It didn’t go the way the pundits predicted. As the second quarter came to a close, people in the UK voted to exit (Brexit) the European Union by a narrow margin. Despite the narrow differences in the polls, global markets and the mainstream press indicated that the opposite outcome would prevail in the days leading up to the vote. Investors hate uncertainty. The immediate reaction to the Brexit vote was severe and negative. However, stocks recovered to a great extent over the following week.

1. SECOND QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
Can Politics Trump Economics?
Image from Gage Skidmore via https://www.flickr.com
25 Adelaide Street East, Suite 500
Toronto, ON M5C 3A1

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Sprung Investment Management our focus is to create investment portfolios for our clients that
enable them to achieve their unique, long-term investment goals. In this endeavour, we strive to act
with the utmost integrity, utilising all of our analytical skills, knowledge and intuitions.
PRIVATE CLIENT FOCUS
Sprung Investment Management is an independent discretionary investment management firm that
serves the investment needs of high net worth private clients including business owners and
entrepreneurs, professionals, family trusts, estates, and private charitable foundations.
OUR PEOPLE
At Sprung Investment Management, the investment team collectively has over 120 years of diversified
investment experience. All of our principals hold the Chartered Financial Analyst designation and as
such adhere to the CFA Institute Code of Ethics. Each has made a commitment to continuing education.
RISK PERSPECTIVE
We understand that our clients have worked hard to get where they are and we appreciate that they don’t
want to lose it. As the chosen stewards of their investment assets, our risk management approach is to
preserve their capital by purchasing under-valued securities, with a margin of safety that we expect will
deliver income and capital appreciation over the long term.
PERFORMANCE
Sprung Investment Management has a track record of low volatility of returns since company inception
in June 2005. This has served our clients well over this relatively difficult investment period that
includes the bear market of 2007- 2008. Our performance numbers are available by request.
CLIENT SERVICE
At Sprung Investment Management, satisfying our client’s financial needs is our top priority. Each and
every client is special and receives individual attention and customized investment advice based on
his/her specific objectives and risk tolerance. Our principals are always available to speak directly to
clients.
INVESTMENT STYLE
In building equity portfolios, individual security selection is based on “bottom up” research that is value-
driven and often contrarian to current popular thinking. We assess quality and continuity of return on
equity, current price relative to intrinsic value, economic value added and quality of management.
Although our typical investment horizon is two to five years, we constantly evaluate our current
holdings against new opportunities that may offer better value. Our view is that a strong sell discipline is
a critical component to long-term investment success.
Our investment approach on the fixed income side is to conduct rigorous credit analysis in the context of
future economic and interest rate expectations.

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SECOND QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
Can Politics Trump Economics?
“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying
the wrong remedies.” –Groucho Marx
“The expected rarely occurs and never in the expected manner.”- Vernon A. Walters
It didn’t go the way the pundits predicted. As the second quarter came to a close, people in the UK voted
to exit (Brexit) the European Union by a narrow margin. Despite the narrow differences in the polls,
global markets and the mainstream press indicated that the opposite outcome would prevail in the days
leading up to the vote.
Investors hate uncertainty. The immediate reaction to the Brexit vote was severe and negative. However,
stocks recovered to a great extent over the following week.
In North America, stock markets ended the quarter in positive territory. The Canadian market was up
considerably with very strong results in the Materials (+26.9%), Energy (+9.5%) and Utilities (+7.0%).
The laggards in Canada were primarily in Health Care (-15.3%) and Information Technology (-5.9%). In
the US, Energy (+10.8%), Utilities (+5.9%), Telecommunications (+5.9%) and Health Care (+5.8%)
lead the way while Information Technology (-3.3%) and Consumer Discretionary (-2.0%) lagged.
Canadian Dollar US Dollar
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Toronto Stock
Exchange 4.5% 5.1% 9.8%
S&P 500 -4.7% 1.9% -3.0% 1.3% 2.5% 3.8%
MSCI EAFE* -9.5% -3.2% -12.4% -3.7% -2.6% -6.3%
91 Day T-Bill 0.1% 0.1% 0.3%
CUBI** 1.4% 2.6% 4.1%
CDN/US dollar 6.7% -0.3% 6.4%
* Europe, Asia and Far East Index
** Canadian Bond Universe Index

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The Brexit decision will continue to weigh on market sentiment for some time. The vote result was a
wake-up call to politicians of every stripe as the rationale for the outcome is debated and dissected. The
vote reflects an underlying current of discontent within populations in the developed democracies as
politicians have sought to engender resentment over wage stagnation, disappearing jobs and a growing
inequality of outcomes. (Politicians looking for trouble and finding it everywhere.) The result has been a
focus on the very trends that have sustained wealth and economic growth over the post-WWII period:
globalization, free trade and migration. The same style of political rhetoric is evident in the US as they
prepare for the presidential election in November.
While a divorce from the European Union, if indeed it ever comes to fruition, may take years to
negotiate, investors will deal with the inherent uncertainty that will surround the negotiations. In the
immediate aftermath of the vote, volatility increased as did bond prices as yields spiked lower and the
US dollar increased in value along with gold as investors sought a safe haven. The British Pound is
hovering near a thirty year low against the US dollar. Once the initial shock had subsided, share prices
recovered as investors became reconciled to the fact that this will be a long process, the results of which
may not be as devastating as the pictures painted by pundits prior to the vote.
Although overshadowed by Brexit at the end of the second quarter, other things of note were occurring
during the period.
As noted in our last Retrospective and Prospective, the Federal Reserve in the US had gone from a more
aggressive posture with respect to raising interest rates to a less certain posture by the end of the first
quarter. In the second quarter, more evidence of a slowdown or weaker economy is likely to reduce the
prospects of higher interest rates even more. On the positive side, the first quarter GDP figure was
modestly higher and housing markets appeared to be firm. More banks passed tests of capital adequacy,
improving prospects of dividend increases. However, both industrial production figures and capacity
utilization figures disappointed investors as did unit labour costs and productivity numbers. Employment
figures disappointed with large withdrawals of people from the workforce. Manufacturing inventories
were higher than expected while auto sales declined.
Commodity prices strengthened over the quarter bolstering the shares of Material and Energy
companies.
Companies announced a number of employee reductions, including Daimler, the London Stock
Exchange, Ralph Lauren, Wal-Mart and Dow Chemical.
In Japan, sales tax increases were postponed due to fears of a weakening economy in the face of lower
machine orders and lower exports.
In this environment, the yields of stronger issuers were pushed lower. In Germany, the 10 year bonds
went into negative territory and Swiss bonds were driven to a negative yield all the way out to 50 years.
There are now in excess of US$10 TRILLION in negative yield bonds in circulation!
In this environment, what is an investor to do?

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The dynamics and benefits of a diversified portfolio are evident. As we witnessed during the Brexit
aftermath, when stocks retreated, the value of the US dollar, gold and bonds went up. Assets react to
events and capital flows to where it is treated best. The interplay between bond yields, credit spreads,
stock prices, currencies and liquidity will continue to be impacted by economic conditions, energy and
commodity prices, changes in central bank and political policies and demographics. Technology will
continue to change the shape and nature of employment. As much as the Luddites* would like to turn
back the clock and take isolationist stances, technology will advance domestically and abroad.
Over the longer term, there will undoubtedly be winners and losers. Stronger companies will survive and
prosper. During the Brexit incident, we placed bids below the market in order to try and capture
opportunities that may have been presented.
Investors that are prepared will prosper.
* In the 19th
century, workers from Nottinghamshire,Yorkshire and Lancashire attempted to destroy the
new mechanized textile machines that wove fabric

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FIRST QUARTER 2016 FIXED INCOME COMMENTARY
“He is led by an invisible hand to promote an end which was no part of his intention.” ~ Adam Smith
What a difference a week makes. Or for that matter, a quarter. In the early part of the quarter fixed
income investors were anticipating that the Federal Reserve would embark on a program of raising or
“normalizing” interest rates that may have resulted in possibly two rate hikes before the end of the year.
Investors were not taking into account the risk of “Brexit” (The UK voting to leave the European
Union). Despite polls showing a virtual dead heat, expectations were that on the day sober minds would
prevail and Brits would not make a leap into uncharted territory.
We now know how wrong they were. Politicians on both sides of the debate are exiting the stage,
seemingly having run out of ideas the morning after. The country seems to be in limbo without a clear
political or economic road map for the next steps. At this moment of indecision, only Bank of England
governor Carney (ex Bank of Canada) seems to have the poise and level headed vision as he has
attempted to calm fears by declaring that the BOE had plans ready for all eventualities and is ready to
provide liquidity to the banking system.
As it stands it will likely take years to sort out the political and administrative mess, both on the
continent and in Britain. At the same time, the knock on effects in the financial world will likely come to
a head sooner. That is of course unless the incoming set of political leaders can finesse some kind of
deal whereby eurosceptics and europhiles can both claim victory.
In the meantime, many real estate funds in England have suspended redemptions as the value of
underlying commercial properties are being called into question. In Italy, where a significant proportion
(~17%) of bank loans are non-performing, the government is looking at ways of shoring them up. This
of course is potentially a significant issue given how Italy’s economy is the fourth largest in the EU
(third largest without the UK). A banking crisis coming on the heels of Brexit would be yet another
shock for risk sensitized markets.
Interest rates on government bonds have dipped into negative territory in a number of countries,
especially in Europe and Japan. In Switzerland, all government issues posted negative yields as our
comments are being written. Overall, this has been caused by the combined effect of central banks
maintaining a stimulative low interest rate environment co-incident with a flight to the perceived safety
of government instruments. The Federal Reserve was expected to raise rates over the course of the rest
of the year, this however appears to be on hold after Brexit and a weaker than expected improvement in
the labour market.
The total return performance of the bond market as measured by the FTSE TMX Canada Universe Bond
Index for the second quarter was an increase of 2.6%, while 91 day Treasury bills increased by 0.1%
over the same period. The benchmark ten-year Government of Canada bond yield declined by 0.2% to
1.1% by quarter-end. Over the course of the quarter, the Canadian dollar improved by 0.4 cents from
77.0 cents US to 77.4 cents US.

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Our Team
Michael Sprung, CFA: Chief Investment Officer
msprung@sprunginvestment.com
• Chief Investment Officer
• More than 30 years experience in Canadian Investment industry, overseeing portfolios up to $2.5B
• Senior level positions with YMG Capital Management, Goodman & Company, Ontario Teachers’ Pension Fund,
Ontario Hydro and Cassels Blaikie & Co.
• Frequent contributor to BNN-TV, Globe & Mail, National Post and Money Sense
Fred Palik, CFA: Vice President, Fixed Income
fpalik@sprunginvestment.com
• Extensive experience in fixed income management in a variety of senior positions, primarily in the insurance
and hospital sectors.
• Member of the Toronto CFA Society and the CFA Institute.
Lois O’Sullivan, CFA: Vice President
loiso@sprunginvestment.com
More that 25 years experience in investment management.
• Co-founder of Sprucegrove Investment Management, specializing in international markets.
• Senior level roles at Confed Investment Counselling and Confederation Life Insurance Company.
• Fellow of the Life Office Management Institute (FLMI), the Toronto CFA Society and the CFA Institute.
Joie P. Watts, CFA, FSCI: Vice President & Portfolio Manager
jpwatts@sprunginvestment.com
• Over 30 years of progressive experience in the securities and investment industry.
• Senior level roles at Burns Fry Limited, Merrill Lynch Canada and Nesbitt Thomson.
• Managing Director of Instinet Canada Limited for over 10 years
• CEO of Shorcan ATS Limited, a specialized marketplace for equity dealers trading as principal.
Robert D. Champion, MSEd: Vice President, Client Services
rchampion@sprunginvestment.com
• Joined Sprung Investments Management in 2012 after several years with Successful Investor Wealth
Management.
• Prior to that, he had a fifteen-year career in OEM industrial sales.
• Manager with investment-publishing division of MPL Communications in the 1980s and early 1990s. MPL
publish Investor’s Digest and Investment Reporter.
Stay connected with Sprung Investment Management:
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