As the third quarter drew to a close, Canada had yet to come to terms with the US and Mexico on a renewed trade agreement. Investors woke up on Monday, October 1, 2018 to news that a deal had in fact been cobbled together at the last minute and that all was well in the world.

1. THIRD QUARTER 2018
RETROSPECTIVE AND PROSPECTIVE
Trade Cliff Hanger
USMCA replaces NAFTA
10 King Street East, Suite 801
Toronto ON M5C 1C3

2. 10 King Street East, Suite 801, Toronto ON M5C 1C3| Phone: 416.607.6642 | www. SprungInvestment. com | P a g e | 2
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.

3. 10 King Street East, Suite 801, Toronto ON M5C 1C3| Phone: 416.607.6642 | www. SprungInvestment. com | P a g e | 3
THIRD QUARTER 2018
RETROSPECTIVE AND PROSPECTIVE
Trade Cliff Hanger
“The markets are the same now as they were five to ten years ago because they keep changing- just as
they did then.” Ed Seykota
“If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of
sand.” Milton Friedman
As the third quarter drew to a close, Canada had yet to come to terms with the US and Mexico on a
renewed trade agreement. Investors woke up on Monday, October 1, 2018 to news that a deal had in fact
been cobbled together at the last minute and that all was well in the world. The initial reaction of the
markets was positive. Whether this positive sentiment remains will become apparent as the details of the
agreement become known and are implemented. However, during the third quarter, market sentiment
was buffeted not only by trade tensions but also by many geopolitical factors around the globe.
In Canada, the S&P/TSX Total Return Index declined 0.6% in the quarter led largely by the Materials
sector (down 12.9%) as industrial commodity prices were negatively influenced by trade tensions. The
US market advanced 7.7% as measured by the US dollar denominated S&P 500 Total Return Index in
the third quarter as the economy continued to show positive momentum. Unlike the second quarter,
larger capitalized companies outperformed smaller companies led by Health Care that advanced 15% in
the quarter. The S&P SmallCap 600 gained 4.7% in the quarter. Chinese and the Emerging markets were
mostly negative. The Canadian dollar gained 1.7% to its US counterpart.
Canadian Dollar US Dollar
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Toronto Stock
Exchange -4.5% 6.8% -0.6% 1.4%
S&P 500 1.7% 5.4% 5.9% 13.4% -0.8% 3.4% 7.7% 10.6%
MSCI EAFE* 0.0% -0.3% -1.0% -1.3% -2.4% -2.2% 0.8% -3.8%
91 Day T-Bill 0.3% 0.3% 0.3% 0.9%
CUBI** 0.1% 0.5% -1.0% -0.4%
CDN/US dollar -2.7% -2.1% 1.7% -3.1%
* Europe, Asia and Far East Index
** Canadian Universe Bond Index
Expectations regarding the pace of global economic growth have been diminishing over the third
quarter. The synchronized global expansion that economists were forecasting in late 2017 and early 2018
is a little less synchronized as disparities have become more evident. The developed economies continue

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to exhibit progress while those in the emerging markets have begun to falter.
The growing disharmony of various economies is fostering a more uncertain outlook as we head towards
year end and beyond. Recent imbalances in production between the oil exporting nations due to
circumstances in the Middle East and Venezuela have had a positive effect on the economies of the
remaining exporters but higher energy prices have had a negative effect on importers. Countries with
high debt levels are being negatively impacted as financial markets feel the effects of monetary
tightening in the developed world. In addition, rising tariffs are beginning to moderate trade flows and
manufacturing.
Declining trade volumes, diminished air traffic and the weakening expectations of global purchasing
managers all are contributing to fears of a global economic synchronized slowdown as opposed to the
synchronized growth expectations of less than a year ago.
Trade tensions, precipitated largely by the Trump administration, continue to dominate the news. While
the major focus has been on the disputes that the US has engaged with China and Canada, trade disputes
with Japan, the European Union and other markets are coming more into focus now that negotiations on
the USMCA (US, Mexico, Canada Agreement) have been settled (but not yet passed by the respective
governments).
The fallout from higher interest rates is also causing great concern. Debt levels in the advanced
economies of the US, Europe and Canada are now higher than the levels preceding the financial crisis of
2008. In the US, student debt now exceeds $1.5 trillion; double that of ten years ago and the second
highest source of debt after mortgages. More than 10% of student debt is in arrears. US corporate debt
has also grown dramatically over the past ten years. Some $1.4 trillion of US corporate debt is rated
BBB, or just above junk status, as investors have stretched for higher yield in the low rate environment.
Emerging market debt is also concerning as interest rates rise. All of the countries in the emerging
markets have debt to GDP ratios above 100%; China is over 150%. Much of the emerging market debt is
denominated in US dollars making repayment more challenging when local currencies devalue.
Until this point, the US market has been the leading global market with strong employment, positive
economic growth and growing corporate earnings on the back of the latest tax cuts. A tax holiday for
repatriated earnings resulted in over US$300 billion being repatriated in the first quarter much of which
has been remitted to shareholders as opposed to invested in capital expansion. Thus far the tax cuts have
resulted in a 33% decline in taxes collected from business at a time when government budget deficits are
ballooning.
In this environment, we suggest caution. Investments in financially strong, well managed companies are
suggested.

5. 10 King Street East, Suite 801, Toronto ON M5C 1C3| Phone: 416.607.6642 | www. SprungInvestment. com | P a g e | 5
THIRD QUARTER 2018 FIXED INCOME COMMENTARY
"Debt, we’ve learned, is the match that lights the fire of every crisis." ~ Andrew R. Sorkin
North American central bank activity was subdued despite the increase in bond yields during the third
quarter. The Federal Reserve in the US left their trend setting discount rate at 2.5%. The Bank of Canada
raised its rate a quarter of one percent at its July meeting, to 1.50%. The Bank of Canada appeared to be
falling “behind the curve” given that employment growth was solid and the Consumer Price Index, at
2.8%, was starting to flirt with the upper end of the bank’s target range of 3%.
Much of the Bank of Canada’s reticence at being more aggressive with their interest rate policy was
clearly motivated by the uncertainty surrounding the trade negotiations with the US. Now that the
NAFTA, or rather it’s successor USMCA, has been signed, it is likely that the central bank will resume
its tightening moves.
The interest rate hikes are not unexpected after nearly ten years of “easy money”. During this period of
low rates the world wide growth in debt was astounding. Yield hungry investors’ search for higher
returns drove them to purchase ever riskier investments. This does not bode well for fixed income
markets in the longer run.
The urge for higher returns made it easy for Argentina to issue hundred-year bonds at a quite reasonable
7% yield barely a year ago. Now they are back to the IMF for an extended line of credit while the same
said bonds were yielding 20%. The IMF action appeared to stabilize the situation. However, owning
hundred-year Argentine bonds after multiple historical defaults by this profligate South American
country… what could possibly go wrong?
Sadly, we are certain that this will not be the last problematic issue with debt and yield hungry investors.
The world is seemingly awash in debt at a time when interest rates have begun to climb, “normalize”,
once again. As Warren Buffett said: “you find out who is swimming naked when the tide goes out.”
The total return performance of the bond market as measured by the FTSE TMX Canada Universe Bond
Index for the third quarter was a decline of 1.0% bringing the year-to-date return to -0.3%. 91-day
Treasury bills returned 0.3% and 0.9% over the same periods. The benchmark ten-year Government of
Canada bond yield increased by 0.25% over the course of the quarter to end with a 2.42% yield. Over
the course of the same period the Canadian dollar appreciated by 1.3 cents from 75.9 cents US to 77.2
cents US.

6. 10 King Street East, Suite 801, Toronto ON M5C 1C3| Phone: 416.607.6642 | www. SprungInvestment. com | P a g e | 6
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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