The Holyk Doran Fixed Income Basket

December 31st, 2018

Portfolio Managers

Bryan Holyk, CIM, FCSI Senior Vice President Investment Advisor Portfolio Manager 604-643-2842

Simon Doran, BA, CIM Senior Vice President Investment Advisor Portfolio Manager 604-643-2845

Portfolio % Performance as of December 31st, 2018*

3-mo 1-yr 3-yr Since

Inception Portfolio Weighing

5-yr

Basket** -3.03 -2.13 3.17 3.98 3.90

Barclays Capital Aggregate Bond

7.31 9.04 1.58 7.87 30 7.76

FTSE TMX UNIV Bond

1.76 1.41 1.86 3.33 70 3.54

Benchmark 3.43 3.70 1.78 4.69 4.81

* Total return and reflected in Canadian dollars ** Basket exclusive of management fees Source: Croesus Financial

Who is this Investment for?

The Holyk Doran Fixed Income Portfolio is constructed to provide clients with income in excess of the reference portfolio while still maintaining relative safety and preserving capital. The performance objective is to out-perform the benchmark portfolio.

Basket Investment Strategy

The selection of securities in the basket is based on fixed income. The management style is tactical asset allocation and active bond management. Investment criteria used in the final decision process will be reviewed and approved by the Portfolio Management division of National Bank Financial prior to execution.

Fund Details

Inception Date August 1, 2013

Inception Value $25,154

December 31st, 2018 $26,249*

RRSP Eligible Yes

Holdings

Composition of the benchmark: 30% Barclays Capital Aggregate Bond Index, 70% FTSE TMX Universal Bond Index

* Does not include dividends paid.

We have prepared this commentary to give our thoughts on various financial aspects and considerations. This commentary reflects our opinion alone, and may not reflect the views of National Bank Financial Group. In expressing these opinions, we bring our best judgement and professional experience from the perspective of someone who surveys a broad range of investments. Therefore, this report should be viewed as a reflection of our informed opinions rather than analyses produced by the Research Department of National Bank Financial. National Bank Financial - Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF Inc.), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF Inc. NBF Inc. is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF), and is a wholly-owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA). . National Bank Financial may act as a financial advisor, fiscal agent or underwriter for certain companies mentioned herein and may receive remuneration for its services. National Bank Financial and/or its officers, directors, representatives or associates may have a position in the securities mentioned herein and may make purchases and/or sale of these securities from time to time on the open market or otherwise. The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. Unit values and returns will fluctuate and past performances is not necessary indicative of future performance. The securities mentioned are not necessarily suitable to all types of investors. Please consult your investment advisor. National Bank Financial is a member of the Canadian Investor Protection Fund.

Portfolio Manager’s Comment

In preparing to write the year-end commentary for the Fixed Income Basket, we checked some of our previous newsletters to see what we had written in the past. In our 2017 year-end letter, we lamented the fact that risky assets continue to rise unabated and we mentioned how unpopular bonds were with their ultra low yields. Ironically, the riskiest assets got beat up the most last year and Government bonds were one of the only asset classes around the world to show gains! Here’s an excerpt from a year ago:

“The world has forgotten what it’s like to feel the pain of a meaningful asset price correction…. When markets do correct, we hug our fixed income tightly because it’s the only thing that seems to go up!”

The Canadian Bond Index finished 2018 +1.4%, while our Fixed Income Basket finished the year down 2.1%. The reason for our underperformance was due to our reluctance to own Government bonds. It has absolutely been the right call for the last 5 years and we handily beat the Canadian benchmark on a 3 and 5 year basis as a result, but in the short term the government bonds outperformed everything.

Recent Q4 earnings from some of the largest US investment banks (JPM, BAC, etc.) reveal that in 2018, they recorded the worst fixed income trading revenue in a decade. However, of note, at time of writing (Jan 11), the Fixed Income Basket was up 1.5% in 2019, almost offsetting all the losses from last year. Not at all bad!

Our view is that it’s a good time to be invested in Fixed Income. Interest Rates have now risen a decent amount from the bottom and we’re beginning to see signs that central banks may think twice before continuing on that path. There seems to be just enough anxiety in the market place to give pause. Also, at this juncture, the current higher bond yields present as a good alternative to stocks, which should provide some buoyancy to bond prices. The preferred share market was particularly hard hit in the final months of 2018. We took advantage of this opportunity and sold some Investment Grade Bonds (XCB) and US High Yield bonds (XHY), and bought the Canadian Preferred Share ETF (HPR) in two sperate transactions. This proved to be an excellent move as the preferred shares have been a major contributing factor in the Fixed Income Basket recovery in 2019.

Recent Transactions

27-Nov-18 Buy Horizons ACTV PFD ETF

27-Nov-18 Sell Ishares Cdn Corp Bond ETF

06-Dec-18 Buy Horizons ACTV PFD ETF

06-Dec-18 Sell iShares US Hi Yld Bond ETF

Dividends $259.70

Simon Doran & Bryan Holyk

Holdings as of Dec. 31st, 2018 Weighting

Cdn Cash & Equivalents $ 1.55

BMO MT US IG CRP ZMU 18.52

Horizons ACTV PFD ETF HPR 23.76

Invesco Senior Loan ETF BKLN 5.44

iShares S&P US Pfd Stock PFF 10.68

iShares US High Yield Bond XHY 13.74

iShares US IG Corp Bond XIG 26.31

TOTAL ACCOUNT 100%