THIRD QUARTER 2016 RETROSPECTIVE AND PROSPECTIVE And The Band Played On… “When democratic governments create economic calamity, free markets get the blame.”-Jack Kemp “Politicians and diapers must be changed often, and for the same reason.”- Mark Twain Thus far, the calamities predicted by the pundits that would result from the Brexit vote to leave the European Union have not been as severe as anticipated. Perhaps this is due to the building geopolitical and economic stresses that have diverted the focus from Brexit to other issues. Furthermore, the impact of Brexit will likely take some time to discern as the trade, migration, political and other ramifications evolve over the coming months and years. Meanwhile, governments globally continue in their efforts to stimulate economic growth with what appears to be diminishing results.

1. THIRD QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
And The Band Played On…
Election fever will dominate the news as US voters attempt to decide which
presidential candidate they dislike the least. Image: Tribune news services
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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THIRD QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
And The Band Played On…
“When democratic governments create economic calamity, free markets get the blame.”-Jack Kemp
“Politicians and diapers must be changed often, and for the same reason.”- Mark Twain
Thus far, the calamities predicted by the pundits that would result from the Brexit vote to leave the
European Union have not been as severe as anticipated. Perhaps this is due to the building geopolitical
and economic stresses that have diverted the focus from Brexit to other issues. Furthermore, the impact
of Brexit will likely take some time to discern as the trade, migration, political and other ramifications
evolve over the coming months and years. Meanwhile, governments globally continue in their efforts to
stimulate economic growth with what appears to be diminishing results.
The Canadian stock market continued its advance for the year as the S&P/TSX Index increased 5.5% for
the quarter bringing the year to date return to 15.8%. Information Technology was the leading sector up
12.2% in the quarter followed by Industrials (10.8%), Health Care (9.0%) and Consumer Discretionary
(8.9%). Only Real Estate (-1.5%) and Materials (-1.1%) recorded negative results. The US market was
less robust as the S&P 500 advanced 3.9% in the quarter while the Dow Jones Industrial Average
recorded a 2.8% gain.
Canadian Dollar US Dollar
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Toronto Stock
Exchange 4.5% 5.1% 5.5% 15.8%
S&P 500 -4.7% 1.9% 5.4% 2.2% 1.3% 2.5% 3.9% 7.8%
MSCI EAFE* -9.5% -3.2% 7.3% -6.0% -3.7% -2.6% 5.8% -0.8%
91 Day T-Bill 0.1% 0.1% 0.1% 0.4%
CUBI** 1.4% 2.6% 1.2% 5.3%
CDN/US dollar 6.7% -0.3% -0.8% 5.5%
* Europe, Asia and Far East Index
** Canadian Bond Universe Index

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We head into the final quarter of 2016 with some trepidation. Many parts of the world are experiencing
political and economic uncertainty. For the most part, stock markets have exhibited great resiliency in
the face of anaemic economic growth, rising protectionist sentiment and increasing regulatory
constraints.
In the US, election fever will dominate the news as the voters attempt to decide which presidential
candidate they dislike the least. Investors will continue to look for evidence of a strengthening economy
as growth continues to be lacklustre despite relatively positive trends in employment and housing prices.
It is interesting to note that despite a short rally in September following the Federal Reserve’s decision to
leave interest rates unchanged, the Dow Jones Industrial Average was down 0.4% for the month.
Investors continue to be concerned over declining corporate earnings that have been evident over the
past six quarters in an economy that is exhibiting growth below potential. Earning per share have
increased largely as a result of massive share buy backs and dividend increases that have been delivered
at the expense of lower capital investment.
Europe is dealing with more problems than just the aftershocks of Brexit. The ongoing migration crisis
continues to bolster extremist political rhetoric while the underlying financial instability of the European
banking system continues unabated. The most recent shock has come from Germany, which up until
now has been the economic engine of Europe. The US has levied a fine of US$14 billion against
Deutsche Bank for its participation in selling mortgage-backed securities in the US in 2008. A fine of
that size would be close to the bank’s total market capitalization of US$18 billion while expectations are
for a settlement in excess of US$5 billion. The failure of Deutsche Bank would have the potential to be
very destabilizing to the world’s financial system. Deutsche Bank has the second largest derivative
exposure in the world after JP Morgan. As the Bank’s creditors and depositors concerns grow, it remains
to be seen if a bailout or refinancing will be forthcoming.
In Eurasia, the Russian economy continues to deteriorate under the pressure of low energy prices. The
Russian response has been to exhibit bravado in the Ukraine and the Middle East, particularly in Syria.
Whether these actions are anything more than posturing remains to be seen but tensions with the US and
its allies are escalating. China continues to exhibit hegemony in the South China Seas to the chagrin of
neighbouring states. The US has responded with stationing a naval presence in the area only to have
Chinese aircraft fly by in close proximity. North Korea continues to build on its nuclear energy program
much to the entire world’s consternation. These demonstrations add to geopolitical tensions even if they
turn out to be mere sabre rattling.
Since 2008, the global central banks have intervened in the economy through maintaining low interest
rates in their efforts to stimulate economic growth and spending. In this environment, asset prices have
been bid up on the back of easy money and debt, both in the public and private sectors. The build up of
debt, much of it at negative interest rates, has reached proportions that make the contemplation of higher
rates ever more alarming. Low rates used to be a sign that investors were less risk averse whereas now
they appear to reflect an insurance premium paid to park money for a period. With or without
productivity growth, lenders will want to be compensated at some point and governments will be forced
to curtail their voracious spending appetite.

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More worrisome is the propensity of politicians to exploit unrest in the electorate by blaming business,
free trade and globalization for their plight. Trust must be fostered in the economies in order to promote
investment, job creation and economic growth. The enabling of barriers to trade will do little to engender
greater trust and investment.
Longer term, technology will continue to generate great opportunities and great dislocations. Rapid
technological advances that are reshaping media, retailing, manufacturing, and administration and
service delivery are impacting whole industries. These changes will cause greater stress as the skills
required for employment evolve and leave many people behind. At the same time, the faster speed and
volume of business will foster economic growth and prosperity.
The emerging economies are lifting vast numbers of people out of poverty into middle and upper class
consuming environments. Aging populations in the developed world are putting greater pressure on
health care and service delivery as lifestyles and consumption habits evolve.
So, despite our near term trepidation we think that investors will have many opportunities. It is through
these periods of greater uncertainty and disequilibrium that our efforts will be directed towards
identifying investments to enhance portfolio profiles towards meeting investors’ goals and objectives.

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THIRD QUARTER 2016 FIXED INCOME COMMENTARY
“Whenever you find yourself on the side of the majority, it is time to pause and reflect.” ~ Mark Twain
Brexit concerns abated over the course of the summer, as the British government did not trigger the EU
exit clause and consequently no negotiations had been started. Nevertheless, grassroots level pressure
and the polarized electorate forced the hand of the government to make a statement. Finally Prime
Minister May declared that notice of Britain's intention to leave the EU, thereby triggering the exit
process, will be initiated by the end of March 2017.
In Germany Mrs. Merkel's party has suffered in recent local elections. In various other countries,
specifically in eastern Europe, anti-immigrant voices have also gained strength. The Visegrad group
(Czech Republic, Hungary, Poland and Slovakia) has been united in their resistance to the EU plan to
distribute refugees on a pro rata basis.
The IMF has expressed concerns regarding the worldwide debt levels that have reached an all time high
of $152 trillion: a sobering 225% of world GDP. Low interest rates and easy money central bank
policies have masked the potential negative effect of such growth in indebtedness. It does not take a lot
of imagination to come up with scenarios where even small rate increases or some other impairment of
debt carrying capacity can have potentially dire consequences.
In light of improving US economic statistics, market observers have been expecting that the Federal
Reserve Open Market Committee (FOMC) will raise interest rates before year-end. Despite this, the
two-day November 1 & 2 meeting, just ahead of the US election, would likely not be an occasion for
such a move. The FED generally prefers, all things being equal, to avoid the appearance of attempting to
influence a political or in this case, an electoral process. However, the December meeting will be fair
game and market participants are increasingly betting on a rate hike.
Contrary to the US leaning towards a possible rate hike, Bank of Canada Governor Poloz seemed to
suggest that low rates are likely to remain in Canada for the foreseeable future, with even a possible rate
cut in the cards. While there are clear differences in the economic performance of the two countries,
there are limits to the extent Canada can move in a different direction from the US. A significant
difference in rate movements would continue to weaken our dollar and reduce the desirability of our
bond market in the eyes of foreign investors. Given the levels of Canadian debt, at all levels of the
economy, this would quite possibly result in a counter intuitive move whereby borrowers would be
forced to offer higher rates as an inducement to investors.
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 1.2%, while 91 day Treasury bills increased by 0.1%
over the same period. The benchmark ten-year Government of Canada bond yield declined by 0.1% to
1.0% 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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See Michael on BNN Market Call http://www.sprunginvestment.com/videos/