TD Wealth - Monthly Perspectives - 2016-08 - The Politics of it All

The politics of it all
August 2016Monthly Perspectives Portfolio Advice & Investment Research
This document is for distribution to Canadian clients only.
Please refer to the last page of this report for important
disclosure information.
Martha Hill, CFA, Associate Vice President
In this issue
Rocket man�� 2 - 4
The politics down south�� 5
General elections map�� 6
Monthly market review�� 7
Important information�� 8
The ebb and flow of financial markets brings with it a shift in focus from one
theme to another, often amplifying the different factors affecting the market.
As discussed in our latest issues of Monthly Perspectives, risk has moved to the
forefront for investors. Most recently, the unexpected outcome of the Brexit vote
brought a wave of political uncertainty and with it, an increased focus on a
broader theme: geopolitical risk.
Geopolitics is one source of risk that is expected to contribute to anticipated
heightened volatility. To help you prepare for this, we identify political events
that could impact economic growth and financial markets. Starting with our
Chief Wealth Strategist, we take a step back to look at the big picture; a view
that separates emotions from facts and puts long-term thinking into perspective.
Closer to home, our Senior North American Equity Portfolio Manager digs into
the potential investment implications of the outcome of the upcoming U.S.
election.
Although risk can’t be avoided, it can be managed. It is important to remain
focused on the long term and structure your portfolio to meet your investment
goals.

2 Monthly Perspectives August 2016
Rocket man
Brad Simpson, Chief Wealth Strategist
Imagine that you just arrived on an intergalactic spaceship from
a place where you spent the last decade without internet or data
reception. You stroll towards the luggage retrieval area and while
you wait to claim your bags you decide to get caught up on what
has been happening on earth during your absence. You turn on
your Blackberry (remember you’ve been away for ten years) and
start to read Yahoo to get caught up. You peruse the political
news first because financial markets have never been your biggest
concern. You are confident that your numerous revenue condos in
Miami have been compounding at a nice mid-teen clip since you
left. You tell yourself that you will look at your Lehman Brothers
statement later to find out how your stock portfolio has fared.
Not wanting to worry about it while you were gone you had put
your fixed income money into a 10 Year U.S. Treasury bond that
matured August 1, 2016, telling yourself that rolling it over should
be easy enough. You are particularly interested to find out how that
new Bear Stearns mortgage backed securities fund you bought just
before you left is doing. You clearly have a lot of catching up to do.
After doing some reading, you quickly surmise that all is not well
on your home planet, especially when it comes to geopolitics.
First you learn that the UK has voted to leave the European Union.
Figure 1: SP 500 Index and 10-year U.S. Treasury Yield
Source: Bloomberg Finance L.P. As at August 5, 2016.
You then read about a paper prepared by the German finance
ministry indicating that France, the Netherlands, Austria, Finland
and Hungary could all follow Britain out of the European Union in a
rash of anti-Brussels rebellions. All of this strikes you as odd because
back when you boarded your spaceship in 2006, globalism, free
trade and diversity were all in vogue. You recall reading Thomas
L. Friedman’s “The World is Flat,” which was perched atop the
New York Times Best Seller list when you left. Then, to your
horror, you read an article about ISIL and the atrocities in Nice. You
notice a headline about Turkey contending with a military coup.
Your concerns mount. Scrolling to the next page you discover
that Donald Trump has just been nominated as the Republican
candidate for the President of the United States. You stop and think
to yourself, “This can’t be the character from The Apprentice?!”
Your anxiety increases while simultaneously your confidence in
your own economic health wanes. You click over to the Wall Street
Journal and read their review of Mr. Trump’s acceptance speech,
which paints a grim view of the U.S. economy and world affairs.
At this point, whatever modicum of serenity you had is long gone.
Surely the American and global economies are in deep recessions
and equity markets in tatters!?
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
500
700
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1100
1300
1500
1700
1900
2100
2300
8/4/06 8/4/07 8/4/08 8/4/09 8/4/10 8/4/11 8/4/12 8/4/13 8/4/14 8/4/15 8/4/16
SP 500 Index (LHS) 2182.87 10-Year U.S. Treasury Yield (RHS)

Rocket man (cont’d)
Based on emotions, a dire economic outlook is an understandable
conclusion for our Rocket Man to come to, but the facts paint a
very different and more balanced picture:
Fact 1: While global economic growth continues to languish
as demographics, overcapacity and elevated debt levels all
weigh on it, the U.S. economy is doing quite well:
1. Manufacturing is healthy.
2. Recent jobs reports were blockbuster, reporting 292 and 255
thousand positions added to non-farm payrolls in June and July,
respectively. Recently published jobless claims were also low.
3. The housing market has continued its long recovery.
All in all, if U.S. domestic data continues to be healthy and financial
markets remain calm, the U.S. Federal Reserve could raise rates as
early as December 2016.
Fact 2: Global equity markets continue to fare well:
1. The SP 500 Index and the Dow Jones Industrial Average are
at all-time highs.
2. The FTSE 100 and the MSCI All Country World Indices are
trading near all-time highs.
3. Market volatility is low.
Figure 4: Dow Jones Industrial Average
Figure 2: CBOE Volatility Index (VIX)
Figure 3: Non-farm Payrolls
Source: Bloomberg Finance L.P. As at July 31, 2016.
0
50
100
150
200
250
300
350
7/1/14 1/1/15 7/1/15 1/1/16 7/1/16
0
4000
8000
12000
16000
20000
8/4/06 8/4/08 8/4/10 8/4/12 8/4/14 8/4/16
0
10
20
30
40
50
60
70
80
90
8/4/2006 8/4/2007 8/4/2008 8/4/2009 8/4/2010 8/4/2011 8/4/2012 8/4/2013 8/4/2014 8/4/2015 8/4/2016

Rocket man (cont’d)
The current view from the TD Wealth Asset Allocation Committee
(WAAC) is to expect mid-single digit returns from an equity market
that is fully valued but not expensive. This return could potentially
be enhanced with a focus on high-quality equities that have the
ability to increase their earnings and dividends in a low growth
environment and thereby protect the real value of investors’ savings.
Right now, geopolitical risk is the big concern
for market participants
The big concern right now for market participants seems to be the
potential for future geopolitical storms. According to a recent fund
manager survey from Bank of America Merrill Lynch, geopolitical risk
is at the top of most fund managers’ worry list. This view is shared
by WAAC. Much of this concern is derived from the fact that there
are a number of significant elections in the coming months, the
outcomes of which could dramatically change political leadership
and thus, the direction of the economy. Based on this knowledge,
WAAC remains cautious and has adopted a more conservative asset
allocation position.
The critical piece to remember about all of this is that ongoing trials
and tribulations are all part of the human experience. The simple
fact is that time heals a lot of wounds, even the geopolitical ones.
Consider the experience of our fictional rocket man. His portfolio
experienced an incredible array of ups and downs over the past
ten years, but today he would still be in a good place. The key is
to retain a long-term perspective, maximize diversification benefits
within portfolios and be mindful of actively managing risk factors.
Figure 6: FTSE 100 Index
Figure 7: MSCI All Country World Index
Figure 5: SP 500 Index
0
500
1000
1500
2000
2500
8/4/06 8/4/08 8/4/10 8/4/12 8/4/14 8/4/16
Figure 8: SP Case Schiller Miami Home Price Index
Source: Bloomberg Finance L.P. As at July 14, 2016.
2,000
3,000
4,000
5,000
6,000
7,000
8,000
8/4/06 8/4/08 8/4/10 8/4/12 8/4/14 8/4/16
100
120
140
160
180
200
220
240
260
280
300
7/1/06 7/1/08 7/1/10 7/1/12 7/1/14
0
50
100
150
200
250
300
350
400
450
500
8/4/06 8/4/08 8/4/10 8/4/12 8/4/14 8/4/16

The politics down south
Catherine Carlin, CFA, Senior North American Equity Portfolio Manager
Table 1: Potential Impacts on Key North American Sectors
There are a wide range of issues up for debate in any country during
an election year, and the U.S. at present is no exception. The rhetoric
south of the border seems to be particularly virulent this year, and
encompasses many broad issues such as immigration, gun control
and climate change. More important for our purpose are issues that
could pose legislative and/or regulatory risks for companies in our
clients' investment portfolios.
Markets look for clarity, and at this point, politics is a potential
source of market volatility since there is anything but clarity. It is too
early to guess which party will prevail and investors may be wary of
the guessing game since everyone was so wrong in predicting the
outcome of the UK referendum in June. There is also a lack of clarity
about the specific policies of each party on a number of influential
issues.
To provide you with some perspective, we outline several important
items of legislation that could influence the performance of key
industry sectors: health care via the Affordable Care Act (ACA;
Obamacare) and financials (Dodd-Frank law). While the candidates
have indicated divergent positions, we note that the situation is
fluid, and may change as the candidates articulate more details
about their platforms. Nevertheless, we highlight the issues below
as ones to watch going forward throughout the election campaign.
Clinton Trump
Health Care Defend Repeal
Always a political hot-button issue
Affordable Care Act (ACA) has been
beneficial for the sector
Despite rhetoric, actual change could be
difficult depending on Congress
Potential beneficiaries are health care
facilities services
Focus on costs and drug pricing a risk to
biotech pharma
This would be very disruptive and would
introduce material uncertainty to the sector
Financials Support / Enhance Dismantle
Dodd-Frank Act of 2010 (post financial
crisis) contains complex provisions relating to
oversight of financial institutions
Potential for increased regulatory burden on
large banks
Some large insurance companies could
become subject to increased oversight
Not part of official platform, just informal
commentary
Few specifics provided at this time
Energy
Focus on environmental issues; potential
implications for coal, nuclear and renewable
energy
Opposes Keystone XL pipeline
Opposes clean energy policies supports
energy independence including protection of
coal industry
Supports Keystone XL pipeline
Other issues that the candidates have discussed that bear watching
for their impact on corporate America across a number of
sectors include: employment standards including minimum wage
legislation, foreign income and tax reform.
Increasing minimum wages could increase costs for service industries
such as restaurant chains as well as retail companies, both of which
rely on a lesser skilled workforce. That being said, a potential offset
could be for companies who cater to a lower-income customer
base. While Clinton has been a vocal supporter of labour rights and
increasing the minimum wage, Trump has so far indicated that such
legislation should be under state rather than federal jurisdiction.
While both candidates seem to be aligned with the view that
high-income earners should pay higher taxes, there are marked
divergences with respect to corporate taxation. Trump has suggested
that the corporate tax rate should be lowered to 15%. Further, he
has put forward the idea of a “one-time deemed repatriation of
corporate cash held overseas at a significantly discounted 10% tax
rate.” We know that a number of large companies, including Apple
Inc. and Microsoft Corp. have significant cash hoards outside of the
U.S., which has been punitive to repatriate. In contrast, Clinton has
argued that she will seek to close “loopholes” allowing corporations
to maintain assets overseas. This has been interpreted by some as an
indication that the direction of taxes for some large, multinational
corporations could be higher under Clinton’s platform.

General elections map
Politics is likely to remain in focus over the coming months and through next year. In addition to the U.S. election, there are a number of
elections in Europe, which could impact political leadership and potentially change the direction of the economy.
Source: Portfolio Advice Investment Research
Upcoming General Elections
United States
November 2016
Netherlands
March 2017
France
April 2017
Germany
September 2017
Italy
February 2018

Monthly market review
(%) (%) (%) (%) (%) (%) (%) (%)
Canadian Indices ($CA) Return Index Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years
SP/TSX Composite (TR) 46,658 3.91 5.30 14.13 4.02 8.52 5.54 5.13 8.04
SP/TSX Composite (PR) 14,583 3.68 4.52 12.09 0.79 5.31 2.41 2.11 5.57
SP/TSX 60 (TR) 2,191 3.89 4.71 12.89 2.49 9.08 6.10 5.31 8.49
SP/TSX SmallCap (TR) 983 5.51 10.75 35.03 23.81 8.26 0.89 2.22 -
U.S. Indices ($US) Return Index Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years
SP 500 (TR) 4,115 3.69 5.82 7.66 5.61 11.16 13.38 7.75 8.31
SP 500 (PR) 2,174 3.56 5.24 6.34 3.32 8.84 10.96 5.47 6.30
Dow Jones Industrial (PR) 18,432 2.80 3.71 5.78 4.20 5.95 8.70 5.12 6.21
NASDAQ Composite (PR) 5,162 6.60 8.10 3.09 0.66 12.49 13.37 9.46 8.13
Russell 2000 (TR) 5,884 5.97 8.29 8.32 0.00 6.74 10.43 7.17 8.42
U.S. Indices ($CA) Return Index Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years
SP 500 (TR) 5,366 3.94 9.98 1.44 5.57 20.30 20.70 9.29 8.03
SP 500 (PR) 2,835 3.82 9.38 0.20 3.27 17.80 18.12 6.98 6.02
Dow Jones Industrial (PR) 24,038 3.06 7.78 -0.33 4.15 14.66 15.72 6.63 5.93
NASDAQ Composite (PR) 6,732 6.86 12.34 -2.87 0.62 21.75 20.69 11.03 7.85
Russell 2000 (TR) 7,673 6.23 12.54 2.06 -0.04 15.53 17.56 8.71 8.13
MSCI Indices ($US) Total Return Index Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years
World 6,698 4.25 3.81 5.31 0.13 7.19 8.52 5.39 6.60
EAFE (Europe, Australasia, Far East) 6,432 5.08 0.80 0.83 -7.07 2.45 3.49 2.46 4.79
EM (Emerging Markets) 1,838 5.09 5.33 12.02 -0.38 0.07 -2.41 4.24 5.89
MSCI Indices ($CA) Total Return Index Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years
World 8,736 4.51 7.88 -0.77 0.09 16.01 15.53 6.90 6.32
EAFE (Europe, Australasia, Far East) 8,389 5.34 4.75 -4.99 -7.11 10.88 10.17 3.93 4.51
EM (Emerging Markets) 2,396 5.35 9.47 5.55 -0.42 8.31 3.89 5.74 5.61
Currency Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years
Canadian Dollar ($US/$CA) 76.68 -0.25 -3.78 6.13 0.04 -7.60 -6.06 -1.42 0.26
Regional Indices (Native Currency)
Price Return
Index Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years 20 Years
London FTSE 100 (UK) 6,724 3.38 7.73 7.72 0.42 0.52 2.95 1.27 3.03
Hang Seng (Hong Kong) 21,891 5.28 3.91 -0.11 -11.14 0.01 -0.49 2.58 3.65
Nikkei 225 (Japan) 16,569 6.38 -0.58 -12.95 -19.51 6.63 11.00 0.70 -1.11
Benchmark Bond Yields 3 Month 5 Year 10 Year 30 Year
Government of Canada Yields 0.53 0.60 1.03 1.64
U.S. Treasury Yields 0.28 1.03 1.46 2.18
Canadian Bond Indices ($CA) Total Return Index Level 1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
FTSE TMX Canada Universe Bond Index 1043.84 0.84 3.56 4.92 4.60 5.83 4.93 5.47
FTSE TMX Canadian Short Term Bond Index (1-5 Years) 697.79 0.14 0.92 1.21 1.33 2.65 2.51 3.81
FTSE TMX Canadian Mid Term Bond Index (5-10) 1140.10 0.49 3.33 4.45 4.66 6.31 5.55 6.21
FTSE TMX Long Term Bond Index (10+ Years) 1716.13 2.05 7.36 10.47 9.06 10.06 8.10 7.63
Sources: TD Securities Inc., Bloomberg Finance L.P. TR: total return, PR: price return. As at July 29, 2016.

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Research Ratings
Overall Risk Rating in order of increasing risk: Low (7.4% of coverage universe),
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ActionListBUY:Thestock’stotalreturnisexpectedtoexceedaminimumof15%,onarisk-adjusted
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Percentage of subject companies under
each rating category—BUY (covering
Action List BUY, BUY and Spec. BUY
ratings), HOLD and REDUCE (covering
TENDER and REDUCE ratings).
As at August 2, 2016.
Distribution of Research Ratings
0%
10%
20%
30%
40%
50%
60%
70%
80%
BUY HOLD REDUCE
REDUCE
3.5%
BUY
56.3%
HOLD
40.1%
63.59%
34.78%
1.63%
Percentage of subject companies
within each of the three categories
(BUY, HOLD and REDUCE) for which
TD Securities Inc. has provided
investment banking services within the
last 12 months.
As at August 2, 2016.
Investment Banking Services Provided
0%
10%
20%
30%
40%
50%
60%
70%
80%
BUY HOLD REDUCE
63.59%
34.78%
1.63%

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