understanding markets and long-term...

Understanding Marketsand Long-Term Investingg g

June 30, 2014

The story behind these charts

The beauty of newspapers, from a publisher’s perspective, is that they’re addictive A story doesn’t unfold all in one go like a novel It fills in bit by bit over

The story behind these charts…

addictive. A story doesn t unfold all in one go, like a novel. It fills in, bit by bit, over days. So, you have to keep buying the next day’s newspaper.

The story of markets and individual investments, as presented in various media, is like that Every day we get a few disjointed pieces of information But for someis like that. Every day, we get a few disjointed pieces of information. But, for some reason, they rarely add up to a practical investment principle, like diversification. More often, they simply stir up emotions.

The charts in the following pages are by contrast the accumulation of years andThe charts in the following pages are, by contrast, the accumulation of years and years of data. They tell a long-term story of market behaviour – good and bad. They lay the groundwork for an understanding of risks and rewards. They set the stage for rational discussions of asset mix and individual investments.

We assembled these charts because we’re not interested in selling papers. We’re interested in growing wealth for long-term investors.

2

Predicting the winner is difficultPredicting the winner is difficult

3

40 years and 50X your investment

$100

40 years and 50X your investment

S&P/TSX Composite Index (1974 – 2014)$100

+203%

+109%+16%

+168%

-43%

$51.49 June 30, 2014

5,049%cumulative return

+118%

$10

+288%

+44%

-25%-20%

-21%

ue o

f $1

g sc

ale)

+253%

-38%-28%

cumulative return (10.3% annualized)

= 50x your original investment

$1-16%

-39%Valu (lo

g

$0Jun-74 Jun-84 Jun-94 Jun-04 Jun-14

4

Sources: Bloomberg & Mackenzie InvestmentsBased on the S&P/TSX Composite TRI including reinvested dividends between June 30, 1974 and June 30, 2014

Strong market gains at home (and abroad)1-Year period

Closes at15,146Jun 30

Strong market gains at home (and abroad) . . .

S&P/TSX Composite Index

28 7% Jun 30

1 Yr total returnas at Jun 30

+28.7% Long-term investors have benefited by “Staying the Course”

Closes at12,129Jun 30

Time to “manage expectations” and benefit from fundamental investment strategies

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

S&P/TSX S&P 500 Euro Area Japan Emerg. Mkts World

Global Market Indices 1 Yr returns to June 30* EM

5

+28.7% +24.6% +20.2% +12.0% +13.7% +21.7%1-Yr returns to June 30*: EM

Source: Bloomberg for graph line; MSCI indices unless otherwise noted, as at June 30, 2014* Total returns, local currency

YTD at-a-Glance J k th 5 i fYTD at-a-GlanceS&P/TSX Composite Index

Price of goldGlobal growth Loonie recovers some lost altitude

TSX rises tonew “all-time”

June marks the 5-year anniversary of the end of the Great Recession (U.S.)

Price of goldregains some shine

(through Q2)

$1 32 /

Price of crudestrengthens

(through Q2)

gpicked-up but uneven. Challenges continue

U.S economy cools but perseveres forward

Fed and BOC rates

some lost altitude(through Q2)

$0.937 USD

(Jun 30-14)

new all time closing high 15,109

(as at Jun 18-14)

15,146

0% - 0.25%(through Q2)

1.00%(th h Q2)

$1,327/oz.(Jun 30-14)

$105/bbl(Jun 30-14)

Eurozone sees positive growth again but varied by area.

China and Emerging Markets challenged / recovering

Wall of worry

remain at/near historical lows +12.9%Total returnYTD 2014

(through Q2)

European growth now positive but debt and austerity challenge

Corporate resilience maintained

“on risk / off risk”Optimism from progress but uncertainty remains

Geopoliticalconflict & inclement weather challenge*

13,622Corporate resilience maintained.GDP growth cools to start year

Global recovery strengthens but remains uneven.Geopolitical concerns weigh

“Tapering” beginsThe U.S. Federal Reserve initiated the tapering of its bond-purchase

stimulus program in January

6

*Source for bear-Russia visual: The Economist

January February March April May June

Source: Bloomberg, as at June 30, 2014

June 2008 Peak June 2014June 2008 Peak June 2014

(May 30, 2008 – June 30, 2014)S&P/TSX Composite Index Closes at

15,146Jun 30-14Past peak

15,073June 18-08 +100%

bottom to Jun-14

-50%peak-to bottom

Wall of worry“on risk / off risk” continues

Optimism from progress but uncertainty remains

TSX sets a new “all-time” closing high 15,109Six years to the day after it set the old record of 15 073

bottom at

7,567Mar 9-09

European growth now positivebut debt and austerity challenge

Corporate resilience maintained.GDP growth cools to start year

Global recovery strengthens but remains uneven.

“Worst case” scenario did not happen

Less bad is good(improvements

surfacing)

Markets lead…sustained recovery solidifies but many economies & consumers remain challenged

Global stability perseveres Growth & fiscal challenges

remain.The road of this recovery i b

Six years to the day after it set the old record of 15,073(June 18-08 June 18-14)

Mar 9-09 but remains uneven. Geopolitical concerns weigh

7

Source: Bloomberg, as at June 30, 2014; Price index returns, local currency. Visual Source: The Wall Street Journal

surfacing) & consumers remain challenged remains bumpy

Closer look at TSX

Returns on TSX for YTD-14 (and 2013)

Closer look at TSX . . .

201313.0%13.6%

S&P/TSX Index 12.9%

21.1% Energy

January 1 to June 30, 2014

-29.1%

37.3%

37.5%

23.6%

12.5%

11.9%

10.3%

16.6% Materials

Information Technology

Industrials

Consumer Staples

-4.1%

43.0%

23.7%

72.1%

10.1%

9.1%

8.8%

5.2%

Utilities

Consumer Discretionary

Financials

Health Care

13.1%5.1%

0% 5% 10% 15% 20% 25%

Telecom Services

8

Source: Bloomberg, as of June 30, 2014

Currency – the hidden difference

Comparing YTD-14 returns in local currency to CDN$-based

Currency – the hidden difference

Canada U.S. Euro Area Japan Emerg.

Mkts World

Stock markets

Local currency +12 9% +7 1% +4 9% 3 0% +4 6% +5 5%

EM

yreturns +12.9% +7.1% +4.9% -3.0% +4.6% +5.5%

CDN$-based returns +12.9% +7.5% +5.9% +1.0% +6.5% +6.6%

Note: Above expressed in total returns

9

(Canada: S&P/TSX; U.S.: S&P500; Euro: MSCI Europe; Japan: MSCI Japan; World: MSCI World)


The next move may not be clearThe next move may not be clear

S&P/TSX Composite Index Closes at15,146

J 30June 30

??Closes at8 988

??8,988

Dec 31 Closes at7,567

Mar 9

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jun-14

10

Source: Bloomberg, as at June 30, 2014; Visual Source: Barron’s, July 13, 2009

Looking back at what may lie ahead

The 1975-76 market recovery may provide insights

Looking back at what may lie ahead

Dow Jones Industrial Average since WWII (to June 30, 2014)

1000001973-74 Bear / 1975-76 Bull / 1976-83 Rollercoaster

10000

(Oct 2, 1972 – Jan 3, 1983)

600700800900

1,0001,1001,200

1000

500O-72 O-73 O-74 O-75 O-76 O-77 O-78 O-79 O-80 O-81 O-82

1001946 1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012

1973-76 Vietnam War / oil crisisend of gold standard

11

Source of concept: MarketWatch

Market cycles: Investing & emotions don’t mixInvesting & emotions don t mix

S&P/TSX Composite Index (December 31, 1994 to June 30, 2014)

Jun 30-1415,146

Not to worry,I am a

long-term investor! Olong-term investor!

Confidence

Euphoria

DenialReliefThis is great!

The price is going up!

I am buying MORE!

Optimism

Confidence

Optimism

Panic

Sell NOW!

D 31 94 Capitulation Sell NOW!Dec 31-944,214

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD-14Mutual Fund Sales(net sales $ billion) $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 $37.3

12

Sources: Bloomberg (index) and IFIC (mutual fund net sales) as at June 30, 2014

Always remember it’s only a cycleAlways remember . . . it s only a cycle

Market cycle relative to economic cycle . . . b t h h diffbut each has differences

Stock Market Cycle Economic Cycle

PeakTop

Early BearLate Bull

Mid RecoveryMid RecessionEarly Bull

TroughLate BearBottom

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For illustrative purposes only

Bull & Bear MarketsBull & Bear Facts*

Average gain in bull market: +126%Average length of bull market: 49 months

S&P/TSX Composite Index to June 2014

Bull & Bear Markets Average length of bull market: 49 monthsAverage loss in bear market: -28%Average length of bear market: 9 months* Based on data since 1956. See page 2 for more details.

120%140%

2.2

288%81 months 253%

61 months 203%90 months 168%

320240

40%60%80%

100%120%

1.7

2.2

85%48 months

81%43 months 63%

32 months

82%40 months 44%

25months

109%24 months

16%6

h

168%68 months

118%64 months

160

80

og s

cale

)

-60%-40%-20%

0%20%

0.7

1.2

-17%6 months

-15%8 months -25%

13 months -35%11 months -39%

-25%4 months

-20%10 months -28%

4 months -38%

months

-21%6 months

0

-30% C

hang

e (lo

-26%17 months

-80% 0.211 months 39%

12 months 13 months -43%9 months

56 60 65 70 75 80 85 90 95 00 05 14

14

Source: Mackenzie Investments (Bloomberg: month-end data points as at June 30, 2014; total return, local currency)

Bull & Bear Markets: S&P/TSXBull & Bear Markets: S&P/TSX

The Risks and Rewards of Investing:• This chart represents the bull and bear markets in the S&P/TSX Index 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.

Th fi t b t b k t hi h t it l t i t d d t 26% d l t d 17 th• The first bar represents a bear market which, at its lowest point, dropped to -26% and lasted 17 months. This was followed by a bull market rising 85% and lasting 48 months.

• Since 1956 there have been 12 bull markets and 12 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change.

• Bear markets during this period have averaged -28% and lasted only 9 months Bull markets during this period have• Bear markets during this period have averaged -28% and lasted only 9 months. Bull markets during this period have averaged 126% and lasted 49 months. This is the reward for accepting the risk of bear markets.

Investor Behaviour:• According to the chart, markets spend more time in positive territory (bull) than negative (bear).cco d g o e c a , a e s spe d o e e pos e e o y (bu ) a ega e (bea )

• 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. We believe that during these periods there are significant investment ‘bargains’ to be found.

• Investor discipline during bear markets is critical

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• Investor discipline during bear markets is critical.

Bull & Bear MarketsBull & Bear Facts*

Average gain in bull market: +153%Average length of bull market: 49 months

S&P 500 Composite Index to June 2014

Bull & Bear Markets Average length of bull market: 49 monthsAverage loss in bear market: -27%Average length of bear market: 14 months* Based on data since 1956. See page 2 for more details.

160% 280%61 months

526%118 months

520

60%

110%104%

48 months 90%43 months

52%26 th

76%30 months

87%33 months

86%27 months 72%

30 months

280

80(log

scal

e) 108%61 months

199%64 months

40%

10%

60% 26 months

-15%22%

-16% -17% -15%-15%14 h

0% C

hang

e

-90%

-40% 17 months -22%6 months

8 months-29%

19 months-43%

21 months

20 months-30%

3 months

5 months

-45%25 months

14 months

-51%16 months

56 60 65 70 75 80 85 90 95 00 05 14

-40

16

Source: Mackenzie Investments (Bloomberg: month-end data points as at June 30, 2014; total return, local currency)

Bull & Bear Markets: S&P 500Bull & Bear Markets: S&P 500

The Risks and Rewards of Investing:• This chart represents the bull and bear markets in the S&P 500 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.

Th fi t b t b k t hi h t it l t i t d d t 15% d l t d 17 th• The first bar represents a bear market which, at its lowest point, dropped to -15% and lasted 17 months. This was followed by a bull market rising 104% and lasting 48 months.

• Since 1956 there have been 11 bull markets and 11 bear markets. As can be seen from the chart, bull markets typically last longer and provide a more significant percentage change.

• Bear markets during this period have averaged -27% and lasted only 14 months Bull markets during this period have• Bear markets during this period have averaged -27% and lasted only 14 months. Bull markets during this period have averaged 153% and lasted 49 months. This is the reward for accepting the risk of bear markets.

Investor Behaviour:• According to the chart, markets spend more time in positive territory (bull) than negative (bear).cco d g o e c a , a e s spe d o e e pos e e o y (bu ) a ega e (bea )

• 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. We believe that during these periods there are significant investment ‘bargains’ to be found.

• Investor discipline during bear markets is critical

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• Investor discipline during bear markets is critical.

S&P/TSX Declines Greater Than 30%S&P/TSX Declines Greater Than 30%

MonthsMonthsfrom Peak

Peak Date Trough Date Value Value to Trough 3 months 1 year 10 yearsSep 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%

Period Peak Trough Price Return (from trough)

Decline

Oct 1 1973 Sep 3 1974 1329.28 832.98 -37.3% 11 1.4% 17.2% 186.5%Nov 28 1980 Jul 8 1982 2402.23 1346.35 -44.0% 19 26.2% 84.1% 153.7%Aug 13 1987 Oct 28 1987 4112.86 2837.79 -31.0% 3 7.9% 20.0% 137.4%Apr 22 1998 Oct 5 1998 7822.25 5336.15 -31.8% 6 24.8% 31.0% 102.5%Sep 1 2000 Oct 9 2002 11388 80 5695 33 -50 0% 25 18 9% 33 5% N/ASep 1 2000 Oct 9 2002 11388.80 5695.33 -50.0% 25 18.9% 33.5% N/AJun 18 2008 Mar 9 2009 15073.13 7566.94 -49.8% 9 39.4% 57.5% N/A

-43.5% 16 18.7% 41.7% 121.0%-37.4% 13 14.2% 35.4% 137.6% Ex- Period 1 (Great Depression):

Average:

8.0%9.0%

Average: Ex- Period 1 (Great Depression):

Annualized Price Return (excludes dividends)

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Source: Datastream

Bear market decisionsBear market decisions…

Value of $10,000 invested in the S&P 500 (US$) January 31, 1973:3 months Later $9 2853 months Later… $9,2856 months Later… $9,4659 months Later… $9,54512 months Later $8 58712 months Later… $8,5871 year, 8 months later (Sept/74 Market Low) $5,816

At what point do you think most investors would have given up and thrown in the towel?

$5,816 removed from the market & re-invested in an interest bearing CD at 10.5% annually:6 months later… $6,12112 months later $6 42612 months later… $6,4262 years later… $7,1015 years later… $9,58110 years later $16 145 ( ft i t t S t/79 f 5 t

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10 years later… $16,145 (after re-investment Sept/79 for 5 yrs atprevailing rate of 11%)Source: Bloomberg


What if you had kept your $5,816 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 1974?going into cash on Sept 30, 1974?

10 years later… $24,671



12 months later… $ 8,033


Food for thought.

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Source: Bloomberg


What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 1974?going into cash on Sept 30, 1974?




12 months later… $21,846


Food for thought.

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Source: Bloomberg


Value of $10,000 invested in the S&P 500 (US$) August 31, 2000:3 months later $8 6883 months later… $8,688




2 years, 1 month later (Sept/02 Market Low) $5,527


$5,527 removed from the market & re-invested in a 5-year GIC at 3.28% annually:


2 years later $5 8952 years later… $5,895



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Source: Bloomberg


What if you had kept your $5,527 invested in the S&P 500 (US$) instead of going into cash on Sept 30, 2002?going into cash on Sept 30, 2002?


3 years later… $ 8,788

2 years later… $ 7,829



Food for thought.

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Source: Bloomberg


What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on Sept 30, 2002?going into cash on Sept 30, 2002?






Food for thought.

24

Source: Bloomberg


Value of $10,000 invested in the S&P 500 (US$) January 31, 2007:3 months later $10 3533 months later… $10,3536 months later… $10,2109 months later… $10,92112 months later $9 76912 months later… $9,7692 years, 2 months later (Mar/09 Market Low) $5,826


$5,826 removed from the market & re-invested in a 5-year GIC at 1.96% annually:3 months later… $5,8556 months later… $5,8839 months later… $5,9121 year later… $5,9415 years, 3 months later (as at June/14) $6,451

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Source: Bloomberg


What if you had kept your $5,826 invested in the S&P 500 (US$) instead of going into cash on March 31, 2009?going into cash on March 31, 2009?

5 years, 3 months later… $ 16,007





Food for thought.

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Source: Bloomberg


What if you invested an additional $10,000 in the S&P 500 (US$) instead of going into cash on March 31, 2009?going into cash on March 31, 2009?

5 years, 3 months later… $43,480





Food for thought.

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Source: Bloomberg

Staying invested has been shown to improve returnsreturns

Crisis Market Low 1 Year Later 2 Years LaterThe Korean War 7/13/1950 28 8% 39 3%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%S b i M t C i i 3/9/2009 68 6% 95 1%Subprime Mortgage Crisis 3/9/2009 68.6% 95.1%Average Appreciation 33.7% 45.0%

Snapshots in time of signif icant negative international events from 1950 to Mar 2009, and the subsequent change

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in market value from the stock market low in that calendar year to one and tw o years hence.Source: Datastream. Benchmark. S&P 500 Composite, US$ return.

Real Return of a GIC

20%

Real Return of a GIC

15%

1 Yr GIC Returns

1 Yr GIC After 40% Marginal Tax

1 Yr GIC Real Return (After Inflation)

10%

Retu

rns

(%)

0%

5%

Tota

l R

-5%Dec-81 Dec-85 Dec-89 Dec-93 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13

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Real Return of $10 000

$80,000

Real Return of $10,000

$60,000

$70,000 S&P 500 Real Return: $67,838

MSCI World Real Return: $48,184

S&P/TSX Real Return: $46,713

$40,000

$50,000

arke

t Val

ue

1 Yr GIC Real Return: $9,760

$20,000

$30,000Ma

$0

$10,000

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

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Source: Bloomberg, as at December 31, 2013. Marginal Tax Rate = 40%

20 years of the S&P/TSXYou can’t afford to miss the best weeksYou can t afford to miss the best weeks

Value of $10,000 invested June 1994 to June 2014

$31,790

$37,499$40,000

$15 302

$21,552$20,000

$30,000

$15,302

$10,000

$ ,

6 8% 3 9%5 9% 2 1%$0

Fully investedall weeks

Missed best1 week

Missed best5 weeks

Missed best10 weeks

6.8% 3.9%5.9% 2.1%

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Sources: Bloomberg & Mackenzie Financial, S&P/TSX Price Index; From June 30, 1994 to June 30, 2014

20 years of the S&P/TSX20 years of the S&P/TSX

Stock market gains are often swift and unpredictable. I t h h t t t f th k t fInvestors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities.This chart assumes an investor put $10,000 into the S&P/TSX Being in the market for the entire 20-year period would have 20 years ago (June 30, 1994). Over this period the average annual return for the S&P/TSX was 6.8%. Look what happens if the same investor attempts to time the market.

resulted in a portfolio value of $37,499. If the investor missed the top ten weeks the portfolio value drops to $15,302.

Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 6.8% to 5.9%.

Missing the best five weeks: Return drops to 3 9%

Considering that there are 1,040 weeks in 20 years – 10 weeks make up less than 1% of the available time – missing those time periods reduces the investor’s gain by more than $22,197. That’s almost 60% of the investor’s total return!

Missing the best five weeks: Return drops to 3.9%.

Missing the best 10 weeks: Return drops to 2.1%.

32

20 years of the S&P 500You can’t afford to miss the best weeksYou can t afford to miss the best weeks

Value of $10,000 invested June 1994 to June 2014

$33,914$30 311

$40,000

$30,311

$21,401

$1 930$20 000

$30,000

$15,930

$10,000

$20,000

$0

Fully investedall weeks

Missed best1 week

Missed best5 weeks

Missed best10 weeks

6.3% 3.9%5.7% 2.3%

33

Sources: Bloomberg and Mackenzie Financial, S&P 500 Price Index (CAD$); From June 30, 1994 to June 30, 2014

20 Years of the S&P 50020 Years of the S&P 500

Stock market gains are often swift and unpredictable. I t h h t t t f th k t fInvestors who choose to stay out of the market, even for short periods, frequently miss out on great opportunities.This chart assumes an investor put $10,000 into the S&P 500 Being in the market for the entire 20-year period would have 20 years ago (June 30, 1994). Over this period the average annual return for the S&P 500 was 6.3% (CAD$). Look what happens if the same investor attempts to time the market.

g y presulted in a portfolio value of $33,914. If the investor missed the top ten weeks the portfolio value drops to $15,930.

Missing the best week: Assume an investor was worried that the market was overvalued and decided to take his or her money out of their investments and as a consequence missed the best week. Their return drops from 6.3% to 5.7%.

Missing the best five weeks: Return drops to 3.9%.

Considering that there are 1,040 weeks in 20 years – 10 weeks make up less than 1% of the available time – missing those time periods reduces the investor’s gain by more than $17,984. That’s over half of the investor’s total return!

Missing the best 10 weeks: Return drops to 2.3%.

34

Stay invested: patience has been rewardedStay invested: patience has been rewardedRolling 5-year average annual compound returns (S&P 500 TR)

Only seven negative periods (since 1954)

20%

25%

30%Rolling 5-Year Average Annual Returns

Value DateBEST 28.6% 1999AVERAGE 11.0%MEDIAN 12.8%

10%

15%WORST -2.4% 1974

-5%

0%

5%8 8 8

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Cuban Missile Crisis Vietnam WarOil E b

Gold Hits $850/

Black Monday

Asian Crisis Global Financial European

35

Oil Embargo $850/oz Monday

Berlin Wall Falls Tech BubbleCrisis

Source: Bloomberg, as at December 31, 2013

European SovereignDebt Crisis

Investor expectationsInvestor expectations

Observations• Since 1954, there has been

only one 5-year period when investors simply broke even

• Consider the first bar on the chart. If you had put money into the market at the beginning of 1949 your portfolio

Implications Conclusions• If a long-term perspective

was maintained, performance did not suffer during times ofinvestors simply broke even

(1972-1977).

• Since 1954, there have been only seven 5-year periods when investors lost money

the beginning of 1949, your portfolio would have grown almost 24% annually by the end of 1954.

• Investment strategists and professionals constantly warn

did not suffer during times of uncertainty or crisis.

• Waiting on the sidelines until there is no uncertainty could mean a missed investment

• The average 5-year rolling return has been 11.0%

investors about important economic variables, such as interest rates, inflation, a depreciating currency, oil prices rising, and even presidential elections. It is often suggested that, before investing investors wait for

opportunity.

before investing, investors wait for certainty to arise around a specific variable. However, there will always be uncertainty in the market.

36

U.S. Stock Market AnnualTotal Return: 189-Year History

201120072005199419931992Total Return: 189-Year History 1992198719841978 20121970 20101960 20061956 20041948 19881947 1986

2012

1947 19861923 19791916 19721912 1971

2000 1911 19681990 1906 19651981 1902 19641977 1899 19591969 1896 1952

Positive Years: 134 (71%)Negative Years: 55 (29%)

1969 1896 19521962 1895 1949 20091953 1894 1944 20031946 1891 1926 19991940 1889 1921 19981939 1887 1919 19961934 1881 1918 19831932 1877 1905 1982

2001 1929 1875 1904 19762001 1929 1875 1904 19761973 1914 1874 1898 19671966 1913 1872 1897 1963 19971957 1903 1871 1892 1961 19951941 1890 1870 1886 1951 19911920 1887 1869 1878 1943 19891917 1883 1868 1864 1942 19851910 1882 1867 1858 1925 19801893 1876 1866 1855 1924 1975

2013

1893 1876 1866 1855 1924 19751884 1861 1865 1850 1922 19551873 1860 1859 1849 1915 1950

2002 1854 1853 1856 1848 1909 19451974 1841 1851 1844 1847 1901 1938 1958 19541930 1837 1845 1842 1838 1900 1936 1935 19331907 1831 1835 1840 1834 1880 1927 1928 1885

2008 1857 1828 1833 1836 1832 1852 1908 1863 18791931 1937 1839 1825 1827 1826 1829 1846 1830 1843 1862

37

Sources: Universal Economics;Bloomberg; Index: S&P 500, Total Return, USD

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 (%)

A tale of 5 recessionsRecession # 1: 1973 to 1975Recession # 1: 1973 to 1975

Recession started: Nov. 1973S&P 500 Index

130

ended: March 1975End announced: N/A

90

100

110

120

130

Pric

e

50

60

70

80

90P

(recession)40

50

Nov-72 May-73 Nov-73 May-74 Nov-74 May-75 Nov-75

• Oct. 1973 Arab oil embargo causes oil prices to quadruple

• Inflation rate soars from 6.2% in 1973 to 11% in 1974

38

Sources: Bloomberg (chart), NBER (recession dates), US Bureau of Labor Statistics (CPI)

A tale of 5 recessionsRecession # 2: 1980Recession # 2: 1980

150

S&P 500 Index

Recession started: Jan. 1980

120

130

140 ended: July 1980End announced: July 1981

Pric

e

90

100

110

P

• Double digit inflation since mid 1970s

80Jan-79 Apr-79 Jul-79 Oct-79 Jan-80 Apr-80 Jul-80 Oct-80 Jan-81 Apr-81

(recession)

• Double-digit inflation since mid-1970s

• Oil imports reduced from Iran in 1979

• US central bank aggressively raises interest rates

39

US central bank aggressively raises interest ratesSources: Bloomberg (chart), NBER (recession dates)


180S&P 500 Index Recession started: July 1981

140

150

160

170 ended: Nov. 1982End announced: July 1983

Pric

e

100

110

120

130

P

80

90

Jul-80 Nov-80 Mar-81 Jul-81 Nov-81 Mar-82 Jul-82 Nov-82 Mar-83 Jul-83 Nov-83

(recession)

• Runaway inflation: $1 in 1975 has same buying power as $2 in 1985

• US central bank raises rates from 11% (1979) to 20% (1981)

40

% ( ) % ( )Sources: Bloomberg (chart), NBER (recession dates), US Bureau of Labor Statistics (CPI)


440S&P 500 Index

Recession started: July 1990

360

380

400

420 ended: March 1991End announced: Dec. 1992

Pric

e

300

320

340

360P

260

280

Jul-89 Jan-90 Jul-90 Jan-91 Jul-91 Jan-92

(recession)

• Real estate bubble of late 1980s bursts

• Savings & Loan Crisis: 1,000+ institutions bankrupt (1986-1995)

41

Sources: Bloomberg (chart), NBER (recession dates), FDIC (savings & loan bankruptcies)

A tale of 5 recessionsRecession # 5: 2007 to 2009

S&P 500 Index

Recession # 5: 2007 to 2009

Recession started: Dec. 20071800

ended: June 2009End announced: Sep. 2010

800

1000

1200

1400

1600

Pric

e

(recession)0

200

400

600

800

Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10

P

•US housing downturn, subprime mortgage meltdown, global

Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10

financial crisis

•Recession lasted 18 months – longest of any recession since World War II

42

Sources: Bloomberg (chart), NBER (recession dates)

5 years after recession officially ended...where are we now?where are we now?

June 30,2009 – June30,2014: +118%June marks the 5-year

1800

2000

2200 anniversary of the end of the Great Recession (U.S.)

1400

1600

1800

rice

1000

1200

P

600

800

Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14

Recession ends June 2009

43

Source: YahooFinance, as at June 30, 2014; Cumulative return for S&P500 at 118% expressed in total return, CDN currency

Recession declared “officially over”Recession declared officially over

“The longest U.S. recession since WWII is officially over. NBER stated therecession started in December 2007 and ended in June 2009”

NBER release September 20, 2010

Business Cycle Duration (months)

Peak Trough Contraction(peak to trough)

Expansion(previous trough to this peak)

December, 2007 June, 2009 18 73March, 2001 November, 2001 8 120July, 1990 March, 1991 8 92July, 1981 November, 1982 16 12January, 1980 July, 1980 6 58November, 1973 March, 1975 16 36December, 1969 November, 1970 11 106April, 1960 February, 1961 10 24August, 1957 April, 1958 8 39July, 1953 May, 1954 10 45November, 1948 October, 1949 11 37February, 1945 October, 1945 8 80

44

Source: National Bureau of Economic Research, September 20, 2010

Expansions vs recessions in the USExpansions vs. recessions in the US

120

140

E pansions

80

100

120

Mon

ths

ExpansionsRecessionsCurrent Expansion

40

60

Num

ber o

f M

0

20

902

907

910

913

918

920

923

926

929

937

945

948

953

957

960

969

973

980

981

990

2001

2007 Recession

start dates014*

Average length Recession Expansion

1854 to 2009 (33 cycles) 16 months 42 months1945 to 2009 (11 cycles) 11 months 59 months

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 start dates

Recession is the number of months from peak to trough. Expansion is the number of months from the previous trough to latest peak, eg. 120 months: March1991 to March 2001 expansion

2

45

March1991 to March 2001 expansion.

Sources: National Bureau of Economic Research; *Mackenzie Financial; as at June 30, 2014

When is the right time to invest ?When is the right time to invest

Five approaches. Two are easy, repeatable & proven

?Investing $2,000/yr in S&P/TSX over 20 years

It’s time in the market . . . not market timing

$119,652$112,103 $109,554 $106,919

$75 000

$100,000

$125,000

Even “terrible timing” trumpsnot investing

$55,219

$25,000

$50,000

$75,000

$0Perfect New Year’s Dollar Cost Terrible Bought T-BillsTimer Investor Averager Timer not Stocks

Sources: Mackenzie Financial, Bloomberg, S&P/TSX Composite Index, as at June 30, 2014. Quick explanation of the five approaches: 1) Perfect Timer – able to invest the $2,000 into the market every year at the lowest monthly close, 2) New Year’s

46

Quick explanation of the five approaches: 1) Perfect Timer able to invest the $2,000 into the market every year at the lowest monthly close, 2) New Year s Investor – invested the $2,000 in the market consistently at the beginning of each year, 3) Dollar Cost Averager – divided the $2,000 into 12 equal amounts and invested at the beginning of each month, 4) Terrible Timer – invested the $2,000 each year at the market’s peak, and 5) Bought T-Bills – left the $2,000 in cash (using FTSE 91-day T-Bill index as a proxy) never investing in stocks. Each approach starts with an initial investment of $2,000.

We have seen near ‘historic’ declines Gives hope for better markets in years to comeGives hope for better markets in years to come

10-year rolling return of S&P 500 Index, Dec. 31,1935 to Dec. 31, 2013

12%

16%

20%

???%(Feb 28, 2019)

20%

16%

12% +10.08%

4%

8%

% ( , )12%

8%

4%

+3.13% (Aug 31, 1949)

(Sept 30, 1984)

-4%

0%0%

-4% -2.77% (Sept 30, 1974) -5.08%

-12%

-8%

1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

-8%

-12%

-9.90%(Aug 31, 1939)

(Feb 28, 2009)

47

Sources: Ibbotson Associates, S&P500; USD, price return, as at December 31, 2013

Disclaimer

This document includes forward-looking information that is based on forecasts of

Disclaimer

future events as of June 30, 2014. 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.

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