INSIGHTS - RBC Royal Bank

FALL 2016

INSIGHTS RBC SELECT PORTFOLIOS 28217 (10/2016)

Sum of the parts ? Bringing the world together in your portfolio

Today's global markets are immensely complex. Staying on top of continually evolving market trends can be a challenging and time-consuming task for any investor. The ever-changing nature of the global economy, interest rates, currencies, corporate profits, equity market valuations and liquidity conditions are just a few of the critical elements of returns and volatility. Investment decisions based on these elements must be reviewed and recalibrated regularly as conditions change. Your investment in the RBC Select Portfolios offers a simple solution to this complex problem.

Regional expertise across asset classes

RBC Select Portfolios are constructed from a family of RBC Global Asset Management (RBC GAM) mutual funds spanning a diverse set of asset classes and geographic regions. This diversified multi-fund structure benefits from each portfolio manager's focus on how market trends specifically affect the asset class, region, or industry for which they are responsible. The collection of funds within each of the RBC Select Portfolios is designed to leverage the expertise and experience of the entire management team into a complementary mix of funds aligned to each of the five specific investor profiles: from Very Conservative to Aggressive Growth.

Macro insight

The RBC GAM Investment Strategy Committee (RISC) is responsible for developing and communicating the firm's outlook for the economy and investment environment. The Committee assesses global fiscal and monetary conditions, projected economic growth and inflation, as well as the expected course of interest rates, major currencies, corporate profits, valuations and stock prices. The RBC GAM Investment Policy Committee (IPC), which oversees the asset mix of the RBC Select Portfolios, regularly reviews the current asset allocation of the funds in the context of the prevailing market environment and makes tactical changes to capitalize on short-term opportunities.

The U.K.'s recent referendum and decision to exit the European Union (commonly referred to as Brexit) serves as a good example of how diversification can act as a buffer against broader market volatility. The chart to the right illustrates the impact of Brexit on RBC Select Balanced Portfolio both before and after the referendum results. Having already taken into account the probability of Brexit, and considering the market disruption to likely be short-lived, the IPC felt no need to recommend any immediate portfolio adjustments.

Rebalancing and capitalizing on market movements

It doesn't take a market catalyst such as Brexit to trigger a portfolio review. RBC Select Portfolios are regularly monitored and actively rebalanced as circumstances dictate. For example, various funds within a portfolio can perform differently than one another, which can contribute to the overall composition of the portfolio changing. Left unchecked, this can result in a portfolio "drifting" away from its established risk/return profile. On an ongoing basis, the asset allocation of the RBC Select Portfolios is reviewed to ensure that each portfolio remains aligned with its objectives. The decision to remove portfolio drift is a conscious one as there may be circumstances where the portfolio is allowed to drift slightly from its target allocation. In these cases, we believe that the market circumstances that have caused the drift have not yet run their course and that removing the drift at a later date will benefit investors' rate of return.

Performance of $10,000 during Brexit ? RBC Select Balanced Portfolio

$10,400

$10,200 June 1 $10,000

$10,000

June 23 $9,978

July 27 $10,293

$9,800 $9,600

June 27 $9,726

$9,400

June

July

RBC Select Balanced Portfolio depreciated 2.5% from the June 23rd Brexit vote to June 27th. Following June 27th, global markets rapidly adjusted to the new norm and RBC Select Balanced Portfolio recovered to pre-Brexit levels by July 4th and was up 5.8% one month later. The Series A version of the Fund has returned 6.3%, 9.2%, 8.4% and 4.5% over the 1, 3, 5 and 10 year periods ending August 31, 2016, respectively.

Delivering value in a simple solution

Every market is a local market to those who live and do business there. As an investor in the RBC Select Portfolios, you benefit from our philosophy that leveraging an extensive global network of local experts and their specialized knowledge leads to good investment ideas. By managing the asset mix in line with our global forecast and taking a thoughtful approach to rebalancing at the Portfolio level, RBC Select Portfolios can help your investment remain on track over the long term.

RBC GAM Global Research ? Local Expertise

VANCOUVER

PHILLIPS, HAGER & NORTH INVESTMENT MANAGEMENT ??Canadian fixed income ??Canadian equity ??High yield & corporate bonds

TORONTO

RBC GLOBAL ASSET MANAGEMENT INC. ??Canadian fixed income ??High yield & corporate bonds ??Canadian equity ??U.S. equity ??Global resources & precious metals ??Currency solutions ??Quantitative investing

LONDON

RBC GLOBAL ASSET MANAGEMENT (UK) LIMITED ??Global bonds ??European equities ??Global equities ??Emerging markets equities ??Emerging markets bonds ??International equities

BLUEBAY ASSET MANAGEMENT LLP ??Global and emerging markets fixed income

HONG KONG

RBC INVESTMENT MANAGEMENT (ASIA) LIMITED ??Asian equities ??Japanese equities

MINNEAPOLIS, CHICAGO, BOSTON

RBC GLOBAL ASSET MANAGEMENT (U.S.) INC. ??U.S. government bonds ??U.S. corporate bonds ??U.S. small cap equity ??U.S. mid cap equity ??U.S. large cap equity

RBC GAM has seven offices located in key markets around the world, driven by a highly experienced global money management and research team of over 300 on-the-ground investment professionals specializing across industry sectors.

2 RBC SELECT PORTFOLIOS

What happened in world markets last quarter

Fixed income The world's central banks continued to keep short-term rates at extremely low levels in order to stimulate consumption and business expansion. The United Kingdom, for example, lowered its already-low benchmark interest rate to 0.25%, with the intent to keep its economy healthy after the country voted to leave the European Union. The U.S. Federal Reserve left its benchmark rate unchanged in September, citing continued risks to global growth. The Bank of Canada maintained the benchmark rate at 0.5%, the level it has been at for more than a year. The benchmark FTSE TMX Canada Universe Bond Index was up 1.2% and the Citigroup World Government Bond Index US$ (US$ hedged) was flat.

Canadian equities After a strong first six months of 2016, the third quarter was bumpy, but positive for the Canadian stock market: up strongly in July, flat in August and volatile in September. Canadian banks were the Financials sector's strongest performers, as concerns about credit provisions on energy loans continued to recede and capital-markets activity was strong. Insurance companies were negatively impacted by soft financial results. The S&P/TSX Composite Index finished the quarter up 5.5%.

U.S. equities The U.S. market is affected to a lesser extent by commodities than the Canadian market, but is beholden to interest rate expectations (higher interest rates can dampen consumption and as a big consumer nation, potential rate increases make the U.S. stock markets nervous). As the Fed policy meeting approached in September, improving U.S. economic data strengthened the case for a rate increase and markets became volatile. In the end, the benchmark rate was left unchanged. The S&P 500 Index was up 5.5% for the quarter.

International equities European and emerging markets equities had a strong start to the quarter, but faced volatility in September. The Eurozone initially rallied following the Brexit vote, but economies continue to experience modest growth. Although the European Central Bank and the Bank of Japan continue with their massive quantitative easing programs and have more recently pushed interest rates into negative territory, we have yet to see a substantial pick-up in growth. The MSCI EAFE Index finished up 7.8%, while the MSCI Emerging Markets Index was up 10.5%.

All returns are in C$ except where indicated. Canadian, U.S. MSCI EAFE and MSCI Emerging Markets index returns are total returns.

Portfolio Manager Viewpoint

Sarah Riopelle, CFA Vice President & Senior Portfolio Manager, Investment Solutions Economic data improved over the summer and global downside risks have diminished. Our base case scenario is one where the economy is able to grow, albeit slowly. We expect yields to rise gradually from their historically low levels. The capital losses resulting from even a slight increase in yields could result in negative total returns in fixed income, and we are therefore underweight bonds. We saw further gains in global equities over the quarter, supported by improving credit markets, better-than-expected economic data and low interest rates. Earnings growth will be critical to sustaining any meaningful advance in stocks. The moderation in oil prices and the U.S. dollar ? the two largest headwinds to profits since 2014 ? should allow for earnings growth to resume in the coming quarters. Total return prospects for equities are much more compelling than for bonds, so we remain overweight stocks in our asset mix.

FALL 2016 3

RBC Canadian Painting Competition

568 submissions. 15 finalists. One winner.

On September 20, RBC, in collaboration with the Canadian Art Foundation, named Brian Hunter of Winnipeg the national winner of the 18th annual RBC Canadian Painting Competition (CPC). Hunter was awarded a $25,000 cash prize for his original work entitled "Two empty trays mounted vertically." In addition to his prize, Hunter's work will become part of the RBC Corporate Art Collection.

Two honourable mentions were given to Nika Fontaine of Montreal for her work entitled "Schnell Schnell 17" and Cameron Forbes of Saskatoon for her work entitled "Maritime Plaza Hotel, Window Set 2." Fontaine and Forbes were each awarded $15,000 for their work, which will also be added to the RBC Corporate Art Collection.

Since 1999, the competition has been a cornerstone of RBC's Emerging Artists Project, which focuses on supporting artists at the early stage of their careers. More than just financial support, this program offers mentorship, exposure to wider audiences and much more.

"The submissions received by the RBC Canadian Painting Competition continue to reflect the strength and diversity of Canadian artists entering the national and international art community," said Robin Anthony, curator for RBC. "Becoming a CPC finalist can be a platform for these young artists to pursue a career in the arts, providing them with the industry knowledge, exposure and confidence they need to be successful."

The RBC Canadian Painting Competition is the largest award disbursement provided to Canadian emerging artists. Each year, a jury convenes with the challenging task of short-listing 15 artists from the hundreds who submit their best work to the CPC. The jury, comprising some of Canada's most accomplished artists, museum directors, curators and critics, also mentors the chosen group and helps them bridge the gap from emerging to established artists.

National Winner

Brian Hunter Winnipeg (Manitoba) Two empty trays mounted vertically, 2015 Oil on wood 36 x 48 inches

For visuals and descriptions of the previous winning works, visit paintingcompetition.

We thank you for your ongoing trust in continuing to hold RBC Select Portfolios as part of your investment plan. If you have any questions or comments, please contact your advisor or RBC at:

RBC Global Asset Management Inc.

P.O. Box 7500, Station "A" Toronto, Ontario Canada M5W 1P9

Customer Service: 1-800-463-3863 Email: funds.investments@

Visit our website at:

All opinions contained in this document constitute our judgment as of September 30, 2016, are subject to change without notice and are provided in good faith but without legal responsibility. RBC Funds, PH&N Funds and BlueBay Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers. Please consult your advisor and read the prospectus or Fund Facts documents before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual fund securities are not guaranteed, their values change frequently and past performance may not be repeated.

? / TM Trademark(s) of Royal Bank of Canada. Used under licence. ? RBC Global Asset Management Inc. 2016

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download