fall - rbc direct investing

FALL 2012 A qUARTERLy EDUCATIONAL NEwSLETTER FOR CLIENTS OF RBC DIRECT INvESTINg INC.

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In this issueMarket Outlook

New! Lifestyle stock screeners

Need help finding your way around the site? call Rep-Assist!

More exciting changes on the way

At RBC Direct Investing, we’re always listening to you and developing innovative ways to better meet your needs — like the new research content provided by Morningstar. Watch for news of the latest enhancements and improvements in upcoming issues of Direct Investor and on our online investing site.

Bringing you more robust market research with MorningstarAs we continue to enhance the resources available to our clients,

RBC Direct Investing™ is pleased to introduce a robust suite of equity, options

and exchange-traded fund (ETF) research content provided by Morningstar‡.

This new research replaces the current Standard & Poor’s‡ research and

complements the Morningstar mutual fund research already available to

our clients.

This new content will provide you with access to a wide range of stock reports for

Canadian and U.S. companies along with Canadian and U.S. ETF research reports,

credit ratings for stocks on the TSX 60 and S&P 500, and Morningstar Pick Lists.

About MorningstarMorningstar Inc. is a leading provider of independent investment research in

North America, Europe, Australia and Asia. The company specializes in providing

world-class, analyst-driven investment research and insights on all major

asset classes for individual investors, professional financial advisors and

institutional clients.

Continued on page two

Ranked #1 in clientservice by Dalbarfor the 5th consecutive year∆

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Morningstar’s unique equity research philosophy is based

on two core factors: providing accurate valuations of

companies over the long term and identifying companies

with sustainable competitive advantages.

Enhanced research capabilitiesHere’s a look at what Morningstar content you will have

access to and how it can help you make better investment

decisions.

Stock reports. Morningstar provides analysts’ reports on

thousands of companies listed on Canadian and U.S.

exchanges, bringing you analysis on current and historical

prices, earnings, debt, management teams and more.

ETF research reports. These new reports make it easier for

you to research and compare Canadian and U.S. ETFs.

Credit ratings. Covering more than 700 companies, these

ratings provide you with Morningstar’s take on how likely

a company is to default on its debt obligations.

Stock reports, ETF research reports and credit ratings can be

found in the Detailed Quotes in our online investing site.

Canadian Research Highlights. The Morningstar Canadian

Research Highlights replaces S&P’s Outlook. Morningstar’s

analysts assess the Canadian market and identify key

companies to monitor across a range of sectors and

industries — a great source of investment ideas.

Economic Insights Report. This weekly article presents

the latest analysis on the state of the U.S. economy along

with forward projections.

Pick Lists. Replacing S&P Model Portfolios, there are six

Morningstar Pick Lists: Canadian Core, Canadian Income,

Tortoise & Hare, U.S. Large-Cap Core, ETF Analyst Favourites

and Pay Me Now Options. For each, Morningstar analysts

identify investments that best fit the Pick List's strategy.

You can use these as model portfolios or as ideas lists to help

you build your own portfolio — the choice is yours.

Canadian Research Highlights, Economic Insights Report

and Pick Lists can be found on the Market Insights page

under the Markets tab of our online investing site.

Alerts. In addition to setting alerts for price changes, news

and specific events, you can now set alerts for the release of

analyst research reports or rating changes from Morningstar.

2 Direct Investor Fall 2012

Exclusive Morningstar content for Royal Circle and Active Trader clientsWith the switch to Morningstar as our primary provider of independent investment research, Royal Circle® and Active Trader clients will have access to the following exclusive content:

Morningstar’s U.S. Quarterly Market Outlook. Provides forward-looking analysis on the economy, credit market and sectors (which includes Morningstar’s top stock picks).

Research Highlights. A weekly article summarizing Morningstar’s best ideas within its coverage universe.

U.S. Stock Strategist Series. A weekly article covering a range of topics such as company-specific news, sector and industry trends as well as market trends.

U.S. Stock Strategist Industry Report. Provides commentary on growth prospects and competitive advantages of more than 90 industry groups as well as comparisons of companies within each industry.

All of this new content can be found on the Market Insights page under the Markets tab of our online investing site.


Market OutlookProvided by RBC Global Asset Management Inc. on September 14, 2012

There are two distinct ways of looking at recent events in

the global economy — the pessimistic view and one that

holds out more hope for the future. On the pessimistic side,

a lack of clarity in Europe, slowing growth in China and

uncertainty stemming from the U.S. election and the

approach of the fiscal cliff continue to hang over the

global economy. Consumer activity is slowing, prompting

businesses to reduce inventories, stockpile cash and, for

the time being, rein in capital investment and hiring. In our

view, all of this bad news is primarily short term in nature

and, thus, we tend toward a more optimistic interpretation

of recent events. Several of the chronic dysfunctions that

have long held back the economy are beginning to

normalize. This is true of U.S. housing, credit, and, to a

lesser extent, employment. Corporations continue to deliver

strong earnings, and valuations have edged higher.

Financial markets seem to agree with our more positive

view, with equity prices up materially over the summer.

Global economy slows, but progress being made The most obvious challenge to this favourable view has

been the deterioration of economic conditions since the

spring. Europe has descended into outright recession,

which we expected, although we were somewhat surprised

by the slowing momentum in emerging markets after years

of strong growth. These economies continue to post

substantially higher growth rates than the developed

world, but the major players — from China to India to

Brazil — have all slowed considerably.

A key risk to the global economy continues to be the crisis

in Europe. There remains an enormous amount of work left

to be done across the Eurozone, some of which will take

years to accomplish. In the meantime, market concerns will

ebb and flow. We continue to believe a benign end game will

eventually be achieved, in which no major bank fails, no

large country defaults and the Eurozone remains intact.

Economic data has begun to stabilize thanks in part to

efforts by policymakers. A handful of countries have

introduced fiscal stimulus, and more is likely from virtually

all of the major players. Many nations and regions have

recently delivered additional monetary stimulus as well. As

a result, after being stuck in negative territory throughout

the summer, economic surprise indexes are now steadily

working their way higher and are on the cusp of turning

positive. This is partly due to tentative signs of economic

stabilization, and partly to the fact that economists have

finally caught up to the new state of affairs and are

downgrading their expectations.

We have reduced our own economic forecasts, but to a much

lesser degree than the consensus outlook. Our tweaks are

moderate for three reasons. We believe the recent economic

deterioration is at least partially seasonal in nature, and thus

temporary. We have confidence that policymakers will help

revive growth. And we resisted the earlier euphoria that had

prompted many to upgrade their economic forecasts, leaving

less need to downgrade them now. With few exceptions, our

forecasts remain modestly below consensus.

U.S. Dollar is attractive, especially for longer-term investorsSolid fundamentals support the U.S. dollar and strengthen

our belief that the turn in the long-term dollar bear market

has occurred. The dollar’s allure stems from attractive

valuations and demographics, rising energy production,

a slowdown in emerging-market reserve growth and the

relative attractiveness of U.S. assets. For the time being,

the U.S. dollar also continues to offer safe-haven qualities

that are valuable for risk-carrying portfolios. There is no

need to rush into the dollar, however. Volatility driven

by headlines or positioning will provide entry/re-entry

opportunities to prepare for the next bull phase of

the dollar cycle. The longer an investor’s time horizon,

the more attractive the dollar becomes, and the more

comfortable investors should be about holding assets

denominated in it.

Rates at rock bottom, but yields cannot stay low foreverGlobal bond yields are beginning to fluctuate after spending

several months trading in a fairly tight range as expectations

of more monetary stimulus, combined with European

worries, have managed to dislodge the market. Broadly

speaking, very low bond yields continue to make sense in a

world of slow growth, moderate inflation, risk aversion, low

policy rates and unconventional central-bank actions. That

said, yields cannot remain this low forever. The question,

then, is primarily one of timing. Our sense is that 2013 could


usher in moderately higher bond yields as policy clarity

improves and as global growth begins to revive. But an

outright tightening of monetary policy is still years away

for most countries, and so relatively low government bond

yields are likely with us for some time.

Equities rally through the summer, but valuations remain supportiveInvestors continue to trade largely in response to

macroeconomic events. Negative news flow from Europe

has been mostly absent in recent weeks, keeping volatility

low and allowing major equity markets to trend higher

despite the murky economic environment. Valuations have

also edged up but remain quite reasonable. In the U.S., for

example, a 14 multiple for the S&P 500 is close to one

standard deviation below fair value. Corporations have

proven themselves to be very resilient through the current

cycle, cutting costs and shoring up balance sheets in the

face of a slowing global economy. As a result, earnings

continue to surprise to the upside. However, although

corporate profits look strong on an absolute basis, year-

over-year earnings growth is beginning to slow. Companies

are citing slowing business in Europe as the cause for lower

profits and many are facing currency-translation losses on

foreign revenue due to a weakening euro. Ultimately, we

believe these and other issues threatening the recovery will

be resolved. As clarity and confidence begin to improve,

valuations should re-equilibrate to match the strong

corporate fundamentals, leading global equity markets

to outperform over the long term.

Reducing equity overweightWhile global uncertainty and sluggish economic growth

remain key factors in our assessment of markets, we believe

that prospective returns to equity investors are attractive

and remain overweight stocks as a result. However,

matching the 10% equity-market advance of the last three

months will require considerable progress toward resolving

the various structural headwinds still facing the global

economy. Accordingly, we have dialled back our overweight

in equities somewhat, adding the proceeds to cash. We

recognize that bond yields are likely to stay far below fair

value as long as ultra-low interest rates are a necessary

element of minimizing the likelihood of a “tail risk” event

and, at the same time, encouraging the healing that is

essential to restoring a normally functioning, self-sustaining

economy. Signs of balance returning to global conditions

will eventually send yields higher, resulting in capital losses

for fixed-income investors. For a balanced global investor,

we recommend an asset mix of 58.5% equities (versus a

neutral level of 55%), 35% bonds (versus a neutral level of

40%) with a balance of 6.5% cash.

RBC Investment Strategy Committee’s recommended asset mix by investor profile+

Very Conservative Conservative Balanced Growth Aggressive Growth

Cash 6.5% 6.5% 6.5% 6.5% 3.8%

Fixed Income 71.7% 55.5% 35.0% 19.6% 0.0%

Canadian Equities 10.4% 15.5% 20.5% 25.5% 34.8%

U.S. Equities 6.2% 12.0% 21.9% 27.0% 31.9%

International Equities

5.2% 10.5% 12.3% 16.0% 21.9%

Emerging Markets 0.0% 0.0% 3.8% 5.4% 7.6%

+ Complete RBC Investment Strategy Committee’s Global Investment Outlook including the definitions of investor profiles can be found on the Market Insight page under the Markets tab on your RBC Direct Investing site. Data as of September 14, 2012.


New! Lifestyle stock screenersStock screens traditionally focus

on fundamentals like earnings,

debt, key ratios and so on.

This innovative screener,

developed by Morningstar

and available exclusively to

RBC Direct Investing clients,

enables you to identify stocks

that resonate with your personal

interests and lifestyle in

addition to the features of a

traditional stock screener.

Pre-defined stock screens filter

Canadian and U.S. companies

by personal interests such

as Passion for Food, Sport

& Fitness, Travel & Leisure,

Technology & Gadgets, Health

& Home, Fashion, and Music,

Movies & Gaming. It’s a great

way to uncover companies that

you may have never considered

or even heard of before.

If you are a new investor, for

example, lifestyle screeners may

be a great way to get started and

generate ideas. You can browse

through Morningstar’s hand-

picked list of stocks that relate

to your interests and then use

Morningstar analyst research

to help you make an informed

investment decision.

This new feature can be found

on the existing Stock Screener

page under the Quotes &

Research tab of our online

investing site.

RBC Direct Investing Inc.*, RBC Global Asset Management Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. Used under licence. © Copyright 2012. All rights reserved.

* Member–Canadian Investor Protection Fund.

Information supplied by RBC Global Asset Management Inc. (RBC GAM) has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, RBC Direct Investing Inc., their affiliates or any other person as to the accuracy, completeness or correctness of information obtained from third parties. Opinions of RBC GAM constitute its judgment as of September 14, 2012, are subject to change without notice and are provided in good faith but without responsibility for any errors or omissions contained herein.∆ RBC Direct Investing was ranked number one by Dalbar Inc. in 2007, 2008, 2009, 2010 and 2011. The annual Dalbar Direct Brokerage Service Award rankings are based on

evaluations made over the calendar year, measuring a company’s quality of performance in product knowledge, professionalism and their ability to provide value-added service.

The information contained herein has been obtained from sources believed to be reliable at the time obtained, but neither RBC Direct Investing Inc. nor its employees, agents or information suppliers can guarantee its accuracy or completeness. This publication is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This publication is furnished on the basis and understanding that neither RBC Direct Investing Inc. nor its employees, agents or information suppliers is to be under any responsibility of liability whatsoever in respect thereof. The inventories of RBC Direct Investing Inc. may from time to time include securities mentioned herein. Using borrowed money to finance the purchase of securities involves greater risk than using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.‡ All other trademarks are the property of their respective owner(s).

For more information on our products or services, or to complete an application, drop by any RBC Royal Bank branch or visit our website at www.rbcdirectinvesting.com.

For past issues of our newsletter, go to www.rbcdirectinvesting.com/newsletter. For account-specific inquiries, call us toll-free at 1-800-769-2560. VPS70204 40474 (09/2012)


Need help finding your way around the site? Call Rep-Assist!If you’ve ever had difficulty finding the information you need

to help you manage your account, understanding how one

of the tools on the online investing site works or entering a

particular kind of order, our Rep-Assist service can help —

it’s like having an Investment Services Representative

sitting right beside you. When you call for assistance,

a representative, with your approval, will use innovative

screen-sharing technology to establish a connection so

you can both see what’s on your computer screen.

Many clients have already experienced the benefits of

Rep-Assist — so when you need some assistance, check

it out. Here’s how it works: Once you have given your

permission, an RBC Direct Investing Investment Services

Representative will use a pointer to walk you through the

tool you would like to become more familiar with or show

you how to complete the order you would like to make.

At all times, you maintain full control of your computer —

only you can enter and submit information.

In addition to helping you make the best use of the

online resources available or completing a complex order,

Rep-Assist can also help you open new accounts, complete

forms, transfer funds, set up pre-authorized contributions

and answer any questions you might have about the

RBC Direct Investing online investing site.

Using Rep-Assist is easy. Simply log into your account and

then call us at 1-800-769-2560.

Rep-Assist can help at any stage of the investing processWhether you’re a seasoned investor or just beginning to invest, you can use Rep-Assist to answer any questions you have about the tools and features of our online investing site.

Navigating a Practice Account

Exploring the online investing site and the resources available

Using tools — for example: analyzing current asset allocation with Analyze & Rebalance

Opening a margin account

Completing an account application form

Setting up a Pre-Authorized Contribution plan

Finding a Morningstar ETF report

Placing an options trade

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