SN (selling commissions, issue costs and hedging costs) should be reasonable

Control over these costs is critical to ensure that a SN represents an attractive investment

RBC will be transparent about its profit and will control the total cost embedded in its SNs

77

Principal Protected Notes (PPNs)

● Economically, PPNs consist of

A “zero-coupon” bond

One or more financial “options” (equity, commodity, FX etc.)

● Current low interest rate levels make the embedded zero-coupon bond expensive

PPNs have become more complex to

Cheapen the embedded options

Improve deal pricing and terms

Investors must examine PPN structures carefully to make sure they fully understand them

It is easy to be misled about how a PPN will perform


8

Non Principal Protected Notes (NPPNs)

● The general features of NPPNs

Intentionally, not principal protected

Designed to be attractive alternatives to traditional equity investments such as

Stocks, ETFs, mutual funds, closed-end funds and hedge funds

Have the same downside risk as a traditional equities

Sometimes less risk (“buffered” principal protection)

● There two main types of NPPNs

“Option-based” NPPNs

Allow you to customize the payoff profile of an equity investment

Have some option-like characteristics

Dividends invested in structure – not paid out

“Long Equity” NPPNs

Enable very efficient access to compelling high turnover “long” equity strategies

Have no “optionality”


9


10


Investment objective: Clients are conservative, seeking the potential for annual income in excess of GIC's or government bond yields. Principal protection is paramount.

Product Pay-Off on Sample Terms:

Annual coupon of 0.00% - 7.25% based on the performance of a portfolio measured annually from inception where each asset with positive performance is counted as 7.25% and each asset with a flat or negative return is recorded as its actual return.

There is a floor on negative returns per asset of -25%.

Full principal return at maturity.

Can also offer fixed coupons in year 1 or minimum coupons per annum

Risk: Opportunity cost, typically the yield on government bonds over the investment term.

Daily liquidity provided by RBC

This pay-off profile is possible on the following assets: ETF's, shares, and commodities

Commentary: This product is constructed using options. The pricing, or the terms we can provide to investors improves with increasing interest rates. This strategy should appeal to investors who are seeking market participation without risk to principal.

Sample Terms:

5 year term

Linked to portfolio of Canadian equities

CAD / currency hedge possible on foreign denominated assets

Annual coupon of 0.00% - 7.25% based on portfolio performance

Sample Calculation of an Annual Coupon

Enhanced Yield PPNs

11

Investment objective: Clients are conservative and seek diversification through returns linked to commodity markets. Principal protection is paramount.

Product Pay-Off on Sample Terms:

100% of the return in a portfolio of assets, subject to a maximum return for each asset of 50% and therefore a maximum return for the portfolio of 50%.

Return cannot be negative

Full principal return at maturity.

Risk: Opportunity cost, typically the yield on government bonds over the investment term.

Daily liquidity provided by RBC

This pay-off profile is possible on the following assets: equity indices, equity sub-indices, shares, ETF's and commodities

Commentary: This product is constructed using options. The pricing, or the terms we can provide to investors improves with increasing interest rates. This strategy should appeal to investors who are seeking market participation without risk to principal.

Sample Terms:

5 year term

Linked to silver, nickel, corn, sugar, natural gas, crude

USD / currency hedge possible on foreign denominated assets

Return capped at 50% per commodity for a maximum return of 50%


Individually Capped PPNs

12

Option-based NPPNs

13

Introduction

● The value proposition

Allows you to customize the payoff profile of an equity investment

Not possible with any other investment vehicle

● The payoff profile of traditional equities is very limiting

Most clients understand that they need core equity exposure

However, the payoff profile of traditional equities is represented by a 45 degree line

1:1 participation in positive market performance

1:1 participation in negative market performance

The problem is that the 45 degree line

Is the only payoff profile available for traditional equities

Does not necessarily reflect your investment view

Option-based NPPNs

14

0%

30%

-30%

50%

Market Value of Underlying

Inve

stm

ent

Ret

urn

Initial Price

-50% -40% -30% -20% -10% 10% 20% 30% 40% 50%

Payoff profile of a traditional equity investment

Option-based NPPNs

15

Advantages

● You can modify the 45 degree line

At very low cost

In small amounts ($2 to 3 MM depending on term)

● No other investment vehicle offers this flexibility

● Currently, most payoffs are designed to provide attractive returns in flat markets

The “Booster” structure

The “Double Up” and “Triple-Up” structures

● Can be structured with varying levels of principal protection (“Buffer” structure )

Important not to pay for more principal protection than you need

Option-based NPPNs

16

0%

18%

-18%

Not

e V

alue

at

Mat

urity

Strike

Price -25% -20% -15% -10% -5% 5% 10% 15% 20% 25%

Maturity payoff profile of Triple-Up structure

Market Value of Underlying 1 year term, 18% cap

Option-based NPPNs

Client Rationale

- Has core equity exposure

- Concerned about mediocre returns

- Willing to cap market upside

- Does not want principal protection

Index Return

Note Return

17

0%

30%

-30%

50%

Not

e V

alue

at

Mat

urity

Strike

Price-50% -40% -30% -20% -10% 10% 20% 30% 40% 50%

Maturity payoff profile of Booster structure


-50%

3 year, 30% booster

Option-based NPPNs

Client Rationale



- Not willing to cap market upside

- Does not want principal protection

Index Return

Note Return

18

Maturity payoff of Buffered Triple Up structure

-32% -24% -16% -8%

32%

24%

16%

8%

0%


Not

e V

alue

at

Mat

urity

-8%

-16%

-24%

-32% Strike Price

8% 16% 24% 32%

3 year, 24.3% cap, 20% buffer

Option-based NPPNs

Client Rationale



- Willing to cap market upside

- Wants some principal protection

Index Return

Note Return

19

-80% -60% -40% -20%

80%

58%

40%

0%


Not

e V

alue

at

Mat

urity

-40%

-80%Strike

Price 20% 40% 60% 80%

5 year, 58% cap, 40% buffer

Maturity payoff of Buffered Protection structure

Option-based NPPNs

Client Rationale


- Wants significant principal protection

- Wants market upside potential

- Willing to accept cap on upside

Index Return

Note Return

20

Long Equity NPPNs

21

Introduction

● The value proposition

Enables very efficient access to compelling high turnover “long” equity strategies

The embedded equity strategies may be created by

The client or advisor

RBC Research

Zyblock: Strategic / tactical (“Conservative Dividend RoC Security”)

McAlpine: Quant (“SPARQS” and “Canadian Bank Yield RoC Security”)

Typically provides one or more of the following benefits

Tax efficiency

No CG tax triggered on rebalancing of the underlying portfolio

ROC treatment on income distributions

Operational efficiency

“One ticket solution” (no trading required by client/advisor)

No transaction costs (all costs to client reflected in annual fee)

Long Equity NPPNs

22

Assumptions:

15% Annualized

Return

5-Year Holding Period

34% Tax Rate

Source: Bourbonniere Paul, Polson Bourbonniere Financial Planners, Five Keys to successful investing, Money Digest Oct. 2000.

The structure of the note defers any tax consequences until maturity or disposition.

Advantages of NPPN tax efficiency

Long Equity NPPNs

23

● Description

Simplified investable version of McAlpine’s Quads Score Top 40 model

1:1 “up and down” participation in the total return of an RBC 8 factor quant model

Strategy developed by Chad McAlpine, RBC Quantitative Research

Universe is 100 largest dividend paying TSX Composite stocks (ex. RY and trusts)

100 stock universe ranked monthly based on equal weighting of 8 quantitative factors

25 stocks with highest score chosen from 100 stock universe

25 stock portfolio rebalances quarterly back to equal weights

Dividends reinvested quarterly (indicated yield 2.65%)

Very strong back testing vs. TSX composite over 20 years

● Advantages

Tax efficiency (no tax triggered on portfolio rebalancing)

Operational efficiency (“one ticket solution” with no transaction costs)

Daily secondary market

Can be customized (maturity, selling commission, etc.)

RBC “SPARQS” Security

Long Equity NPPNs

24

ATTRACTIVE VALUATIONS

Low Price to Earnings

Low Price to Book Value

High Quarterly Earnings Growth

High Return On Equity

High Earnings Surprise

High Estimate Revisions

High 3-Month Price Change

High 6-Month Price Change

Dividend yielding large-cap Canadian equities

Rank stocks based on an equally weighted combination of 8 factor models that fall into 4 distinct investment themes

SUSTAINABLE GROWTH

POSITIVE SENTIMENT

MARKET RECOGNITION

The Universe

The Model

S&P/TSX Composite Member

Must Pay a Dividend

Excluding Trusts

Excluding RY

x 1/8

x 1/8

x 1/8

x 1/8

x 1/8

x 1/8

x 1/8

x 1/8

= Total Score

The SPARQS Portfolio

• 25 stocks

• The portfolio is traded monthly – annual turn over is 120%

• Replacement buys are the best-ranked stocks not already held by the portfolio

• Only the largest 100 qualifiers by market cap are eligible to be bought

• Stocks are sold if they drop below the 50th position in terms of their rank

• At the end of each quarter the portfolio is rebalanced to equal weights


Long Equity NPPNs

25

$0

$1

$2

$3

$4

01 02 03 04 05 06 07 08 09 10

S&P/TSX Equity Index (Excluding Royal Bank) Hypothetical 25 Stock Portfolio

QuaDS Canada Large Cap Top 40

Hypothetical 25 stock portfolio – unitized total return vs. QuaDS Canada Large Cap Top 40

Over the past 10 years, the portfolio has performed in line with our Canada Large Cap Top 40.


Long Equity NPPNs

26

● Description

1:1 “up and down” participation in “Dogs of Canadian Banks” strategy

Strategy developed by Chad McAlpine, RBC Quantitative Research

Portfolio consists of the “Big 6” Canadian bank stocks

Portfolio rebalanced quarterly

2 “highest yielders” weighted 50.0% (25% each)

2 next highest yielders weighted 33.3% (16.7% each)

2 lowest yielders weighted 16.7% (8.35% each)

Dividends paid quarterly as ROC (indicated yield 4.38%)

Very strong back testing vs. S&P / TSX Banks Index and TSX Composite

● Advantages

Tax efficiency (no tax on triggered rebalancing and ROC treatment on distributions)



Can be customized (maturity, selling commissions, etc.)

RBC Canadian Bank Yield RoC Security

Long Equity NPPNs

27

RBC Canadian Bank Yield RoC Security

16.4%

12.0%

8.1%

Long Equity NPPNs

Back-tested performance

28

● Description

1:1 “up and down” participation in a large cap, conservative, dividend strategy

Strategy developed by Myles Zyblock, RBC-CM Chief Strategist

Portfolio is top yielding 20 large cap Canadian dividend paying stocks on the TSX60

Pay-out ratios cannot exceed 90%.

20 stock portfolio broken into 5 groups of 4 stocks, weighted according to div yield:

Top yielders @ 36%, 2nd highest yielders 28%, 3rd highest yielders at 20%, 4th highest yielders at 12% and the lowest yielders at 4%

Portfolio is rebalanced quarterly – dividends paid quarterly as ROC

Very low correlation to the TSX Composite and the S&P TSX60

● Advantages

Tax efficiency (no tax on triggered on rebalancing and ROC treatment on distributions)



Can be customized (maturity, distribution type and frequency, etc.)

RBC Conservative Dividend RoC Security

Long Equity NPPNs

29

5.0%

14.9%

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

S&P/TSX 60 Note Strategy

Source: RBC Capital Markets Quantitative Research

RBC Conservative Dividend Yield RoC Security

Long Equity NPPNs

Back-tested performance

30

2.8%

4.9%

0%

2%

4%

6%

8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Div

iden

d Yi

eld

S&P/TSX 60 Note Strategy

Source: RBC Capital Markets Quantitative Research

RBC Conservative Dividend Yield RoC Security

Long Equity NPPNs

Back-tested yields

31

● Description

1:1 participation in a defensive high turnover “long equity” strategy

Compelling alternative to traditional equity investments and hedge funds

Simple rules-based strategy developed with Chad McAlpine, RBC Quantitative Research

Incorporates defined sell-discipline based on 200 DMA of TSX Comp

Note investment allocated on a monthly basis between

Equities (i.e. RBC 8 factor quant model); and

Fixed income (govt. bonds, rate swaps, T-Bills, BAs etc.)

If TSX Comp > 105% of the 200 DMA

100% in equities

If TSX Comp > 95% and < 100% of the 200 DMA

50% in equities and 50% in fixed income

If TSX Comp < 95% of the 200 DMA

100% in fixed income

Tactical Equity Allocation Model (TEAM) Security

Long Equity NPPNs

32

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

200 DMA 200 DMA +5% 200 DMA -5%

100% Equity 100% Fixed Income 50% Equity & 50% Fixed

At the end of each month, an asset allocation decision can be made based on the level of the S&P/TSX relative to its 200 DMA.

To lower turnover, we’ve introduced a +/- 5% band around the moving average of the index.

100% Fixed Income

Switch to 50% Equity 50% Fixed Income

Switch to 100% Equity

+ 5%

- 5%200 DMA

Long Equity NPPNs

TEAM Security

TSX Composite performance (colour-coded for TEAM asset allocation)

33

16.0%

13.9%

8.6%

6.7%

3.6%

$0

$5

$10

$15

$20

$25

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Tactical Equity Allocation Model

Equity Strategy

S&P/ TSX Composite

3 - 5 Year Government of Canada Bond Index

3-Month T-Bills

20 year back-tested performance (FI Investment: 5 year swaps)

The Tactical Equity Allocation Model sacrifices some of the upside performance during bull markets to achieve a high degree of downside protection during corrections.

Since 1992, this strategy has never suffered a loss greater than 15%.

Long Equity NPPNs

TEAM Security

34

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

S&P/ TSX Composite Tactical Equity Allocation Model

Over the past 20 years, this investment approach has only lost money in one year.

20 year back-tested annual total returns (FI investment: 5 year swaps)

Long Equity NPPNs

TEAM Security

35


RBC SPARQS Strategy

S&P/TSX Composite

3 to 5 Year Gov of Canada Bonds

3-Month T-Bills

Annualized Return 16.0% 13.9% 8.6% 6.7% 3.6%

Beta 0.38 0.73 1.00 0.01 0.00

Annualized Alpha 11.8% 7.2% 0.0% 6.4% 3.5%

Sharpe Ratio 1.12 0.73 0.39 0.75 0.00

Standard Deviation 10.6% 14.6% 15.2% 4.0% 0.6%

R-Squared 0.30 0.58 1.00 0.00 0.00

Best 12 Months 68.6% 77.0% 63.4% 19.3% 7.5%

Worst 12 Months -10.7% -43.7% -38.2% -4.3% 0.2%

Max Drawdown -12.1% -49.2% -43.3% -8.6% 0.0%

Duration Under Water 21 mths 38 mths 59 mths

Turnover >200% 120.0% 16.2%

Long Equity NPPNs

TEAM Security

20 year comparative performance metrics (FI Investment: 5 year swaps)

36

● Advantages (investment strategy)

TEAM is not “the market”

Beta = 0.38 vs. TSX Comp

Concentrated investment portfolio of 25 Canadian stocks

Rebalanced every month based on an RBC 8 factor quant model (SPARQS)

Very attractive performance and risk-return metrics (20 year back-testing)

Annualized total return = 16.00% (vs. 8.60% for TSX)

Sharpe ratio = 1.12 (vs. TSX = 0.39)

Worst 12 months = -10.70% (vs. -38.20% for TSX)

Maximum drawdown = -12.10% (vs. -43.30% for TSX

Duration underwater = 21 months (vs. 59 months for TSX)

Completely transparent

Simple rules-based asset allocation strategy

TEAM Security

Long Equity NPPNs

37

● Advantages (NPPN structure)

Tax efficiency

Taxation does not affect investment decisions / asset allocation

No tax on triggered rebalancing of equity portfolio (115% turnover)

No tax on triggered on allocation from equities to fixed income

If dividends / interest retained, tax is deferred until sale and is paid at CG tax rate

Distributions can also be paid-out as ROC

Operational efficiency

“One ticket solution” for IAs

RBC-CM executes all trades (no additional transaction costs to investor)


Low upfront management fee to RBC-CM (no “2 and 20”)

5 year = 1.82% (36.4 bps per annum)

10 year = 3.00% (30.0 bps per annum)

Can be customized (maturity, selling commission, currency, etc.)

TEAM Security

Long Equity NPPNs

38

● The Fixed Income Investment

The preceding slides assumed FI investment was a 5 year “interest rate swap”

Very similar to 5 year Govt. of Canada bonds

5 year duration

No credit risk for investor

The bond “bull market” did help returns of the TEAM strategy

However, TEAM significantly outperformed the TSX if FI Investment was BAs ...

Long Equity NPPNs

TEAM Security

39

16.0%

13.3%

8.6%

6.7%

3.6%

$0

$5

$10

$15

$20

$25

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Tactical Equity Allocation Model (5 Year Swap)

Tactical Equity Allocation Model (3 Mth BA's)

S&P/ TSX Composite

3 - 5 Year Government of Canada Bond Index

3-Month T-Bills

20 year back-tested performance (FI Investment: 3 month BAs)



Long Equity NPPNs

TEAM Security – 3 Month BAs

40

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

S&P/ TSX Composite Tactical Equity Allocation Model (using 3 Mth BA's)

Over the past 20 years, this investment approach has only lost money in 3 years.

20 year back-tested annual returns (FI Investment: 3 month BAs)

Long Equity NPPNs


41

-5%

0%

5%

10%

15%

20%

25%

30%

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

5-Year Trailing Total Return (Annualized)

RBC Tactical Equity Allocation Model (5-Year Swap)RBC Tactical Equity Allocation Model (with BAs)S&P/TSX Composite


Long Equity NPPNs


42


Equity StrategyS&P/TSX

Composite3 to 5 Year Gov of

Canada Bonds3-Month T-Bills


Beta 0.41 0.73 1.00 0.01 0.00


Sharpe Ratio 0.92 0.73 0.39 0.75 0.00

Standard Deviation 10.3% 14.6% 15.2% 4.0% 0.6%

R-Squared 0.36 0.58 1.00 0.00 0.00

Best 12 Months 66.3% 77.0% 63.4% 19.3% 7.5%

Worst 12 Months -13.8% -43.7% -38.2% -4.3% 0.2%

Max Drawdown -14.3% -49.2% -43.3% -8.6% 0.0%

Duration Under Water 21 mths 38 mths 59 mths

Turnover >200% 120.0% 16.2%

20 year performance statistics (FI Investment: 3 month BAs)

Long Equity NPPNs


43

● TEAM Strategy looks compelling for U.S. market too

Over past 20 years, TEAM has significantly outperformed S&P 500

It does not matter whether FI Investment was 5 year swaps or 3 month T-Bills

Long Equity NPPNs

TEAM Security – U.S. Market

44

16.1%

14.3%

8.1%

5.6%

$0

$5

$10

$15

$20

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

U.S. Tactical Equity Allocation Model (5-Year Swap)

U.S. Equity Strategy

S&P 500 Total Return Index

3-5 Year U.S. Government Bond Index

20 year back-tested performance (FI Investment: 5 year swaps)



Long Equity NPPNs


45

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

S&P/ TSX Composite Tactical Equity Allocation Model

Over the past 20 years, this investment approach has only lost money in one year. In addition, in all but two years it has generated an annual return of more than 5%.

20 year back-tested annual returns (FI Investment: 5 year swaps)

Long Equity NPPNs


-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

S&P 500 Total Return Index U.S. Tactical Equity Allocation Model (5-Year Swap)

46

U.S. Tactical Equity Allocation Model

U.S. Equity StrategyS&P 500 Total Return

Index3 - 5 Year U.S. Gov

Bond Index3-Month U.S.

T-Bills


Beta 0.46 1.05 1.00 -0.05 0.00


Sharpe Ratio 0.99 0.64 0.39 0.66 0.00

R-Squared 0.31 0.63 1.00 0.04 0.00

Best 12 Months 70.0% 70.0% 53.6% 16.4% 6.3%

Worst 12 Months -4.1% -48.5% -43.3% -2.1% 0.0%

Max Drawdown -19.6% -55.6% -50.9% -4.3% 0.0%

Duration Under Water 16 Mths 62 Mths 73 Mths 13 Mths 3 Mths

20 year performance statistics (FI Investment: 5 year swaps)

Long Equity NPPNs


47

16.1%

14.3%

8.1%

5.6%

$0

$5

$10

$15

$20

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

U.S. Tactical Equity Allocation Model (5-Year Swap)

U.S. Tactical Equity Allocation Model (90-Day T-Bills)

S&P 500 Total Return Index

3-5 Year U.S. Government Bond Index

20 year back-tested performance (FI Investment: 3 month T-Bills)



Long Equity NPPNs


48

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

S&P 500 Total Return Index U.S. Tactical Equity Allocation Model (90-Day T-Bills)

Over the past 20 years, this investment approach has only lost money in one year. In addition, in all but two years it has generated an annual return of more than 5%.

20 year back-tested annual return (FI Investment: 3 month T-Bills)

Long Equity NPPNs


49

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

99 00 01 02 03 04 05 06 07 08 09 10 11 12


RBC U.S. Tactical Equity Allocation Model (5-Year Swap)RBC U.S. Tactical Equity Allocation Model (with 3-Month T-Bills)S&P 500


Long Equity NPPNs


50

U.S. Tactical Equity Allocation Model

U.S. Equity StrategyS&P 500 Total Return

Index3 - 5 Year U.S. Gov

Bond Index3-Month U.S.

T-Bills


Beta 0.50 1.05 1.00 0.00 0.00


Sharpe Ratio 0.87 0.64 0.39 0.00 0.00

R-Squared 0.37 0.63 1.00 0.00 0.00

Best 12 Months 70.0% 70.0% 53.6% 6.3% 6.3%

Worst 12 Months -6.0% -48.5% -43.3% 0.0% 0.0%

Max Drawdown -19.6% -55.6% -50.9% 0.0% 0.0%

Duration Under Water 26 Mths 62 Mths 73 Mths 3 Mths 3 Mths

20 year performance statistics (FI Investment: 3 month T-Bills)

Long Equity NPPNs


51

● U.S. TEAM product status

We have a retail registered account version currently available

We are working on a version for tax exempt accounts

We have created a note structure that addresses the U.S. withholding tax issues

Results in no U.S. withholding tax on distributions

The U.S. TEAM product is not be subject to U.S. estate tax

Long Equity NPPNs

TEAM Security – U.S Market

52

Disclaimer

This presentation was prepared exclusively for the benefit of and internal use by the recipient for the purpose of considering the transaction or transactions contemplated herein. This presentation is confidential and proprietary to RBC Capital Markets, LLC (“RBC CM”) and may not be disclosed, reproduced, distributed or used for any other purpose by the recipient without RBCCM’s express written consent.

By acceptance of these materials, and notwithstanding any other express or implied agreement, arrangement, or understanding to the contrary, RBC CM, its affiliates and the recipient agree that the recipient (and its employees, representatives, and other agents) may disclose to any and all persons, without limitation of any kind from the commencement of discussions, the tax treatment, structure or strategy of the transaction and any fact that may be relevant to understanding such treatment, structure or strategy, and all materials of any kind (including opinions or other tax analyses) that are provided to the recipient relating to such tax treatment, structure, or strategy.

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IRS Circular 230 Disclosure: RBC CM and its affiliates do not provide tax advice and nothing contained herein should be construed as tax advice. Any discussion of U.S. tax matters contained herein (including any attachments) (i) was not intended or written to be used, and cannot be used, by you for the purpose of avoiding tax penalties; and (ii) was written in connection with the promotion or marketing of the matters addressed herein. Accordingly, you should seek advice based upon your particular circumstances from an independent tax advisor.

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Appendix

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S&P/TSX Composite 200 DMA

S&P/TSX Composite vs. 200 day moving average

The level of the S&P/TSX Composite relative to its 200-Day Moving Average is one of the most widely utilized technical metrics in gauging the near-term prospects for equity market returns in Canada.

Investing in the index only when it’s above its 200 DMA over the past 26 years would have yielded an annualized return of 6.6%.

Conversely, investing in the index only when it’s below its 200 DMA would have resulted in a -7.7% compound annual return.

Long Equity NPPNs

TEAM Security

55

Case Study #1: 2008 / 2009

Throughout the 2008 crash, this strategy did a reasonably good job of timing the market.

Long Equity NPPNs

TEAM Security

56

From June 2008 to December 2009, the RBC TEAM Model returned 16.3%.

Case Study #1: 2008 / 2009

Long Equity NPPNs

TEAM Security

57

During the bond market collapse of 1994, the strategy was 100% invested in equity during the most severe part of the decline.

At the end of the first quarter of ‘94, the allocation switched to 50% / 50%.

Case Study #2: 1994

Long Equity NPPNs

TEAM Security

strictly private and confidential

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