RBC PH & N Investment Counsel Spring 2013 Publication

1. COUNSELLOR QUARTERLY
Spring 2013

3. COUNSELLOR QUARTERLY 1
PRESIDENT’S MESSAGE
The past quarter has seen continued positive returns and large flows of investments
into equity markets in the developed world, in spite of mixed economic signals.
In the U.S., the fiscal cliff is still not fully resolved, however, the risk has been diminished. In addition,
with the U.S. housing crisis fading and employment improving, we have left our forecast for the U.S.
unchanged. In Canada, lower commodity prices, a strong dollar and a weakening housing market have
resulted in a continued downward trend in the economy.
In Europe, while the intensity of the crisis has been reduced, the region remains weak and we have
reduced our outlook here. China and Japan, on the other hand, are showing some positive signs. China
has managed a soft landing for its economy, and Japan, after many years of negative growth, is showing
positive signs for growth in 2013 and 2014.
With the muted economic outlook, we expect inflation to remain subdued and, therefore, interest rates
in the short term should also remain stable. The caution here is that yields are at historically low levels
and we expect central banks may begin raising short-term rates in 2014. I encourage you to read a more
in-depth analysis from RBC Global Asset Management (RBC GAM) Chief Investment Officer Dan
Chornous and Chief Economist Eric Lascelles.
However the markets may behave, sound investment management is timeless. With this in mind,
I am pleased to introduce a new investment manager. Following a rigorous investment manager
search process conducted by the RBC Global Asset Management manager research team, I am pleased
to announce that Guardian Capital LP (Guardian) has been appointed sub-advisor for our Canadian
Growth Equity mandate. Based on the portfolio manager’s depth of knowledge and experience in
Canadian stocks, and the mandate’s sound investment process, strong historical performance and ability
to outperform in different market cycles, we believe that Guardian will be a complementary addition to
our existing Canadian equity offering.
In recognition of our approach to investment management, our award-winning fund families were
once again recognized at the 2013 Lipper Fund Awards. Combined, Phillips, Hager & North Investment
Management and RBC GAM have been recognized as Best Funds Group overall for six of the past seven
years and Best Bond Funds Group for the past seven years.
The greatest acknowledgment we can receive for our work, however, comes not from our peers but from our
clients. In May you will receive our bi-annual client survey conducted by independent survey firm Corporate
Insights. These surveys are essential in helping us to understand and exceed your expectations, and we look
forward to your feedback.Your personal information and responses will remain strictly confidential.
I’d like to thank you for your continued trust and loyalty. If you have any questions when you receive your
client survey, or any concerns about your relationship with RBC PH&N Investment Counsel, your
Investment Counsellor will be pleased to speak with you.
Sincerely,
VIJAY PARMAR, CA
PRESIDENT

4. 2 RBC PH&N INVESTMENT COUNSEL
CONTINUING PROGRESS TOWARD SUSTAINED RECOVERY
The global economy continues to heal and risk
appetite around the world appears to be reviving.
Global PMIs have swung higher and leading
indicators point to decent economic prospects
in the coming months. The U.S. housing crisis
is now behind and employment is improving,
albeit slowly.
While economic momentum has flattened out in recent weeks
and the post-fiscal-cliff rebound in consumer and business
confidence has been more subdued than we had hoped,
investors appear to be looking past the immediate threats and
focusing on the many positive developments that have
occurred since the financial crisis, laying a base for sustained,
balanced growth in the future. Headwinds remain and there
are still many hurdles to overcome before the global economy
is fully stabilized, but significant progress has been made.
HEALING CONTINUES
Our basic economic thesis remains unaltered. The global
economy is still destined for slower-than-normal growth, but
beneath the surface, the beginning of an upward trend may
be starting to form. The largest downside risks have arguably
shrunk over the past year: the intensity of Europe’s crisis has
eased, China has engineered a soft landing and U.S. political
dysfunction has diminished somewhat. We have adjusted our
economic forecasts for 2013. The Eurozone and U.K. outlooks
have again shifted lower, reflecting the enduring nature of the
weakness in these regions. The U.S., Canadian and emerging-
markets basket of forecasts have held firm. Consensus
expectations have moved in a broadly similar fashion to our own.
The theme of healing is of central importance around the world,
but this is particularly true in Europe. Current-account deficits
are shrinking, signalling greater self-sufficiency in Europe’s
periphery. Many countries have made significant progress in
reducing their budget deficits. However, public support for these
initiatives has always been fragile, and the inconclusive Italian
election demonstrates what can happen when austerity becomes
too painful. These events have triggered a renewed sense of
uncertainty in Europe. Still, while only in the early stages of
rehabilitation, Europe has made measurable progress toward
a sustained recovery.
The words “Japan” and “exciting” have not often gone together
over the past two decades, despite the country’s status as the
world’s third-largest economy. That could be about to change
with the newly elected government leaders making sweeping
commitments to spur Japanese growth. These actions should
materially boost Japanese economic growth in 2013 and 2014.
We have pushed our Japanese outlook significantly higher to
reflect this new stimulus.
INFLATION REMAINS TAME
In a period of slow economic growth, few wage pressures
and steady commodity prices, global inflation is unlikely
to rise particularly quickly. Economic theory suggests that
inflation should begin to edge up over time as economic
slack is absorbed. However, we don’t think this will have
an overwhelming effect in the near-term and inflation
will remain subdued over the forecast horizon.
PUBLIC DEBT NOW IN FOCUS
In stark contrast to diminishing global risks and healing
economies, global public-debt loads continue to rise in the
developed world. Fortunately, policymakers are now turning
their attention to serious debt reduction. Governments are
beginning to take decisive steps to reduce their debts and
this bodes well for long-term economic growth prospects.
That said, debt loads will take many years to decline to
more reasonable levels, and this makes nations vulnerable
to economic shocks along the way.
BY DANIEL E. CHORNOUS, CFA
CHIEF INVESTMENT OFFICER
RBC GLOBAL ASSET MANAGEMENT
MARKET COMMENT

5. COUNSELLOR QUARTERLY 3
DOLLAR BOTTOM IS BROADENING
The cycle of U.S. dollar strength is unfolding as we expected.
What started as safe-haven flows into the dollar due to the
European crisis a couple of years ago has evolved into support
for the U.S. dollar based on an economic recovery and relative
monetary policies. There is tentative evidence of a gradual
shift towards a positive equity/dollar correlation and it looks
like the dollar base is broadening against more currencies.
That’s the nature of broad currency trends – the bouncing
along the bottom for the index happens as individual troughs
are established. We continue to work with the base assumption
that the rocky bottom will eventually resolve into a meaningful
uptrend, and our 12-month forecasts reflect this.
RISE IN YIELDS LIKELY TO BE GRADUAL
Central banks are probably far from tightening, and in some
cases even have more stimulus to deliver. The short end of
the bond market should thus remain anchored by stimulative
central banks. The long end of the yield curve is always more
difficult to predict. Yields remain at unsustainably low levels,
and as risk appetite increases bond yields should begin
to rise. However, there are distinct limits to how high bond
yields can rise in the near term. In addition to the obvious
constraints of sluggish growth, moderate inflation and low
central-bank rates, we must not forget that a key reason
for the global recovery is the very existence of ultra-low
borrowing costs. Just as rates were managed lower by central
banks, we expect they will be managed higher as well.
STABLE EARNINGS GROWTH, REASONABLE VALUATIONS
Equities have continued to rally in the first quarter of 2013
and we have seen large equity inflows for the first time in
many quarters. It appears that the market has begun to look
past the various macroeconomic headwinds and is now
focusing on an economic recovery that is gaining traction.
Investors are recognizing the stability of the U.S. economy
and are no longer reacting solely based on concerns related
to other regions. Corporate profit growth has been the main
driver of index gains, as companies have proven themselves
capable of stretching profit margins ever wider, even in a
tough operating environment. But in an era of sluggish
economic growth, further stock-market gains are now more
likely to come from shifting investor behaviour than surging
earnings. As the economy continues to heal, we expect
valuations to gradually move higher, pulling the equity
market up with it.
In Japan, the world’s third-largest economy, newly elected leaders are making sweeping commitments to boost Japanese
economic growth in 2013-14.

6. 4 RBC PH&N INVESTMENT COUNSEL
AROUND THE WORLD IN 80 SECONDS
A = Actual, E = Estimate, F = Forecast
Sources: RBC Global Asset Management Inc., RBC Dominion Securities Inc., RBC Economics.
ECONOMIC & CAPITAL MARKETS FORECASTS
CHIHCHINAAH NA
Real GDP 2012A 7.80% | 2013E 8.00%ea 2 2GDPReReal GDP 20112A 7.80% |ea 2 7 %80%
CANADA
Real GDP 2012A 2.00% | 2013E13013E 1.75%1.75%3E 1.
S&P/TSX Composite February 2013 12822 | February 2014F 1301301ruaruaruruary 2013 1282822 | February 20 3000020rua2 | F3 12ry 2 Feb01
USD–CAD February 2013 1.03 | February 2014F 1.00014a201 F 1.0013 1.03 | Febrbruary 2014F 1.066.06014ruar| F3 1.201 .0Fe13
Overnight rate February 2013 1.00% | February 2014F 1.25%1.2ebruu 1.25%ruuary 2013 1.0000% | February 202014F 1.25%1200%013ary 4F 10%y
10-year bond February 2013 1.84% | February 2014F 2.50%F 2ebru ebuuary 2013 1.8.84% | February 2y 2014F 2.50%%y 2Fe.8401ary Fe2
UNITED KINGDOMMKINIUNITED K
Real GDP 2012A 0.00% | 2013E 1.00%0%20A 0DPR DP 2012ARRe l GDP 201 AAR
FTSE 100 February 2013 6361 | February 2014F 6475br 116ua10 uary 2013 6361 | February 4F 6475
GBP–USD February 2013 1.52 | February 2014F 1.47b 013bru–U
Base rate February 2013 0.50% | February 2014F 0.50%eb 013rue rBase %%
10-year gilt February 2013 1.97% | February 2014F 2.50%| F| F 2 0%01Feyear gilt Febr 0%0
UNITED STATESTDE TEE TATATAT
Real GDP 2012A 2.20% | 2013E 2.25%%130A12 20132A 0% | 2013E 2.210 013
S&P 500 Index February 2013 1515 | February 2014F 160002FuFx 1515 |Feb y 20133 1511 15
USD–CAD February 2013 1.03 | February 2014F 1.064Fruy 2uru ruary 201ry 2ru 2013 1.033 | F| ebruru1.
Fed funds rate February 2013 0.25% | February 2014F 0.25%25yuaebFe ary 2014F 0.25%eb ary 2013 0.225% | Fe%1ry 20
10-year bond February 2013 1.87% | February 2014F 2.50%0%yryrubrruary 2013 1.87%% | Februar|313 1.87
DOW HITS RECORDCOCORD HIGH AMIDDHDD HIG
UNDERLYING MOMENNOMMMMEEENTUMMN M
Although the growth rate was the slowest since the first quartere shee slowest since the first quaquarterue twe the first quartslo
of 2011, consumer spending expanded at 2.1%, suggesting thatndannded at 2.1%, suggesting tgsatnd d at 2.
momentum in the economy continues to build. In early March,Maesses to build. In early MaMIno be ld. In early Mues to
the Dow Jones Industrial Average surpassed its previous recordco dedsed its previevd ited its peeed
high set before the financial crisis in October 2007, and closededan20 7, and close200700
at a new all-time high of 14,253 – well ahead of the standardndtandard
recovery period of 78 months.
FOR ITALY, IT’S LA DOLCE FAR NIENTE
Confronted by the worst recession in their country since the 1930s, almost
25% of the Italian electorate skipped the February 2013 general elections – a
post-war record.
BANK OF CANADA CAUTIOUS CANADIANS
Economic growth stagnated in the fourth quarter as GDP grew
at a mere 0.6% annualized pace, with companies scaling back
inventories and a decline in economic output led by manufacturers
and retailers.The Bank of Canada (BoC) kept its key overnight
lending rate at 1%, warning that high household debt levels are thes are thees are thtvels aevels are
largest risk facing the country’s economy.
EUROPEAN UNIEEURUROPEEAN UUEU N UNIONNIONN NN
Real GDP 2012A (0.50%) | 2013E (0.75%)RReall GDDP 2012A 0.50%Real A 0.50 ) | 2013E (0.75%0 50 | 2013E (0.775%00 0.7
MSCI Europe February 2013 1483 | February 2014F 1650MSCI uro e Fe ruar 2ope F rEurope February 2012013 1483 | Februur 2013 1483 Feeb13 Fe ru
Euro–USD February 2013 1.31 | February 2014F 1.20uro US Feb uary 01uro–USDUS February 2013 1.3131 | February 20U 13 311 | bruu ry 2US 3 1 u 20
Eurozone policy rate February 2013 0.75% | February 2014F 0.50%E oz e p icy FFebcy rate February 202013 0.75% | Fecy e F uary 013 75% | FFeb 0 |
Germany 10-year bund February 2013 1.45% | February 2014F 2.00%G ma 10- Fyearr bub nd February 202013 1.45% | Fr b d Fe ary 13 45% | Far bun 20 %
JAPANJAPAN
Real GDP 2012A 1.90% | 2012E 1.75%a 01 0%0% 20012A 1.90 201% | 20120
Nikkei February 2013 11529 | February 2014F 12250ik ru 01Nikkei Feb 13 11
USD–JPY February 2013 92.53 | February 2014F 95.00US F uarP FFeebruru
Overnight call rate February 2013 0.10% | February 2014F 0.10%O ghOvern ght ca
10-year bond February 2013 0.66% | February 2014F 1.25%100
.
YEAR OF THE SNAKE STARTS OFF SLUGGISHYEAR OF TTHE SNAKE STTARTS OFF SSLUGGISHAR S ST OF U SHKE STAR UGG
Shanghai fell 1.0% ahead of key economic data releases. Factory growthS s FFs. Fhanghai fell 1l 1.0% ahead of keeyy economic ddaata releasesfe e e c el sghai fell 1.0% ahea data
slowed to multi-month lows as sluggish domestic demand was added tos manl maowed toto multi-month lowss aas sluggish domomestic demm th slu o cish do mm
an already depressed foreign demand. The Nikkei closed up 0.3% aftera seseedednn alalready depressed foreigeign demand. Thhe Nikkei clod fo m e idemand i clo
paring gains in reaction to the Bank of Japan’s decision not to pursuep c onec naring gains in reactionn to the Bank of JaJapan’s decisionns on an a ceactionon to th s dec nn
furthefffurthrther easing at thiiss point.in pother easing t

7. COUNSELLOR QUARTERLY 5
GLOBAL ECONOMY
REVIVING RISK APPETITE
In contrast to the economic improvements
celebrated in the previous edition of Counsellor
Quarterly, the past quarter was more mixed.
Economic momentum has flattened out, and
it is inescapable that output in the world’s major
developed nations declined in the final quarter
of 2012. The post-fiscal-cliff rebound in U.S.
consumer and business confidence is proceeding,
but more gingerly than hoped given higher taxes,
rising gasoline prices and several remaining
policy hurdles.
To be sure, there is still much that is going right. Japan is
implementing bold policy remedies that might just awaken it
from two decades of economic slumber. The decline in existential
risks is spurring a revival of risk appetite, and the much-feared
U.S. fiscal cliff was mostly deflected at year-end. Leading
indicators point to decent economic prospects for the coming
months, and the stock market has given its clear approval.
As a result, our basic thesis remains unaltered. The global
economy is still destined for slower-than-normal growth,
mainly because fiscal authorities are trying to disentangle their
countries from large deficits. But beneath this, the beginning
of an upward trend may be starting to form. The U.S. economy
is healing and is now capable of generating additional growth.
Europe, while only in the early stages of rehabilitation, has
made measurable progress. Risk appetite is reviving, with
positive consequences for growth and markets.
BY ERIC LASCELLES
CHIEF ECONOMIST
RBC GLOBAL ASSET MANAGEMENT
RECONCILING CONTRADICTIONS
The first order of business is to reconcile the apparent
contradiction between leading indicators that point to decent
economic growth with fourth-quarter GDP that shrank in the
Eurozone, the U.K., Japan and – most surprisingly – left U.S.
output basically flat.
Normally we would be inclined to take GDP as the better arbiter
of economic health, but in this case leading indicators appear
more trustworthy. Certainly, the Eurozone is in recession, and its
economic figures are a fair reflection of that. But the U.K. and
Japan – for all of their flirtations with recession – are probably on
a trajectory of slow growth once the quarterly wiggles have been
smoothed out (and as prophesied by leading indicators).
The fourth-quarter U.S. GDP figure was the big surprise.
However, it is likely an outlier. Revisions have turned what was
initially a slight negative into a slight positive. Moreover, much
of the remaining weakness was temporary. Inventories exerted a
drag, likely because of the dampening effect of Hurricane Sandy
on production. This should shortly turn into a tailwind as those
effects reverse. Military procurement was exceptionally weak,
and while some part of that may persist as the U.S. winds down
its overseas military commitments, the extent of the drop was
unusually sharp. The U.S. economy is almost certain to rebound
when the next quarterly figure is published.
DIMINISHED SEASONALITY TO COME?
Seasonal trends have played an unusually large role in economic
statistics over the past three years, with economic data stronger
in the winter and weaker in the summer. Explanations for this
include distortions to the seasonal adjustment factors arising
from the economic collapse of 2008-2009 and/or a subsequent
pattern of warm winters and sweltering summers that tilted
construction toward the winter months.
We anticipate a diminished seasonal trend this year for four
reasons. First, these patterns are simply not supposed to exist
and could vanish just as mysteriously as they appeared. Second

8. 6 RBC PH&N INVESTMENT COUNSEL
(and relatedly), lingering seasonal trends are absorbed by the
model over time, eventually snuffing out any visible pattern.
Third, this winter has not been as warm as last year’s. Fourth,
initial readings for 2013 have already adhered less closely to
the usual seasonal trend.
To be clear, we still suspect that this spring and summer will
exhibit weaker activity than the winter, and this could induce
a temporary dip in confidence and perhaps even markets.
Economic momentum has already flattened out. But the
subsequent softening may be less obvious than in past years,
and it is important to keep in mind that growth has always
subsequently returned (Exhibit 1).
MIXED BAG OF FORECASTS
In response to these developments, we have adjusted our
economic forecasts for 2013 (Exhibit 2). The Eurozone and
U.K. outlooks have again shifted lower, reflecting the enduring
nature of the weakness in these regions. The U.S., Canadian and
emerging-market basket of forecasts have held firm. Meanwhile,
we have pushed the Japanese outlook significantly higher to
reflect new stimulus.
Consensus expectations have moved in a broadly similar fashion
to our own. Relative to the consensus, we nonetheless look for a
stronger U.S. and Japan, and relative weakness in the Eurozone
and emerging markets.
This report marks the introduction of our 2014 forecasts.
Most estimates are informed by our knowledge of long-term
sustainable growth rates, overlaid with the expectation that
growth will begin to rebound given ongoing healing and the
eventual abating of fiscal drag. Supporting this narrative of
moderate improvement, financial conditions have become
favourable, and excess liquidity signals further growth.
EXISTENTIAL RISKS HAVE SHRUNK
The identification of tail risks is no less important than the
generation of base-case economic forecasts. The largest
downside risks have arguably shrunk over the past year: the
intensity of Europe’s debt crisis has eased; China has engineered
a soft landing; and U.S. political dysfunction has diminished
somewhat. Each is being bled of its venom while simultaneously
becoming less likely to bite.
Of course, there are always new risks. A steady drip of elections
over 2013 brings an element of uncertainty, especially in a
beleaguered Europe where the need for political consistency
is greatest. Unfortunately, the deadlocked Italian election has
triggered a renewed sense of uncertainty in Europe. Social
unrest is significant across Europe, the Middle East and North
Africa. Separatist movements are on the march in Catalonia and
Scotland. Geopolitical risk percolates in Syria and Egypt, and
elevated frictions exist between Iran and the West, Israelis and
Palestinians, and China and Japan. A nuclear test in North Korea
and accusations of Chinese cyber-sleuthing add to the clamour.
Natural disasters constitute a perpetual unknown. These sorts
of developments rarely exert a tangible presence on the global
economy or markets, but they could.
Exhibit 1: 2013 U.S. Quarterly Profile
Source: RBC GAM
POLICY
UNCERTAINTY
SANDY
REBOUND
SEASONALITY Q1 Q2 Q3 Q4
REBOUND
FROM
Q4 GDP
Exhibit 2: RBC GAM GDP Forecast for Developed Markets
Source: RBC GAM
2.25%
1.75% 1.75%
1.0%
-0.75%
2.75%
2.0%
1.25%
1.5%
0.5%
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
U.S. Canada Japan U.K. Eurozone
AnnualGDPGrowth(%)
2013 2014

9. COUNSELLOR QUARTERLY 7
REVIVING RISK APPETITE
Risk appetite appears to be reviving around the world given
declining perceptions of risk. This can be seen in narrowing
credit spreads and lower expected volatility in financial markets.
It also shows up in declining correlations across asset classes
and between individual stocks.
The revival of risk appetite is an important development.
In an era of sluggish economic growth, stock-market gains
(and bond-market losses) are more likely to come from shifting
investor behaviour than surging earnings. Already, investors
are beginning to show a greater thirst for equities. Continued
improvement in risk appetites will be critical in determining
the performance of financial markets over the coming year.
HEALING CONTINUES
The theme of healing remains of central importance. In an
era when sluggish economic growth casts a sickly pallor, it
is important to acknowledge the mending of bones occurring
beneath the surface.
The U.S. housing market continues to surge, and appears to
have additional upside left in it. Credit is flowing again, and
even hiring has pushed higher in workmanlike fashion. These
three variables are particularly important: the first was the root
of the financial crisis, and pullbacks in the latter two had the
most devastating consequences.
Europe, too, can now begin to claim some healing after
policymakers took a scalpel to the gangrenous debt that afflicts
the continent’s periphery. The restorative effects are best
demonstrated by the remarkable decline in Spanish bond yields.
Competitiveness is rebounding, albeit with some distance to go.
Current-account deficits are shrinking, signalling greater self-
sufficiency in Europe’s periphery. Many countries have made
significant progress in shrinking their budget deficits (Exhibit 3).
Even the run on Greek and Spanish banks seems to have faded.
However, public support for these initiatives has always been
fragile, and the February 25 Italian election demonstrates the
gridlock that can result when austerity becomes too painful.
The Cypriot election reassures that pro-Europe candidates
still have at least a chance at the polls, though it also reminds
us that the era of bailouts is not quite over.
EUROZONE RECESSION PERSISTS
One must distinguish between the progression of the Eurozone’s
debt crisis and the erosion of the region’s economy. Whereas the
debt crisis has ebbed, the economy is still shrinking. In fact, the
rate of GDP decline in the fourth quarter of 2012 was the worst
since 2009 (Exhibit 4).
This gulf can be reconciled in two ways. First and most
importantly, the economy has tended to lag developments
in the sovereign-debt crisis. For instance, it took a year for the
Eurozone to descend into recession after the debt crisis struck.
Exhibit 3: Significant Fiscal Tightening Done, but More to Go
Note: Numbers shown are reductions in budget deficits during the time periods.
Structural balances from 2012 to 2017 are IMF forecasts. Source: International Monetary Fund, Haver Analytics, RBC GAM
3.0
14.1
5.2
4.9
3.6
1.9
0.6
4.0
2.3
4.0
3.1
3.2
Italy
Greece
Portugal
Ireland
Spain
France
Change in Government Structural Balance as % of GDP
2009-2012 2012-2017

10. 8 RBC PH&N INVESTMENT COUNSEL
Similarly, the debt crisis has abated in part because banks
are recapitalizing nicely and governments have cut spending.
These very actions mean less economic growth in the short run.
The big question for the Eurozone is whether the economy will
finally begin rebounding in 2013. We suspect the answer is
unfortunately “no.” Whereas Eurozone GDP shrank by around
0.5% in 2012, we forecast an even larger decline of 0.75% in
2013. Happily, growth is expected to return in 2014, when we
forecast a 0.5% expansion, and the outlook may soon begin
improving if leading indicators are to be believed (Exhibit 5).
With the recession well underway, we are now in a position to
evaluate the severity of the Eurozone’s downturn. Officially, it
has been a shallow recession. However, it has often felt much
worse than that. Why? One reason is that some countries have
suffered greatly, while others have sailed through (Exhibit 6).
The situation also depends on which aspect of the economy is
being discussed. Exports have held up fairly well, leaving the
impression that the economic decline was much milder than
in 2009. But to domestic households and businesses, the hit
has been nearly as bad as 2009 – pretty brutal stuff.
Eurozone inflation has been unusually high for a number of
years as sales-tax hikes took effect. With the tax hikes now mostly
completed and falling out of the equation, inflation should run
at a more subdued 1.75% in 2013 and 1.25% in 2014. Faced
with this, the European Central Bank (ECB) may be forced to
reconsider its stubborn policy stance, potentially delivering a
further rate cut to trigger a softer euro. Quantitative easing would
be good medicine, but seems unlikely given current attitudes.
Some countries fared better than others during the
Eurozone downturn. Estonia’s experience was notably
better than in economies like Greece, Portugal or Cyprus.
Exhibit 4: Eurozone in Enduring Recession
Source: Haver Analytics, RBC GAM
1.9
4.1
1.6 1.4
2.6
0.9
0.4
-1.4
-0.1
-0.7
-0.3
-2.3
-3
-2
-1
0
1
2
3
4
5
GDPGrowth(QoQ%Annualized)
Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12

11. COUNSELLOR QUARTERLY 9
U.S. PRIVATE DELEVERAGING OVER
The U.S. economy appears to be outperforming most of its
developed peers for two reasons. First, it enjoys a higher GDP
speed limit than other nations due to a combination of superior
demographics, a culture of innovation and entrepreneurship,
and better competitiveness.
Second, the U.S. was more forthright in acknowledging losses
after the global financial crisis, which permitted more rapid
deleveraging. Our calculations suggest the U.S. private sector is
in fact now fully deleveraged. Illustrating this, household debt
has now declined by more than the value of household assets.
All the same, there remains one last cinch on U.S. growth.
Fiscal tightening is set to subtract between 1.5% and 2.0% from
GDP growth in 2013. There is still some uncertainty around
the precise drag owing to several decisions that remain in the
hands of American politicians. Most prominently, the sequester’s
March 1 deadline has now passed, meaning that $85 billion
of spending cuts scheduled for 2013 are commencing. But there
are still opportunities for politicians to halt the cuts, including
toward the end of March when a budget deal must be struck,
or as the debt ceiling is hit over this summer.
In this context, it is frankly remarkable that the U.S. is still on
track for something near 2.25% growth this year. As fiscal
austerity subsides later in the year and risk appetite continues to
revive, we look for growth to accelerate to 2.75% in 2014. Inflation
looks set for slightly below 2% in 2013, and around 2% in 2014.
The U.S. Federal Reserve (Fed) was very busy over the final few
months of 2012, first instituting a new round of quantitative
easing in September, and then expanding it in December. Recent
comments from Fed members reveal a schism on the committee
regarding when these asset purchases should end. A number of
members favoured an early conclusion while several others –
presumably including Chairman Bernanke – preferred to continue
pressing ahead. If we have learned anything over the past several
years, it is that policymakers are likely to deliver more stimulus,
not less. Despite this, the U.S. dollar may find itself wafting higher
as other countries get in on the currency-depreciation game.
CANADA SPUTTERS
The Canadian economy sputtered through the second half
of 2012 and ended the year with a face full of soot. There are
several reasons for this. The Canadian dollar is still arguably
stronger than it should be. Western Canadian oil producers are
being forced to accept deeply discounted prices due to pipeline-
capacity problems, while consumers in the rest of the country
are paying a premium for imported crude. The gap between
the two is problematic. Lastly, and perhaps most importantly,
the Canadian housing market is cooling.
Despite all of this, we still expect the Canadian economy to
muddle through. The Bank of Canada’s Business Outlook Survey
still shows that companies plan to continue with hiring and
capital investments (Exhibit 7). Canada is ramming through
less fiscal austerity than most of its peers. Even if the housing
market does correct substantially, some offset would come
from a weaker Canadian dollar, and perhaps from fiscal or
monetary stimulus, where policymakers have some leeway.
Most importantly, it is far from clear how much or how quickly
housing activity and prices will actually decline.
Exhibit 5: Eurozone Economy Shrinking Less Quickly
Note: PMI refers to Puchasing Managers Index, a measure of economic activities.
Source: Markit, Haver Analytics, RBC GAM
30
35
40
45
50
55
60
65
2006 2007 2008 2009 2010 2011 2012 2013
ManufacturingPMI
Expansion
Contraction
Exhibit 6: Varying Economic Experiences in Europe
Source: Haver Analytics, RBC GAM
-8 -6 -4 -2 0 2 4
Estonia
Slovakia
Austria
Germany
France
Belgium
Eurozone
Netherlands
Finland
Spain
Italy
Cyprus
Portugal
Greece
Q4 2012 GDP YoY % Change
Notably worse
Notably better
Average

12. 10 RBC PH&N INVESTMENT COUNSEL
While residential construction represents an unusually high
share of GDP, the sector’s share actually looks quite pedestrian
in inflation-adjusted terms. And while tighter mortgage rules
introduced in July 2012 have indeed cooled the Canadian
market, their effect usually wanes after two to three quarters –
around now. Affordability is still fairly good given current
interest rates, though this will deteriorate when interest rates
do eventually rise. We look for the Bank of Canada to tighten
policy at the beginning of 2014 at the earliest.
The latest national statistics show a clear slowdown in housing
starts and building permits. Growth in household credit is
slowing and home prices are also stalling. Our analysis suggests
some further moderate drag is likely from housing, mainly
because of the overbuilding evident in certain regions and
segments of the market. This points to a leaner year or two for
the Canadian economy and marks one of the few times since
the financial crisis that Canada’s economy has underperformed
Exhibit 7: Canadian Businesses Expect to Increase Investment
and Hiring
Source: Haver Analytics, Bank of Canada, RBC GAM
-25
-15
-5
5
15
25
35
45
1998 2000 2002 2004 2006 2008 2010 2012
BusinessOutlookSurvey
(%Balance)
Future Investment and Employment
Despite slowing growth in household credit and a cooling housing market, the Canadian economy is still expected to muddle
through. The Bank of Canada may tighten policy in early 2014.

13. COUNSELLOR QUARTERLY 11
the U.S. But the timing is highly imprecise, systemic risks are
low, the banking sector is fairly well insulated and the largest
risks confronting Canada are still global in origin.
PUBLIC DEBT’S LONG JOURNEY
In stark contrast to diminishing global risks and healing
economies, global public-debt loads continue to rise in the
developed world. This is normal in the sense that public debt
usually declines with a lag, ceding priority to the private sector
to unwind its excesses first.
Fortunately, policymakers are now turning their attention to
serious debt reduction and they have many options available
to them. The most likely fix is a combination of budget surpluses
and repressed interest rates, combined with a smidgen of
additional inflation and economic growth. However, even with
all of these contributors pulling in the same direction, public-
debt reduction efforts will take an excruciatingly long time.
By our calculations, many countries will be locked in debt-
reduction mode for decades if they wish to return to normal
debt levels. (Exhibit 8).
Governments are beginning to take decisive steps to reduce
their debts, and this bodes well for long-term economic growth
prospects. The economic pain associated with falling debt loads
is very much front-loaded (Exhibit 9). However, the very fact that
debt loads will take many years to decline to more reasonable
levels makes nations vulnerable to economic shocks.
EMERGING MARKETS STABILIZE
With few exceptions, emerging markets do not suffer from the
same public debt problems as the developed world. They
learned their lesson during a series of financial crises in the
1990s (Asian financial crisis, Mexico’s “Tequila” crisis), and
subsequently constructed a protective shell of low debt loads,
current-account surpluses and large foreign-exchange reserves
to ward off the risk of recurrence.
Emerging-market economies have lately rebounded nicely after
swooning in mid-2012. We suspect the rebound itself is peaking,
and most emerging economies are unlikely to fully return to
the growth rates achieved over the prior several years. But the
current rate of growth can probably be maintained, allowing our
six-nation basket of emerging markets to achieve solid growth
of around 6.0% in both 2013 and 2014, while inflation holds in
the 4.5% range. As usual, China looks set to outperform the rest,
as its economy expands 8.0% in 2013 and 7.5% in 2014.
INFLATION REMAINS TAME
In a period of slow economic growth, few wage pressures and
steady commodity prices, global inflation is unlikely to rise
particularly quickly, as confirmed by current copacetic levels.
There are certainly national exceptions to this prognosis – the
U.K. is clearly one, while Japan is (hopefully) another – but
most are well in line with these levels.
Exhibit 8: Target Achievement of Public Debt Goal
Note: “Public Debt Goal” defined as easier of 60% debt-to-GDP ratio or pre-crisis (2007) debt-to-GDP ratio. Source: IMF, RBC GAM
Year Necessary Debt Reduction (ppt)
Netherlands 2016 8
Germany 2017 18
Canada 2018 21
France 2021 26
Italy 2021 23
U.K. 2025 29
Spain 2027 31
U.S. 2028 40
Japan 2035 54
Portugal 2036 51
Ireland 2037 58
Greece >2050 63

14. 12 RBC PH&N INVESTMENT COUNSEL
China’s economy expanded over 15% from 2013-2014s, and it looks set to outperform the rest of the emerging-market
economies in the months ahead.
YIELDS TO RISE SLOWLY
We have already discussed each major central bank separately.
Together, the common theme is that central banks are probably
far from tightening, and in some cases even have more stimulus
to deliver. This is an easy call for Japan, but may also prove true
for the Bank of England, the ECB and even the Fed. The short
end of the bond market should thus remain anchored by
stimulative central banks.
The long end of the yield curve is always more difficult to
predict. Our models suggest that yields are unsustainably low,
as they have for many months. Yields have primarily been held
down by two drivers: risk aversion and central-bank stimulus.
Together these forces have pushed real yields far below
equilibrium, and to the point where investors are seeing
negative returns after the effects of inflation. Risk appetite is
now beginning to pick up, which should allow yields to drift
higher. More of a risk to bond holders is central bank policy.
As the economy continues to leave the burden of the financial
crisis behind and unorthodox monetary policies that are
currently suppressing yields become less desirable, real rates
will begin to move back toward historic norms dragging
nominal yields with them.
Exhibit 9: Pain Is Front-Loaded
Source: RBC GAM
Budget
Balance
as %
of GDP
+
_
Rising
deficit
Steady deficit
Shrinking
deficit
Rising
surplus
Steady surplus
GROWTH
DEBT
Boosts growth Growth neutral
Rising debt
Hurts growth
Stabilizing debt
Growth neutral
Falling debtRising debt
Current Phase Next Phase
Economic theory suggests that inflation should begin to edge
up over time as economic slack is absorbed. There is even the
chance of a bit more inflation than usual – several years down
the line – given the way that central banks have shifted their
focus toward economic growth, and given fears of premature
tightening and temptations to inflate away government debt.
But this is highly speculative, and unlikely to have an
overwhelming effect through the forecast horizon.

15. COUNSELLOR QUARTERLY 13
traction. According to our fair-value models, equity markets in
most regions remain undervalued, indicating the potential for
further gains.
THE GREAT ROTATION
Since the beginning of 2013, the media has been focused on the
theme of “The Great Rotation.” This refers to the point at which
investors decisively move their assets from bonds and other safe
havens into the stock market. Since the first week of January, we
have seen large equity inflows. In the past two months, $21 billion
of assets has flowed into equities, close to the amount that has
flowed to equities in the past two years combined! That said,
bond inflows have been strong as well, indicating that investors
are simply moving cash into both the equity and bond markets.
Although a “great rotation” isn’t evident in the flow data – at
least not yet – the new attention to equities may be a positive
sign for near-term performance. Since equity outflows
troughed in December 2012, the market has increased 11% and
outflows are currently around $1.5 billion. Continued healing
in the global economy and increasing investor risk appetite
may eventually push equity mutual-fund flows into positive
territory, providing fuel for stocks to move even higher.
The global economy continues to heal. Risks remain, but the
market appears to be looking past immediate hurdles and
focusing on positive developments taking place.
We are already beginning to see yields tentatively rise. Reflecting
all of this, our forecast for the next 12 months is for an increase in
10-year yields across the developed world on the order of 50 to 70
basis points. Aside from the U.K., most countries over the forecast
period are likely to see negative total returns to sovereign debt.
Looking out further, based on a return to equilibrium, total
returns could be low or negative for an extended period.
However, there are distinct limits to how much bond yields
can rise in the near term. In addition to the obvious constraints
of sluggish growth, moderate inflation and low central-bank
rates, we must not forget that a key reason for the global
recovery is the very existence of ultra-low borrowing costs.
For policymakers to allow a significant increase in rates would
be to betray the very recovery on which the low bond yields have
been based. Just as rates were managed lower by central banks,
we expect they will be managed higher as well, moving gradually
towards our forecasts and, ultimately, equilibrium.
STOCK MARKETS CONTINUE TO PUSH HIGHER
Stock markets got off to a quick start in 2013 with global
equities, as measured by the MSCI World Index, up almost 5%
year-to-date. While the U.S. fiscal debate is on-going and the
crisis in Europe continues to evolve, it appears that investors
have begun to look past the macroeconomic headwinds and
are now focusing on an economic recovery that is gaining

16. 14 RBC PH&N INVESTMENT COUNSEL
PLANNING STRATEGIES FOR COUPLES
Couples in a long-term relationship or
considering one now need to be more aware than
ever of the financial and legal ramifications of a
love that lasts and, equally, where it may not.
Whether due to the increasing tendency to marry at an older
age, live longer or the increased prevalence of divorce,
Canadian marriages are now facing increasing financial
responsibilities, likely not considered in generations past.
On top of this, there may be even more mouths to feed at
the Canadian couple’s financial table – whether with the
increase in “blended families” (children from previous
marriages) or those in the “sandwich generation” (couples
caring for aging parents in addition to children). Exploring
the following issues can contribute to the likelihood of a
loving and stable relationship well suited to meet life’s
challenges over time.
Whether you have been married for 50 years or considering
marriage, the following are the key areas of tax, estate, and
financial planning consideration for couples (including
common-law partners).
1. CREATE A FINANCIAL PLAN
Deciding together how to best allocate and prioritize expenses
will not only save headaches, but build valuable habits and
save money. A financial plan may also identify a number of tax
planning strategies for couples (for example, “income
splitting”). One example of income splitting for couples is to
have the higher-earning spouse pay living expenses for the
family as well as the family’s tax liabilities, so the lower income
spouse can invest their own income which will be taxed at the
lower-income spouse’s tax rate.
Another effective income splitting strategy is a spousal RRSP,
which is an RRSP to which one spouse makes contributions
WEALTH MANAGEMENT
Couples need to be more aware than ever of financial and legal planning considerations – whether they have been married
for 50 years or are considering marriage.

17. COUNSELLOR QUARTERLY 15
(the contributor), but is opened in the name of the other
spouse, who is the annuitant (or owner) of the RRSP. Spousal
RRSPs provide a simple way to split retirement income
between spouses in an effort to equalize the retirement income
and minimize the couple’s income taxes.
2. USE YOUR PRINCIPAL RESIDENCE EXEMPTION WISELY
WHEN OWNING TWO HOMES
An exemption on the capital gain only applies to your principal
residence, and now that you are a couple, only one exemption is
available per family unit per year (for each year prior to 1982,
each member of the family unit may designate a separate home
as their principal residence). This means if you and your partner
both own a house (or a house and a cottage), only one exemption
is available for the years that you are considered common-law or
married. Be sure to consult your tax professional to determine the
best use of the exemption where there is more than one home.
3. DETERMINE THE BEST OWNERSHIP OF ASSETS FOR
YOU AND YOUR PARTNER AND THE ACHIEVEMENT OF
YOUR GOALS
Do you wish to own them jointly or in your own names? Ensure
that you understand the advantages, but most importantly, the
legal and tax results and how they will be distributed if you die
(or break up). You should obtain independent legal advice from
a qualified family law lawyer as every province has its own
unique rules.
4. FOR THOSE WHO HAVE BEEN MARRIED BEFORE
Consider obligations you may have with a former spouse,
children or elder parents. You will need to consider how your
assets are going to be shared both during your lifetime and
later, through your estate plan.
5. MAKE A PRACTICE OF REVIEWING AND UPDATING
BENEFICIARY DESIGNATIONS ON YOUR REGISTERED PLANS
AND LIFE INSURANCE TO ENSURE THAT THEY ALIGN WITH
YOUR CURRENT WISHES
This is particularly important if you now have a RRIF
(beneficiary designations are not automatically carried over
from your RRSP) or have remarried.
6. CONSIDER YOUR WILL SOONER RATHER THAN LATER
Be sure it is up to date, and if recently married or re-married,
whether it has been automatically revoked on marriage. This
will depend on the provincial laws where you reside. You will
also need to decide how your partner/spouse will benefit
under your Will.
7. UPDATE YOUR POWERS OF ATTORNEY
So that if you are unable to make health care or financial
decisions, the right people have the authority to make them
for you.
8. SOMETHING TO THINK ABOUT FOR THOSE
CONTEMPLATING MARRIAGE OR LIVING TOGETHER
Consider a marriage or cohabitation agreement that sets out
your financial expectations concerning the relationship to
help avoid conflicts later (including legal hassles) should the
relationship end. In most jurisdictions in Canada, legislation
is encouraging use of these agreements by giving certainty
that they will be upheld except where they are found to be
unreasonable. You can also agree on certain matters relating to
the children, including their educational or religious upbringing
and custody and access issues (however, in many jurisdictions
these provisions may be disregarded by a Court if it is felt to
be in the best interests of the children). However, do not leave
the marriage contract to the last minute. It is probably wise to
consult your respective lawyers well in advance of the proposed
nuptial date or even the “Save the Date” cards being sent to
allow for adequate consideration and negotiation. The
implementation of a marriage or cohabitation agreement will
generally require that you make full financial disclosure to your
partner. Full financial disclosure may include providing details
of your assets, income, debts and liabilities to your future
common law partner/spouse. As part of this process, you may
need to obtain professional valuations for various assets,
including business and real estate interests.
Now may be a good time to review your planning. For
more information on planning strategies for couples, please
consult with your RBC advisor and your tax or legal advisor,
as applicable.
Together with our RBC Partners, we can assist with any of the
following recommendations, in conjunction with your tax or
legal advisors.You should obtain professional advice from a
qualified tax advisor before acting on any of the information in
this article. This will ensure that your own circumstances have
been considered properly and that action is taken on the latest
information available.

18. 16 RBC PH&N INVESTMENT COUNSEL
Three years ago, I wrote to you about bringing
together the two firms of PH&N Investment
Management (PH&N) and RBC Phillips, Hager
& North Investment Counsel (RBC PH&N IC),
making a significant investment in technology
and continuing to build on our investment
solutions. Much has happened since that time,
and I wanted to update you on our progress.
At the outset, we were determined to continue to exceed your
expectations of us. In fact, we wanted our highly valued clients
to benefit from the integration of both firms. Some of these
benefits are already in place, and some will come to fruition
over the next few months, including:
First, we have expanded our award-winning investment
offering to provide you with even more choices for fixed-
income, equity and alternative investments. With the
acquisition of BlueBay Investment Management we can
now extend more fixed-income choices, and we have also
expanded our equity offering with new dividend-oriented
investments, hedge funds and private equity options.
To make it easier for you and your Investment Counsellor
team to stay in touch, and to provide additional functionality,
we are investing in our business technology to provide more
comprehensive reporting and communications. Over the
next six months, we will be implementing new portfolio
management and contact management systems, culminating
with the transfer of all RBC GAM (former PH&N) client
accounts on to this platform.
Amid ongoing global economic change, we wanted solutions
to be available for you to protect the wealth you’ve earned,
minimize the taxes you pay and prepare your estate to
transition to the next generation. To do so, and based on
client feedback, we have expanded our resources in the
areas of tax, financial, insurance and estate planning. We
have also grown our team of specialists and brought on
experts in business succession to help manage, protect and
transition the wealth in your business.
We will be communicating regularly with you over the coming
year on the progress of these changes. By always remaining
committed to you, our clients, we can continue to provide the
industry-leading investment solutions, wealth management,
service and reporting that, we hope, will continue to exceed
your expectations.
VIJAY PARMAR, CA
PRESIDENT
INVESTING IN OUR BUSINESS, AND OUR CLIENTS
THE LAST WORD

19. Past performance is not indicative of future results. Counsellor Quarterly has been prepared for use by RBC Phillips, Hager & North Investment Counsel Inc. and RBC Global Asset Management Inc.
as an exclusive service for Discretionary Investment Management clients. The information in this document is based on data that we believe is accurate, but we do not represent that it is accurate or
complete and it should not be relied upon as such. Persons or publications quoted do not necessarily represent the corporate opinion of RBC Phillips, Hager & North Investment Counsel Inc. or RBC
Global Asset Management Inc. This information is not investment advice and should only be used in conjunction with a discussion with your RBC Phillips, Hager & North Investment Counsel Inc. or
RBCGlobalAssetManagementInc.InvestmentCounsellor,asapplicable.Thiswillensurethatyourowncircumstanceshavebeenconsideredproperlyandthatactionistakenonthelatestinformation
available.NeitherRBCPhillips,Hager&NorthInvestmentCounselInc.,RBCGlobalAssetManagementInc.noranyofitsaffiliates,noranyotherpersonacceptsanyliabilitywhatsoeverforanydirector
consequential loss arising from any use of this report or the information contained herein.This document is for information purposes only and should not be construed as offering taxor legal advice.
Individuals should consult with qualified tax and legal advisors before taking any action based upon the information contained in this document. Some of the products or services mentioned may
not be available from RBC Phillips, Hager & North Investment Counsel Inc.; however, they may be offered through RBC partners. Contact your Investment Counsellor if you would like a referral to one
ofourRBCpartnersthatofferstheproductsorservicesdiscussed.RBCPhillips,Hager &NorthInvestmentCounselInc., RBCPrivate Counsel(USA) Inc., RBCGlobalAssetManagementInc.,RoyalTrust
Corporation of Canada,The RoyalTrust Company, RBCAsset Management Inc., RBCDominionSecurities Inc. and Royal Bankof Canada are all separate corporate entities that are affiliated. Members
oftheRBCWealthManagementServicesTeamareemployeesofRBCDominionSecuritiesInc.RBCPH&NICandRBCGAMaremembercompaniesofRBCWealthManagement,abusinesssegmentof
Royal Bankof Canada. The brand name RBCWealth Management – PH&N Investment Counsel is used by RBC PH&N IC and the private client division of RBC GAM. ® / ™ Trademark(s) of Royal Bank
of Canada. RBC, RBC Wealth Management and RBC Dominion Securities are registered trademarks of Royal Bank of Canada. Used under licence. © RBC Phillips, Hager & North Investment Counsel
Inc. 2013. All rights reserved. VPS82362
94632 (04/2013)
COUNSELLOR QUARTERLY 17
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WINNER ANNOUNCED FOR 2013 CHARLES TAYLOR PRIZE FOR LITERARY NON-FICTION
Andrew Preston has been named the winner of The 2013
Charles Taylor Prize for Literary Non-Fiction for his book
Sword of the Spirit, Shield of Faith: Religion in American
War and Diplomacy, published by Knopf Canada.
Noreen Taylor, chair of the Charles Taylor Foundation,
announced the winner’s name before a packed audience
of guests, publishers and media at the King Edward Hotel
in Toronto in March 2013, and presented him with a cheque
for $25,000 and a specially commissioned crystal award.
This is the 12th awarding of the prestigious prize, which
recognizes excellence in Canadian literary non-fiction. First
presented as a biennial award in 2000, and made annual
in 2004, the Charles Taylor Prize for Literary Non-Fiction is
presented to a Canadian author whose book best demonstrates
a superb command of the English language, an elegance of
style and a subtlety of thought and perception. RBC Wealth
Management is the presenting sponsor for the prize.