Despite a strong start in January, global stock markets became unnerved in the latter part of the first quarter of 2018. Rising trade tensions contributed to the unease investors exhibited as the US took a stronger stance on bilateral trade negotiations through the enactment of targeted tariffs.

1. FIRST QUARTER 2018
RETROSPECTIVE AND PROSPECTIVE
Volatility Returns
10 King Street East, Suite 801
Toronto ON M5C 1C3

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Sprung Investment Management our focus is to create investment portfolios for our clients that
enable them to achieve their unique, long-term investment goals. In this endeavour, we strive to act
with the utmost integrity, utilising all of our analytical skills, knowledge and intuitions.
PRIVATE CLIENT FOCUS
Sprung Investment Management is an independent discretionary investment management firm that
serves the investment needs of high net worth private clients including business owners and
entrepreneurs, professionals, family trusts, estates, and private charitable foundations.
OUR PEOPLE
At Sprung Investment Management, the investment team collectively has over 120 years of diversified
investment experience. All of our principals hold the Chartered Financial Analyst designation and as
such adhere to the CFA Institute Code of Ethics. Each has made a commitment to continuing education.
RISK PERSPECTIVE
We understand that our clients have worked hard to get where they are and we appreciate that they don’t
want to lose it. As the chosen stewards of their investment assets, our risk management approach is to
preserve their capital by purchasing under-valued securities, with a margin of safety that we expect will
deliver income and capital appreciation over the long term.
PERFORMANCE
Sprung Investment Management has a track record of low volatility of returns since company inception
in June 2005. This has served our clients well over this relatively difficult investment period that
includes the bear market of 2007- 2008. Our performance numbers are available by request.
CLIENT SERVICE
At Sprung Investment Management, satisfying our client’s financial needs is our top priority. Each and
every client is special and receives individual attention and customized investment advice based on
his/her specific objectives and risk tolerance. Our principals are always available to speak directly to
clients.
INVESTMENT STYLE
In building equity portfolios, individual security selection is based on “bottom up” research that is value-
driven and often contrarian to current popular thinking. We assess quality and continuity of return on
equity, current price relative to intrinsic value, economic value added and quality of management.
Although our typical investment horizon is two to five years, we constantly evaluate our current
holdings against new opportunities that may offer better value. Our view is that a strong sell discipline is
a critical component to long-term investment success.
Our investment approach on the fixed income side is to conduct rigorous credit analysis in the context of
future economic and interest rate expectations.

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FIRST QUARTER 2018
RETROSPECTIVE AND PROSPECTIVE
Volatility Returns
“The investor’s chief problem-and even his worst enemy-is likely to be himself.” Benjamin Graham
“The key to making money in stocks is not to get scared out of them.”- Peter Lynch
Despite a strong start in January, global stock markets became unnerved in the latter part of the first
quarter of 2018. Rising trade tensions contributed to the unease investors exhibited as the US took a
stronger stance on bilateral trade negotiations through the enactment of targeted tariffs. In addition,
inflation and rising interest rates caused concern amongst investors. The dominant technology stocks
that had been largely contributing to the markets’ advance came under pressure as political scrutiny
prompted calls for greater regulation in the industry.
In Canada, the S&P/TSX Total Return Index declined 4.5% in the quarter. The US market declined 0.8%
as measured by the S&P 500 Total Return Index in US dollars in the first quarter. In the Canadian
market, all of the major sectors recorded negative performance with the exceptions of Information
Technology (+10.2%) and Real Estate (+0.5%). Rising interest rates in the US and worries over trade
issues were reflected in the 2.7% decline in the Canadian dollar relative to its US counterpart. As a result
of the fall in the Canadian dollar, the S&P 500 recorded a 1.7% gain in Canadian dollar terms. For the
quarter, the global markets posted mixed results when expressed in Canadian dollars.
Canadian Dollar US Dollar
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Toronto Stock
Exchange -4.5% -4.5%
S&P 500 1.7% 1.7% -0.8% -0.8%
MSCI EAFE* -2.0% -2.0% -2.4% -2.4%
91 Day T-Bill 0.3% 0.3%
CUBI** 0.1% 0.1%
CDN/US dollar -2.7% -2.7%
* Europe, Asia and Far East Index
** Canadian Universe Bond Index
The first few weeks of January were a continuation of the optimism of the prior period. The North
American markets continued their ascent as investors anticipated higher profits that would result from
the announced US tax reductions during a period of perceived synchronized global economic growth.
However, the last two months of the quarter have exhibited declining market tendencies as a number of
issues have caused some consternation in the optimistic thesis coming into the year.

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It was well anticipated coming into 2018 that the Federal Reserve (Fed) in the US was intent on
proceeding with tightening monetary conditions by gradually raising interest rates. Economic indications
of a strengthening economy would be further enhanced by the tax cuts announced in December as
companies would benefit from greater profitability leading to increased dividends, share repurchases,
hiring and capital investment. What were not anticipated were the subsequent large increases in
spending bills that were put forward creating conditions for even larger budgetary deficits in years to
come. This will put the Fed in a position where they will have to sell even more bonds. The questions
are “at what price?’ and “will rates rise to the point that a recession ensues?”. In ten of the last thirteen
periods of tightening, a recession has followed.
During the quarter, the yield on two-year Treasury bonds crept to 2.08% above the dividend 1.85% yield
of the S&P 500 for the first time since 2008. Investors must now consider the greater risk of capital loss
with lower income on equities.
Post year-end, trade concerns have also increased as the US commenced strategic targeting of tariffs
against countries perceived to have unfair trade practices. This has resulted in some retaliation.
Synchronized global growth may be less so going forward.
Further compounding the concerns of investors, the giant technology stocks that propelled much of the
markets’ advance the last few years began to falter. Four of the five so-called FAANG stocks
(Facebook, Apple, Amazon, Netflix and Google) had setbacks. The newest Apple iPhone X has not sold
as well as anticipated. In addition, Apple has been giving up market share as more schools move to less
expensive Google Chromebooks. Amazon’s growing dominance in the retail sector is now facing
pushback from other large retailers at a time when the President of the United States disparages
Amazon’s relationship with postal services. Facebook’s use and sale of personal data is under scrutiny as
is Google’s use of data and dominance in advertising sales. Regulatory incursion into the technology
arena could result is deteriorating profit margins.
Cryptocurrencies have also seen a lessening in the mania that propelled Bitcoin to over $19,000 in
December and now trades under $7,000. While the fundamental technology of Blockchain from which
these cryptocurrencies are created appears solid, the acceptance of these products is very questionable.
Whether or not the above factors are indicative of a protracted market downturn remains to be seen.
Certainly we have been of the opinion that valuations have been stretched following ten years of market
advances. Over longer periods market pullbacks of greater than 5% are not unusual, often occurring
several times a year. What is unusual is that we have had over 15 months of pullbacks less than 2%. Year
to date, over 38% of the trading days exhibited moves of over 1% on the S&P 500 compared with only
3.2% of the trading days in all of 2017. Volatility has definitely increased.
In this environment, value rather than momentum will become more important in stock selection. We
will continue to seek well financed, well managed companies that are selling at attractive price levels.

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FIRST QUARTER 2018 FIXED INCOME COMENTARY
"When you combine ignorance and leverage, you get some pretty interesting results."
~ Warren Buffett
The gradualist moves by the Federal Reserve (Fed) continued as the benchmark Fed funds rate increased
in March by 0.25% to 1.75%. Expectations are for further rate hikes this year. However, a number of
factors on the economic and political fronts will likely have a direct and indirect impact on the Fed’s
policy, perhaps mitigating current plans on the direction and magnitude of rate changes.
The US’s trade protectionist stance may well result in not only reciprocal trade sanctions from China,
but they may also result in decreased purchases of US Treasury securities. China is the largest holder of
Treasury securities at US $1.2 trillion. In the context of approximately US $21 trillion in outstanding
public debt in the US, this does not appear to be an insurmountable problem. Nevertheless, at a time
when government spending is continuing to increase and interest rates are rising, it imparts leverage to
China in negotiations with the US.
Later this year, the November mid-term elections in the US are creating more uncertainty. In the chaotic
environment in Washington currently, forecasts at this stage are largely meaningless. However the
elections raise concerns that the White House and Congress may get into a showdown with differing
views on economic and military policies.
The Bank of Canada (BOC) raised its policy rate in January by a 0.25% to 1.25%. At their second
meeting during the quarter in March, rates were not changed. While the inflation rate and employment
numbers would tend to argue for continued increases, uncertainty around NAFTA and the direction of
policies in Washington make for an unusually uncertain environment to be making decisions on interest
rates.
The discrepancy in the levels of interest rates between the US and Canada, combined with the
uncertainty regarding trade issues, has been reflected in the decline in the value of the Canadian dollar. It
will remain to be seen how the NAFTA negotiation will play out and how the lower dollar’s impact on
both exports and imports will percolate through the economy. One can only sympathize with the
Governor of the BOC given the decisions he will be faced with going forward in this environment.
The total return performance of the bond market as measured by the FTSE TMX Canada Universe Bond
Index for the first quarter was essentially flat (+0.1%). 91-day Treasury bills returned 0.3% over the
same period. The benchmark ten-year Government of Canada bond yield increased by 0.04% over the
course of the first three months of the year to end with a 2.08% yield. Over the course of the same period
the Canadian dollar depreciated further by 2.1 cents from 79.7 cents US to 77.6 cents US.

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Our Team
Michael Sprung, CFA: Chief Investment Officer
msprung@sprunginvestment.com
• Chief Investment Officer
• More than 30 years experience in Canadian Investment industry, overseeing portfolios up to $2.5B
• Senior level positions with YMG Capital Management, Goodman & Company, Ontario Teachers’ Pension Fund,
Ontario Hydro and Cassels Blaikie & Co.
• Frequent contributor to BNN-TV, Globe & Mail, National Post and Money Sense
Fred Palik, CFA: Vice President, Fixed Income
fpalik@sprunginvestment.com
• Extensive experience in fixed income management in a variety of senior positions, primarily in the insurance
and hospital sectors.
• Member of the Toronto CFA Society and the CFA Institute.
Lois O’Sullivan, CFA: Vice President
loiso@sprunginvestment.com
More that 25 years experience in investment management.
• Co-founder of Sprucegrove Investment Management, specializing in international markets.
• Senior level roles at Confed Investment Counselling and Confederation Life Insurance Company.
• Fellow of the Life Office Management Institute (FLMI), the Toronto CFA Society and the CFA Institute.
Joie P. Watts, CFA, FSCI: Vice President & Portfolio Manager
jpwatts@sprunginvestment.com
• Over 30 years of progressive experience in the securities and investment industry.
• Senior level roles at Burns Fry Limited, Merrill Lynch Canada and Nesbitt Thomson.
• Managing Director of Instinet Canada Limited for over 10 years
• CEO of Shorcan ATS Limited, a specialized marketplace for equity dealers trading as principal.
Robert D. Champion, MSEd: Vice President, Client Services
rchampion@sprunginvestment.com
• Joined Sprung Investments Management in 2012 after several years with Successful Investor Wealth
Management.
• Prior to that, he had a fifteen-year career in OEM industrial sales.
• Manager with investment-publishing division of MPL Communications in the 1980s and early 1990s. MPL
publish Investor’s Digest and Investment Reporter.
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