THE TIMES THEY ARE A-CHANGIN’

1. THE TIMES THEY ARE A-CHANGIN’ David Picton, President, Picton Mahoney Asset Management

2. INTRODUCTION TO PICTON MAHONEY • Portfolio management boutique managing $7.0 billion in assets for investors through three lines of business • Authentic hedge fund strategies • Sub-advisory services • Institutional long-only mandates • We remain committed to our founding principles: • Authenticity • Transparency • Capacity

3. THERE IS A REASON THE MARKETS HAVE BEEN SO CHALLENGING OVER THE PAST FIVE YEARS • History shows that big bull markets are usually followed by big consolidation phases • These “great reckoning” phases are never pleasant and usually squeeze excesses from the system, setting the stage for the next bull market

4. PORTFOLIO CONSTRUCTION IS EXTREMELY DIFFICULT IN TODAY’S ENVIRONMENT • Consider how lacking the traditional tools are for savers today (Not to mention, the general aversion to risk many investors have post the 2008 collapse)

5. INCOME INVESTORS HAVE BENEFITTED DISPROPORTIONATELY FROM FALLING INTEREST RATES • We are very concerned that conservative investors are not prepared for potential volatility/losses that these types of investments could face once interest rates normalize Source: Corporate Reports, National Bureau of Economic Research, Empirical Research Partners Analysis

6. A CAUTIONARY TALE FOR INCOME INVESTORS • Rate Risk 1994: The great bond massacre Today if rates increase 1%, 5-year Government bonds should lose $5 and 10-year Government bonds should lose $9 Source: Bloomberg, Bank of America Merrill Lynch

7. WE BELIEVE THAT MOST INVESTOR PORTFOLIOS, (ESPECIALLY IN CANADA), ARE POORLY CONSTRUCTED Potential problems with portfolios • Too much cash that has no chance of upside or inflation protection • Concentrated in interest rate related vehicles that are trading at excessive valuations • Lack foreign content (especially U.S. growth stocks) • Disproportionately exposed to resource stocks and banks given that makeup of the Canadian benchmarks

8. “WHAT IF” QUESTIONS INVESTORS NEED TO ASK THEMSELVES REGARDING THEIR PORTFOLIO • What if stock markets continue to rally? • What if interest rates continue to rise/normalize? • What if stock/sector leadership change continues? • If you don’t like the answers you are getting to these questions then it is time to reconsider your positioning and/or the investment tools you are using to build your portfolio

9. Investment outlook The times they are a-changin’

10. THE CASE FOR ECONOMIC ACCELERATION IN 2014 • Many former headwinds are becoming (or should soon become) tailwinds to the economy We are in both

11. U.S. OUTLOOK IS IMPROVING • Rise in home prices and stock have added almost $9 trillion of wealth Source: J.P Morgan Chase

12. HOUSING IS STRONG AND AN INTEREST RATE SPIKE RISK IS OVERSTATED Source: NAR, MBA, Zelman & Associates analysis

13. JOBS STILL TO COME FROM HOUSING • Each 250,000 Of U.S. Housing Starts adds one million new jobs and $4 to S&P 500 EPS Source: Bloomberg

14. CAPEX STILL LANGUISHES – THE $2 TRILLION CASH HOARD • A lack of faith in politicians and more specifically, the fiscal circus in the U.S., may be the only thing that stands between the deployment of cash and a CapEx Supercycle Source: Credit Suisse, ISI Group

15. U.S. FISCAL DRAG IS PEAKING Source: Goldman Sachs

16. EUROPE IS PULLING OUT OF RECESSION • Europe is coming out of the recession led by Germany and France.  The fiscal drag from the austerity measures (-1.6% of GDP in 2012, -1% in 2013, and a projected 0.6% in 2014) are diminishing Source: Eurostat, national statistics office, JP Morgan

17. JAPAN – WHERE INFLATION IS WELCOMED! • Japan has finally decided to tackle its decade long deflationary recession problem • Japan’s new prime minister, Shinzo Abe, has embarked on a massive fiscal & monetary stimulus plan, dubbed “Abenomics” • The monetary aspect is aimed at reducing real interest rates and weakening the Yen • Japanese stocks tend to outperform when the Yen depreciates Source: Bloomberg

18. JAPANESE EQUITIES: EARNINGS ARE IMPROVING AND VALUATIONS REMAIN ATTRACTIVE The weaker Yen has translated into better earnings expectations for Japanese companies Despite the rally, Japanese equity still has lots of room to run

19. CHINA IS A WILDCARD Source: Bloomberg, PMAM Research

20. CHINA’S GROWTH OVER NEXT DECADE(S) LIKELY TO BE LED BY CONSUMPTION • A 1% Increase in China’s consumption to GDP is equivalent to $73 billion (USD) of incremental spending Source: Bloomberg

21. CHINA: GROWTH COMPANIES WILL CONTINUE TO BE SOUGHT AFTER IN A LOW GROWTH ENVIRONMENT Despite the negatively regarding China/EM, Chinese small/mid cap stocks (as represented by ChiNext) has massively outperformed this year.  Investors are buying the new growth companies focused on the consumer rather than the large cap growth companies of the past (predominately state owned materials/energy/financials/industrials) Source: Bloomberg, MSCI

22. STOCKS REMAIN ATTRACTIVE: EQUITY YIELDS ARE SUPERIOR TO BOND YIELD Source: Bloomberg

23. SHORT-TERM STOCK MARKET WEAKNESS WOULD BE TYPICAL, AND SHOULD BE BOUGHT Source: Bloomberg / PMAM Research

24. CORPORATE CASH SHOULD LEAD A BOOM IN M&A • Current M&A activity rests at more than half of 10 year averages. This suggests that the markets may be in the very early stages of a market rise with a good deal of potential going forward Source: Bloomberg

25. INFLATION RISKS MAY BE OVERSTATED, WHICH COULD BE GOOD FOR DEVELOPING ECONOMIES AND P/E RATIOS Lower inflation has paved the way for better economic data Decoupling from China allows for the return of non-inflationary growth

26. SLEEPLESS NIGHTS There are numerous questions that keep us up at night including: • Are we underestimating the tail risks on BOTH sides? • Has Fed policy so distorted the market pricing mechanism that it is fostering risk seeking behaviour reminiscent of the pre-crisis period? • Do investors understand that they take inordinate amount of risk in the bond market and not enough in the equity market? • Will politicians keep watching financing costs fall while doing nothing to get to the heart of the issues? • Will a healthy balance between monetary and fiscal/political policy be struck in time?

27. ARE YOUR PORTFOLIOS READY? Source: Bloomberg

28. ARE YOUR PORTFOLIOS READY? Source: Bloomberg

29. PMAM’S PORTFOLIO STRUCTURE

30. SYNERGY CANADIAN CORPORATE CLASS SECTOR EXPOSURE: AS AT AUGUST 30, 2013

31. SYNERGY GLOBAL CORPORATE CLASS SECTOR EXPOSURE: AS AT AUGUST 30, 2013

32. Thank YouFOR ADVISOR USE ONLY Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ®CI Investments, the CI Investments design, Synergy Mutual Funds, are registered trademarks of CI Investments Inc.