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Investing in a low yield world David Irwin CTRL+ALT+DELETE 2 3 EQUITABLE ASSET MANAGEMENT GROUP Insurance Managers Internal function of the company since 1920 $1.8 billion in assets under management – general funds & segregated funds History of Solid Investment Performance Solid investment portfolio, proven even through weak economic conditions, which contributes to strong corporate earnings Experienced in asset allocation Nimble, top-down management INVESTMENT PHILOSOPHY Top-down Conservative Equitable Asset Management Group Asset class managers Security selection 94% LOOKING AT THE “BIGPICTURE” The economy & valuations ZIRP QE LSAP WIT2 HISTORICALLY LOW RATES INVESTORS NEED MORE YIELD CANADA SAVINGS BONDS 13 US FED HAS DRIVEN EQUITY MARKETS HIGHER THE RETURN OF THE CONSUMER Consumer GDP contribution CONSUMER DEBT DECREASING IN THE US Source: Bloomberg HOUSING PERMITS > HOUSING STARTS US Canada Source: Bloomberg SPENDING TRENDS IMPROVING Personal consumption Consumer confidence ECONOMIC OUTLOOK United States Canada +2.9% +1.7% S&P 500 SOURCES OF RETURN S&P 500 RECORD PROFIT MARGINS S&P 500 profit margins 12% 10% 8% 6% 4% 2% 0% 10.9% US MARKET OVERVALUED? 30 S&P 500 PE ratio 25 16.0X Forward PE 20 15 15.8x 10 5 0 Forward PE Source: Bloomberg Average Forward PE EQUITIES LOOK BETTER THAN BONDS Equities 6.0% Corporate bonds 4.7% Source: Merrill Lynch BBB Corporate credit yield, Bloomberg KEY INVESTMENT RULES Asset class selection comes first Low interest rates => equities Inflation => equities No silver bullet portfolio BUT diversification is the best way to protect against catastrophic losses A BALANCED APPROACH ACTIVE MANAGEMENT OUR TOP-DOWN APPROACH Momentum and sentiment indicators Fundamental Thematic drivers Technical Quantitative Equitable Life Portfolios Market valuation PAR - NOT YOUR TYPICAL BALANCED FUND USE OF ILLIQUID ASSETS Commercial Mortgages: add diversification into an asset class challenging for clients to achieve on their own, by a team of experienced mortgage specialists. Private Placement Loans: provide corporate bond type returns with reduced risk and/or higher yields. Real Estate: adds equity-like returns with less volatility. Similar to commercial mortgages, a diversified portfolio of commercial real estate is challenging for clients to acquire and manage independently. FIXED INCOME PORTFOLIO A high quality fixed income portfolio, with long duration, supports the dividend scale Investment Mix Government 50% Corporate 50% Investment by Term Years to Maturity Percentage 0 to 5 years 23% 5 to 10 years 19% Over 10 years 57% EQUITIES AND REAL ESTATE Investment Mix Equity Type Percentage Common Stock 41.2% Real Estate 41.8% Preferred Shares 16.9% Total Equity assets 100.0% Performance is enhanced with a solid real estate portfolio, as well as a common and preferred equity program. REAL ESTATE PORTFOLIO 23% 35% 42% The real estate portfolio is comprised of high quality, income producing properties which are diversified geographically across Canada and by property type. PAST PERFORMANCE 30 20 10 0 -10 Net Par Account Yield S&P/TSX Composite Index -20 5 Year GIC Consumer Price Index -30 EQUITABLE LIFE ACTIVE BALANCED PORTFOLIOS PORTFOLIO POSITIONING 100% 4.6% 4.9% 7.7% 90% 80% 70% 45.4% 59.7% 60% 74.9% 50% Cash Real estate Equity 40% Fixed income 30% 20% 47.7% 32.5% 10% 16.2% 0% Income Balanced Equitable Life Moderated balanced Equitable Life Active Balanced Income Portfolio Active Balanced Portfolio Growth Balanced Equitable Life Active Balanced Growth Portfolio COMPETITIVE MER’S Global Neutral Balanced Global Equity Balanced Canadian Neutral Balanced Category Average MER 3.12% 3.04% 2.85% Equitable Life Active Balanced Portfolios 2.42% 2.35% 2.40% Equitable Life Active Balanced cost advantage +0.7% +0.7% +0.4% PERFORMANCE YTD 1-YR 3-YR Equitable Life Active Balanced Portfolio 8.2% 13.6% 6.8% Global Neutral Balanced Peer Group 5.5% 12.3% 7.4% Source: Morningstar, as of August 31 2014 REASONS TO OWN 1. Style diversification 2. “Core” funds 3. Cost & transparency