2016 has been a year full of surprises. Several major events did not go the way of “expert” prediction; most notable were the vote in the UK to leave the European Union (Brexit) and the outcome of the US presidential race with Donald Trump winning.

1. FOURTH QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
A Year of Surprises
2016 has been a year full of surprises with Brexit and Trump taking flight.
25 Adelaide Street East, Suite 500
Toronto, ON M5C 3A1

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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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FOURTH QUARTER 2016
RETROSPECTIVE AND PROSPECTIVE
AYear of Surprises
“Economists are often asked to predict what the economy is going to do. But economic predictions
require predicting what politicians are going to do- and nothing is more unpredictable.”- Thomas
Sowell
“It is an endless procession of surprises. The expected rarely occurs and never in the expected
manner.”- Vernon A. Walters
2016 has been a year full of surprises. Several major events did not go the way of “expert” prediction;
most notable were the vote in the UK to leave the European Union (Brexit) and the outcome of the US
presidential race with Donald Trump winning.
The Canadian stock market continued its advance for the year as the S&P/TSX Index increased 4.5% for
the quarter bringing the year’s return to 21.1%. For the year, Materials (+41.2%) was the best
performing sector followed by Energy (+35.5%) and Financials (+24.1%). In the fourth quarter, the best
performing sectors in the Canadian market were Financials (+11.5%), Energy (+7.0%) and Industrials
(+5.3%). Post-election euphoria appeared to drive the US market as the S&P 500 advanced 3.8% in the
quarter bringing the annual return to 12.0%.
Canadian Dollar US Dollar
Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Toronto Stock
Exchange 4.5% 5.1% 5.5% 4.5% 21.1%
S&P 500 -4.7% 1.9% 5.4% 6.4% 8.8% 1.3% 2.5% 3.9% 3.8% 12.0%
MSCI EAFE* -9.5% -3.2% 7.3% 1.5% -4.6% -3.7% -2.6% 5.8% -1.0% -1.9%
91 Day T-Bill 0.1% 0.1% 0.1% 0.1% 0.5%
CUBI** 1.4% 2.6% 1.2% -3.4% 1.7%
CDN/US dollar 6.7% -0.3% -0.7% -2.3% 3.1%
* Europe, Asia and Far East Index
** Canadian Bond Universe Index
Although the year as a whole turned out to be positive for the markets, it did not start out so well.

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Following the modest rate hike by the Federal Reserve (Fed) in December 2015, the S&P 500 declined
8% in the first ten trading days of 2016, and it was still down 10% after the first 28 days. This was the
worst start for the S&P 500 in history. The Royal Bank of Scotland (RBS) issued the opinion: “Sell
everything”! The gloom continued into early February as fears of a slowing Chinese economy fostered
volatility in oil prices and upset many participants in the high yield markets. Investors were concerned
that the US economy may have peaked and a recession may be at hand but from mid-February they
became more sanguine as economic indictors continued to reflect an expanding economy.
Then on June 24th
, the UK vote to leave the European Union came as a surprise to the pundits, media
and the investment community. As the prognosticators had predicted, initially stock markets went down
sharply but to their surprise, markets recovered after a few days. Prior to the US presidential election,
the media and pollsters were again forecasting that stock markets would implode if Donald Trump won.
There was a violent sell-off that night, but the markets recovered quickly and went on to record the
longest running post election rally in history.
While all of this was occurring, the European migrant crisis persisted causing vexation within the local
populations and spurring more radical political movements. A disturbing trend from an investor's point
of view has been the rising volume of anti free trade and globalization rhetoric. The underlying financial
problems within the European Union with respect to Portugal, Italy, Greece and Spain remain
unresolved as if politicians are hoping that a "deny and delay" policy will push these crises onto future
governing bodies. Other issues that continue to persist include disturbances in the Middle East
(particularly Syria), Chinese hegemony in the South China Sea, Russian incursions into the Ukraine and
Syria (and maybe even US politics), etc.
As we head into 2017, we will carry all of this baggage with us as well as face many new, yet unknown
disruptions as we do every New Year. While it is not known what the longer-term consequences of a
Trump presidency will be, the US economy is expanding and it is unlikely that policies would be
introduced to intentionally stunt that growth. While investors played a waiting game with the Federal
Reserve in 2016, it appears that there is now confidence in the strength of the US recovery to allow
interest rates to increase. In Europe, despite problems in a number of areas, the overall economy is
exhibiting signs of more stability and even some growth. While growth in the emerging economies has
slowed, growth relative to the developed world is robust producing greater wealth and higher demand
for goods and services
Technology continues to reshape our world in an ever-accelerating fashion. There will be winners and
losers in this trend, but change is inevitable. 2016 is still fresh in our minds. 2017 will bring more shocks
and surprises. Investors will prosper if they stay fast with their discipline and do not get distracted by the
turbulence that surrounds them. As Howard Marks, a famous value investor, has stated: “No one really
knows what events are going to transpire… no one knows what the market reaction will be.”

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FOURTH QUARTER 2016 FIXED INCOME COMMENTARY
“Last year we said, 'Things can't go on like this', and they didn't, they got worse.” ~ Will Rogers
After peaking in the summer, the bond market’s direction has decidedly deteriorated. In December the
US Federal Reserve started its widely expected tightening by raising the Fed Funds rate 0.25% to 0.50%.
Further interest rate hikes will likely proceed at a moderate pace as dictated by economic conditions.
According to the commentary emanating from Federal Reserve governors and other pundits indicates
that the consensus view is that historical interest rate lows are behind us.
Mr. Trump's unexpected election win is causing some uncertainty as to the economic agenda going
forward. His promises of corporate and personal tax cuts, increased military spending and infrastructure
investment will have to be funded through increased borrowing that would normally be expected to be
inflationary. In addition, his penchant for random Tweeting has, and will likely continue to cause,
turbulence in the markets.
European concerns continue. The Italian banks' need for recapitalization, the most notable being the
insolvent Banca Monte Paschi di Siena (the world's oldest and Italy's third largest bank), has called into
question the viability of the entire Italian banking system. As it stands, approximately 18% of Italian
banks' loan portfolio is non-performing.
Italy’s problems dwarf those of Greece. Italy is the third largest economy in Europe. A banking crisis in
Italy will require all the resources of the European Union. The strapped Italian government simply does
not have the resources to recapitalize some, or all, of its banking sector. Questions as to the continued
viability of the European Union are multiplying.
In 2017 elections will be taking place both in France and Germany. These two countries have been
traumatized by terrorist attacks and they have been severely impacted by the immigration crisis.
Nationalist sentiment and anti-immigrant rhetoric have exacerbated tensions.
Indications are that Canadian government borrowing and deficit spending will be of longer duration that
originally indicated. Increased borrowing and similar spending policies in the US should keep the
interest rate differentials, and hence the exchange rates, between the two countries in a relatively tight
range, unless Mr. Trump's policies result in significantly increased economic growth and job creation in
that country.
The total return performance of the bond market as measured by the FTSE TMX Canada Universe Bond
Index for the fourth quarter was a decline of 3.4%. 91-day Treasury bills returned 0.1% over the same
period. The benchmark ten-year Government of Canada bond yield increased 0.72% over the course of
the quarter to end with a 1.72% yield at year-end. Over the course of the quarter the Canadian dollar
depreciated by 1.7 cents from 76.2 cents US to 74.5 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.
Stay connected with Sprung Investment Management:
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