Investment UPDATE28263 (07/2015)

Summer Edition I July 2015

In this issue Europe: A continent of opportunities

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One-minute market update

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Europe: A continent of opportunities With the cold, harsh winter a fading memory, the warm weather upon us and the school year over, globetrotting Canadians are travelling to one of their favourite destinations of the season – Europe. So why not let your investment portfolio do the same and take advantage of a continent of opportunities.

cAnADIAn gEESE Fly ovEr ThE PonD

While many Canadians remain close to home during the summer, millions of us travel overseas each season to explore the world beyond our borders.1 Consistently, the continent that holds the most travel destinations for Canadians is Europe, with seven of the top 10 locations.2

Despite our appreciation of Europe as a travel destination, our investment portfolios remain anchored firmly at home. According to recent data, almost 70% of our investments are locked up in Canadian assets, with the remaining amount mostly in U.S. assets.3 Yet, as the chart below shows, Europe represents almost one-quarter (23%) of the world’s equity market value, while Canada represents just a little over 3%.

52% nUnited States 23% nEurope

(less emerging

markets)

10% nEmerging markets

8% nJapan 4% nRest of

the world 3% ncanada

Source: MSCI All Countries World Index (US$). As of March 31, 2015.

1 Statistics Canada, Government of Canada. 2013 international travel data. 2 Tourism Industry Association of Canada and VISA Summer Travel Snapshot. 2014.3 Investor Economics. April 2014. Based on long-term funds invested in domestic vs. non-domestic assets.

A continental slice: Europe, canada and world equity markets

2 Investment Update I Summer 2015

.cAnADAIndex: S&P/TSx 60 Market capitalization: $1.6 trillion Listings: 60

DIvErSIFyIng yoUr PorTFolIo’S horIzonS

Just as travel expands our knowledge of the world and provides life-changing experiences, your investment portfolio can also benefit from travelling to important market opportunities like Europe. In fact, geographical diversification in an investment portfolio has been shown to enhance returns and reduce risk over time.

Over the past three years, many European equity markets have exceeded the returns of key global indices. While certain issues

remain – for instance, the eurozone’s debt issues and geopolitical troubles in Ukraine – much of the negative news from Europe is firmly rooted in the past. European equity valuations are considered low relative to North American ones, providing more potential upside for markets. With the continent showing meaningful signs of an economic turnaround, its companies should benefit, thus increasing revenue and profits.

UnITED kIngDomIndex: FTSE 100 Market capitalization: $2.0 trillion Listings: 100 % of European equity market: 31%

gErmAnyIndex: DAx 30 Market capitalization: $1.2 trillion Listings: 30 % of European equity market: 14%

SWITzErlAnD Index: SmI Market capitalization: $1.2 trillion Listings: 20 % of European equity market: 15%

FrAncEIndex: cAc 40 Market capitalization: $1.1 trillion Listings: 40 % of European equity market: 15%

SPAInIndex: IBEx 35 Market capitalization: $583 billion Listings: 35 % of European equity market: 7%

A TrIP AroUnD ThE conTInEnT

With a population of over 500 million people, Europe and its well-developed capital markets offer Canadian investors a wide range of investment opportunities. Markets there contain many of the world’s leading companies, such as Nestlé, Unilever, Adidas, HSBC, Burberry, Fiat Chrysler, GlaxoSmithKline, L’Oréal, Philips, Royal Dutch Shell and Volkswagen – to name just a few.

With thousands of blue chip-listed companies and a far larger total market capitalization than Canada’s, Europe offers important diversification benefits. Let’s take a closer look at this continent of investment opportunities by exploring the key benchmark indices of its top five blue chip equity markets, which together capture over $6 trillion in value – almost four times the size of Canada’s main blue chip equity index.

Source: Bloomberg. All figures in U.S. dollars. All statistics as of March 31, 2015.

Investment Update I Summer 2015 3

After learning from their RBC advisor about the rising costs of post-secondary education and the benefits of a Registered Education Savings Plan (RESP), Tom and Mary* began saving for their then six-year-old daughter Samantha’s education. They contributed $100 a month using RBC Target 2015 Education Fund** to grow and then protect their savings within a tax-sheltered RESP. Eleven years later, Samantha is off to university in September and, thanks to their education savings plan, her proud parents have accumulated almost $18,000 for her studies.

Now is a great time to talk to your RBC advisor about establishing a savings plan for your children’s post-secondary education, whether for university, college, certain apprenticeships or trade school. Of course, juggling multiple demands on your cash flow can be a challenge. But your RBC advisor can show you how even small, regular contributions to the right investment within an RESP can grow significantly over time – and make a big difference to your children’s future.

For more details on RBC RESPs, RESP grants available from the government, RBC Target Education Funds and other effective ways to save for post-secondary education, speak to your RBC advisor – they would be happy to help. Or check out rbc.com/education for more information.

Welcome to rESP summer school! As back-to-school season approaches, it’s the perfect time to reflect on the importance of saving for your children’s post-secondary education.

*

**

Book yoUr PorTFolIo’S TIckET ToDAy! WE cAn hElP

With its strong European investment management team based in London, U.K., RBC Global Asset Management can help you gain the right exposure to European markets while managing the important diversification benefits the continent offers. Whether through RBC Select Portfolios – all of which contain risk-appropriate exposure to the region – or through specific investment solutions, like RBC European Equity Fund and RBC European Dividend Fund, we can help you plan your portfolio’s trip to the continent.

Speak to your rBc advisor today to get the right advice and solutions to help you reach your investment goals.

The “Tom and Mary” scenario is provided for illustrative purposes only. Final amount of RESP savings – $17,958 – is calculated using an initial contribution of $100 and a monthly contribution of $100, plus the assumed Canada Education Savings Grant amount of 20% on each contribution, or $20 per month. Growth of RBC Target 2015 Education Fund (Series A) is based on the actual return of the Fund (3.8%) from August 2004 to May 2015 and includes reinvested income.

RBC Target 2015 Education Fund reached its target date and is now closed.

Financial planning services and investment advice are provided by Royal Mutual Funds Inc. (RMFI). RMFI, RBC Global Asset Management Inc. (RBC GAM), Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated. RMFI is licensed as a financial services firm in the province of Quebec. Investment and economic outlook information contained in this report has been compiled by RBC GAM from various sources and reflects our view on June 16, 2015. Information obtained from third parties is believed to be reliable, but no representation or warranty, express or implied, is made by RBC GAM, its affiliates or any other person as to its accuracy, completeness or correctness. RBC GAM and its affiliates assume no responsibility for any errors or omissions.All opinions and estimates contained in this report constitute our judgment as of the indicated date of the information, are subject to change without notice and are provided in good faith but without legal responsibility. To the full extent permitted by law, neither RBC GAM nor any of its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the outlook information contained herein. Interest rates and market conditions are subject to change.Guaranteed investment certificates are offered through Royal Bank of Canada. RBC Funds are offered by RBC GAM and sold by Royal Mutual Funds Inc. There may be commissions, trailing fees, management fees and expenses associated with mutual fund investments. Please read the prospectus or Fund Facts document before investing. Mutual fund securities are not guaranteed or covered by the Canada Deposit Insurance Corporation or by another government deposit insurer. For funds other than money market funds, unit values change frequently. For money market funds, there can be no assurances that a fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in a fund will be returned to you. Past performance may not be repeated.

* The interest rate on the 3-year term RBC Canadian Banking MarketSmart GIC is expressed here as an interest rate per term and depends upon the performance of the Equity Index to which it is linked up to a Maximum Return of 9% per 3-year term. You are guaranteed a Minimum Return of 1.25% per 3-year term. The Return is payable at maturity. Offer valid until July 31, 2015. For full product details, including how the return is calculated, please visit www.rbcroyalbank.com/products/gic/marketsmart-suite.html or call 1-800-463-3863.

® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. © Royal Bank of Canada, 2015.

Investment UPDATE

4 Investment Update I Summer 2015

Economy Global economic growth has moderated in

recent months, mostly as the world’s two largest economies – the U.S. and China – stumbled. Fortunately, the eurozone – and, to a lesser extent, Japan – seem now to be credibly on the path to accelerating growth.

Three powerful economic supports – low bond yields, low oil prices and depreciating exchange rates – have lifted growth in a large portion of the global economy over the past several quarters. These supports are still in effect today, but to a lesser extent.

A number of significant downside risks persist, including the possibility of a sharply negative

One-minute market update

For a summary of the Summer 2015 Investment outlook, please visit rbcgam.com/investment-outlook.

1 min.

reaction in the bond market when the U.S. Federal Reserve finally starts raising interest rates, the continued impact of the rapid shift in the price of oil and Greece’s debt challenges.

FIxED IncomE Bond yields have now rebounded off of the

extreme lows of early 2015, though they are still depressed by historical standards.

Sluggish economic growth, high demand for safe assets and monetary stimulus in other parts of the world will reduce the scope for an aggressive increase in yields. However, even a gradual increase in bond yields is likely to result in pressure on sovereign fixed income prices.

EqUITy mArkETS The bull market in stocks has drawn considerable

strength from a solid recovery in corporate profits and from higher valuations.

Valuations still appear reasonable in most regions and there are reasons to believe that they could rise even higher. Corporate earnings, though, will need to contribute more heavily to the next leg of the rally.

We expect that slow, but steady, global growth and mild inflation will be maintained over the next few years. In this environment, corporate profits should continue to expand and allow equities to provide moderate total returns.

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To learn more, visit rbc.com/marketsmart. Or visit a branch or call 1-800-463-3863 to speak with an RBC advisor.

TM

EArn UP To

based on market performance*

interest per 3-year term9