Investing in Down Markets- Why Stocks over Bonds or GICs?

STRONG FOCUS

ON INVESTMENT

EXCELLENCE

How Much Is This?

US$5,850,000,000,000 US$5,850,000,000,000 US$5.85 Trillion US$5.85 Trillion

How Much Is This?

Source: Money Market Accounts and CDs (Time Deposits at FDIC-insured commercial banks and savings institutions): FDIC. As of 9/30/12.

In Money Market Accounts & CDs

What Does This Number Represent?

US$5.85 Trillion

Source: Investor Economics, Household Balanced Sheet, as of September 30, 2012.

In Money Market Funds & GICs

A Similar Story in Canada

C$580 Billion

Source: Morningstar Research Inc., as of September 30, 2012. Canadian Money Market Fund Yield of 0.41% is based on the Morningstar Money Market

CAD Peer Group Average which contained 176 funds.

The Problem?

0.41% Average Money Market Fund Yield

As of September 30, 2012

It Won’t Buy You Much

After one year, a $10,000 investment would yield:

MONEY MARKET FUNDS 1-YEAR GICs 10-YEAR GOVERNMENT BONDS

$173 1.73%

Source: As at September 30, 2012. Money Market Funds: Morningstar Research Inc., Canadian Money Market Funds are represented by the Morningstar Money Market

CAD Peer Group Average which contained 176 funds.1-Year GICs: Bank of Canada. 10-Year Government Bonds: Bloomberg.

Yields as of

September 30, 2012

$78 0.78%

$41 0.41%

The Dilemma Facing Many Investors

Their investments are at a standstill

MONEY MARKET FUNDS 1-YEAR GICs 10-YEAR GOVERNMENT BONDS

MONEY MARKET FUNDS 1-YEAR GICs 10-YEAR Government Bonds

Their investments are at a standstill

Their investment goals remain the same

BUYING A HOME UNIVERSITY EDUCATION RETIREMENT

Their investment goals remain the same

BUYING A HOME UNIVERSITY EDUCATION RETIREMENT

• How We Got Here

• What Most Investors Are Missing

• Taking the Next Step

Today’s Discussion

How We Got Here

Seeing Is Believing

Availability Bias

Our thinking is strongly

influenced by what is

personally most relevant,

recent or dramatic.

Simply put—we remember

the PAIN.

The Building Blocks for a Wall of Worry

1. Source: Bloomberg LP.

2. Source: Bureau of Labor Statistics.

3. Source: RealtyTrac.

The Result: Prolonged Pessimism and Skepticism

Source: Kauffman Economic Outlook: A Quarterly Survey of Leading Economic Bloggers, fourth quarter 2011.

How Did the Market Perform? S&P 500 Annual Returns and Franklin Templeton

Annual U.S. Investor Sentiment Survey Results1

proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed;

and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its

content providers are responsible for any damages or losses arising from any use of this

information. Indexes are unmanaged and one cannot invest directly in an index.

2. Source: 2010 Franklin Templeton Global Investor Sentiment Survey designed in

partnership with ORC International. Included 1,010 telephone responses from participants

age 18 and older in the U.S. from March 25, 2010 to March 28, 2010.

partnership with ORC International. Included 1,049 online responses from

participants age 18 and older in the U.S. from January 6, 2011 to January 7, 2011.

partnership with Duke University professor Dan Ariely and Qualtrics. Included 1,142

online responses from participants age 18 and older in the U.S. from January 30,

2012 to February 13, 2012.

Pessimism Continues to Guide U.S. Investor Decisions Equity Fund Net Flows

Source: Investment Company Institute.

Loss Aversion

Studies have shown that the

pain of a loss is almost twice

as strong as the reward felt

from a gain.

Used with permission.

We Learn the Pain of Loss Early

Perceived Safety May Come at a Cost Money Market Funds’ Average Yield Before and After Inflation

10-Year Period Ended September 30, 2012

Source: Morningstar Research Inc., as of September 30, 2012. Canadian Money Market Fund Yield of 0.41% is based on the Morningstar Money Market CAD Peer Group

Average which contained 176 funds.

Number of Years to Double Your Money

Can You Afford to Wait?

Bloomberg, as of September 30, 2012. Canadian Money Market Funds are represented by the Morningstar Money Market CAD Fund Category which contained 176

funds. 1-Year GICs yield data is obtained from the Bank of Canada's website. 10-Year Canadian Government Bonds yield is obtained from

Bloomberg. Average Time to Double Investment is calculated using the following formula: (Natural Log (2) / Natural Log (1+Yield)), Formula for Natural Log

is LN. Amount earned on a 1-Year $10,000 investment assumes the investment is made on the as of September 30, 2012.

Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general

market conditions.

Source: 2011 Franklin Templeton Investor Sentiment Survey designed in partnership with ORC International. Included 1,049 online responses from participants age 18 and

older in the U.S. from January 6, 2011 to January 7, 2011. Stocks represented 30.12% of responses.

What Do Investors Believe Over the Long Term?

Herding

We are programmed to feel

that the consensus view must

be the correct one.

It’s Hard to Go Against the Crowd

Used with permission from Candid Camera.

S&P 500 Performance vs. Equity and Bond Fund Net New Flows

This chart is for illustrative purposes only and does not reflect the performance of any Franklin, Templeton,

Mutual Series or Bissett fund. Past performance does not guarantee future results. Sources: © 2012 Morningstar; Equity and Bond Fund Flows: ICI. Flows are represented by monthly rolling 12-month net new cash flows. Indexes are unmanaged

and one cannot invest directly in an index.

The Problem of Going with the Flow

S&P/TSX Composite TRI Returns

Source: Bloomberg, as of September 30, 2012. Indexes are unmanaged, one cannot invest directly in an index.

The Benefits of Staying Invested

What Most Investors

Are Missing

Source: Federal Reserve. Most recent data available. Based on the ratio of debt payments to disposable personal income.

U.S. Household Debt Service Has Been Decreasing Ratio of Debt Payments to Disposable Personal Income

U.S. Unemployment Has Declined From Its Peak

Source: U.S. Bureau of Labor Statistics.

Source: United Nations, World Bank, Surjit S. Bhalla, Second Among Equals: The Middle Class Kingdoms of India and China,

May 2007 and oxusinvestments.com.

The World’s Middle Class Is Growing Percentage and Size of the Middle Class Population in the World

Global Consumption Is Increasing Automobile Sales—China vs. U.S. (6-Month Rolling Average)

Sources: China Automobile Sales: China Automotive Information Net; U.S. Automobile Sales: Bloomberg. As of 9/30/12. Based on a six-month rolling average.

Global Consumption Is Increasing Automobile Sales—China vs. U.S. (6-Month Rolling Average)

U.S. Corporate Cash Near All-Time High S&P 500 Companies’ Total Cash as a Percentage of Total Assets

Source: Ned Davis Research Group, Inc. Based on historical data since 1977. The historical average cash level for 3/31/77–9/30/12 was 9.65%. As of 9/30/12 it

was 13.49%.

Payout Potential Appears Strong S&P 500 Index Dividend Payout Ratio

Systems Inc. and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither FactSet Research

Systems Inc. nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future

results. Indexes are unmanaged, and one cannot invest directly in an index.

U.S. Equity Valuations Are Below Long-Term Averages S&P 500 Index 1-Year Forward P/E Ratio

World Equity Valuations Are Below Historical Averages World Markets 1-Year Forward P/E Ratio

Source: Bloomberg as of September 30, 2012

Investors Still Not Convinced S&P 500 Index Performance vs. Bloomberg U.S. Weekly Consumer Comfort Index (January 2000–September 2012)

“Bull markets are

born on pessimism,

grow on skepticism,

mature on optimism

and die on euphoria.

— SIR JOHN TEMPLETON

Templeton Funds Founder

and Former Chairman

Taking the Next Step

How to Step Back into the Stock Market

Income

Build a

Position

Capitalize on

Opportunity

Earn Income Re-Entering the Stock Market with

Bissett Strategic Income Fund–Series A

Source: Morningstar Research Inc., as of December 31, 2012. Canadian Money Market Fund Yield of 0.41% is based on the Morningstar Money Market CAD Peer Group

Average which contained 176 funds.

$20,000

Bissett Strategic Income

Fund–Series A

Earn Income Take Action with

Bissett Strategic Income Fund–Series A

Source: Morningstar Research Inc. as of September 30, 2012. The portfolio assumes 33.33% in Bissett Canadian Dividend Fund, 33.33% in Franklin US Rising

Dividends Fund and 33.33% in Mutual Global Discovery Fund.

Build a Position Scaling In with a Globally Diversified Combination

Build a Position Scaling In with a

Globally Diversified Combination

Growth of Monthly $1,000 Investments in 3-pack Portfolio (Rebalanced Annually)

vs. $60,000 Lump Sum Investment in Canadian Equities

Source: Morningstar Research Inc. as of September 30, 2012. The hypothetical combined portfolio assumes 33.33% in Bissett Canadian Dividend Fund, 33.33% in Franklin U.S. Rising Dividends

Fund and 33.33% in Mutual Global Discovery Fund. For illustrative purposes only. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthly investment

begins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but the performance does not include the effect of

any direct fees described in the fund's prospectus (e.g. advisory fee or income taxes payable) which, if applicable, would lower your total return. No investment strategy, including dollar cost averaging,

can guarantee a profit or protect against a loss in a declining market. Continuous or periodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost

averaging involves continuous investing regardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.

Source: Morningstar Research Inc. as of September 30, 2012. The portfolio assumes 33.33% in Bissett Canadian Equity Fund, 33.33% in

Franklin U.S. Rising Dividends Fund and 33.33% in Mutual Global Discovery Fund.

Build a Position Scaling In with a Globally Diversified Combination

Growth of Monthly $1,000 Investments in 3-pack Portfolio (Rebalanced Annually)

vs. $60,000 Lump Sum Investment in Canadian Equities

Source: Morningstar Research Inc. as of September 30, 2012. The hypothetical combined portfolio assumes 33.33% in Bissett Canadian Equity Fund, 33.33% in Franklin U.S. Rising Dividends Fund

and 33.33% in Mutual Global Discovery Fund. For illustrative purposes only. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthly investment begins

September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but the performance does not include the effect of any direct

fees described in the fund's prospectus (e.g. advisory fee or income taxes payable) which, if applicable, would lower your total return. No investment strategy, including dollar cost averaging, can

guarantee a profit or protect against a loss in a declining market. Continuous or periodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost

averaging involves continuous investing regardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.

Source: Morningstar Research Inc. as of September 30, 2012.

Build a Position Scaling In with

Bissett Canadian Dividend Fund–Series A

Growth of Monthly $1,000 Investments vs. $60,000 Lump Sum Investment

in Canadian Equities

Bissett Canadian Dividend Fund–Series A

Source: Morningstar Research Inc. as of September 30, 2012. Indexes are unmanaged and one cannot invest directly in an index. The growth of the $1,000 monthly

investment begins September 30, 2007 and ends September 30, 2012. Figures include reinvestment of income, capital gains, return of capital and dividends, but the

performance does not include the effect of any direct fees described in the fund's prospectus (e.g. advisory fee or income taxes payable) which, if applicable, would

lower your total return. No investment strategy, including dollar cost averaging, can guarantee a profit or protect against a loss in a declining market. Continuous or

periodic investment plans neither assure a profit nor protect against loss in declining markets. Because dollar cost averaging involves continuous investing

regardless of fluctuating price levels, you should carefully consider your financial ability to continue investing through periods of fluctuating prices.

Bissett Dividend Income Fund–Series A

Bissett Canadian Equity Fund–Series A

Franklin U.S. Rising Dividends Fund–Series A

in U.S. Equities

Franklin U.S. Rising Dividends Fund–Series A

Mutual Global Discovery Fund–Series A

in Global Equities

Mutual Global Discovery Fund–Series A

Capitalize on Opportunity Buying an Attractive Value with

Templeton International Stock Fund–Series A

As of 9/30/12. Holdings are subject to change. For updated information, please call Franklin Templeton Investments at 1.800.387.0830 or visit www.franklintempleton.ca.

The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings.

Geographic Weightings (As of September 30, 2012)

Capitalize on Opportunity Increase your Growth Potential with

$35,200

$24,231 $22,685

ton Inte

rnatio

und–

Series A

Index (

rnational E

Source: Morningstar Research Inc. as of September 30, 2012. * Since inception (January 3, 1989). Source: Morningstar Research Inc. as of September 30,

2012. The growth of $10,000 begins at the date of the fund's inception (January 3, 1989). Figures include reinvestment of income,

capital gains, return of capital and dividends, but the performance does not include the effect of any direct fees described in the fund's

prospectus (e.g. advisory fee or income taxes payable) which, if applicable, would lower your total returns.

over 45% more growth

Growth of $10,000*

January 3, 1989 to September 30, 2012

Templeton Emerging Markets Fund–Series A

Source: IMF October 2012 *Includes Indonesia, Malaysia, Philippines, Thailand and Vietnam

Higher Projected Growth Rates for Emerging Economies are Driving Changes in

Global Markets and Consumption

Templeton Emerging Markets Fund–Series A

Source: Factset; EIU *Developed Markets : G7. Emerging Markets : 87 non-OECD Countries. Total domestic, external and IMF

government debt, as a % of nominal GDP. Usually but not exclusively central government

Emerging vs. Developed Markets:

Public Debt % of GDP

December 21, 2002 – December 30, 2011

Emerging vs. Developed Markets:

Government Debt Per Capita

2011 U.S. Dollars

Today’s Discussion

• How We Got Here

• What Most Investors Are Missing

• Taking the Next Step

The Importance of Working with Your Financial Advisor

• Keeps emotions out of investing

• Builds a long-term investment

strategy that is appropriate for

your risk tolerance and goals

• Ensures you stay on course with

regular reviews and adjustments

to your investment strategy

Important Legal Information

The historical annual compounded rates of return as of December 31, 2012 are: Bissett Strategic

Income Fund–Series A units 8.4% 1-year and since inception (December 29, 2011); Bissett Canadian

Dividend Fund–Series A units 1 year 8.8%, 3 years 8.5%, 5 years 4.9% and 7.7% since inception

(December 22, 2003); Bissett Dividend Income Fund–Series A units 1 year 7.7%, 3 years 8.1%, 5

years 3.7%, 10 years 5.8% and 5.6% since inception (November 24, 2000); Bissett Canadian Equity

Fund–Series A units 1 year 13.9%, 3 years 7.7%, 5 years 2.9%, 10 years 7.2%, and 5.5% since

inception (November 24, 2000); Franklin U.S. Rising Dividends Fund–Series A units 1 year 5.5%, 3

years 7.3%, 5 years 1.7%, 10 years -0.8%, and -3.7% since inception (November 24, 2000); Mutual

Global Discovery Fund–Series A units 1 year 12.6%, 3 years 5.4%, 5 years -0.3% and 5.6% since

inception (February 17, 2003); Templeton Emerging Markets Fund–Series A units 1 year 12.3%, 3

years 0.6%, 5 years -2.7%, 10 years 8.4% and 6.2% since inception (September 20, 1991); Templeton

International Stock Fund–Series A units 1 year 13.9%, 3 years 0.3%, 5 years -4.9%, 10 years 2.9%,

and 5.7% since inception (January 3, 1989). These include changes in unit value and reinvestment of

all distributions but do not take into account sales, redemption, distribution or optional charges or

income taxes payable by any unitholder which may have reduced returns. Commissions, trailing

commissions, management fees and expenses may all be associated with mutual fund investments.

Please read the prospectus before investing. The indicated rates of return are the historical annual

compounded returns, including changes in unit value and reinvestment of all distributions and do not

take into account sales, redemption, distribution or optional charges or income taxes payable by any

securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change

frequently and past performance may not be repeated.

Franklin Templeton Investments Corp.

5000 Yonge Street, Suite 900

Toronto, Ontario M2N 0A7

Toll-free: 1-800-387-0830

franklintempleton.ca

Investing in Down Markets- Why Stocks over Bonds or GICs?

Economy & Finance

Transcript of Investing in Down Markets- Why Stocks over Bonds or GICs?

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