Welcome | 2018 Strategic Outlook Introduction by Mark Therriault, Financial Advisor/Partner

WHAT

IS

WEALTH

MANAGEMENT?

NWM

Planning Process

circa 1994

2018 Strategic Outlook Rob Edel, Chief Investment Officer

Our Agenda

Investment Roadmap 2017 in Review

Good Neighborhood Turning Bad Points of Interest

Oct 19, 1987 Oct 18, 2017

2017 in Review S&P 500

2017 S&P 500 +21.8%

+1% Declines

Last

+5% Decline

June 24-27 2016

Feb 2, 2018

404 Days

Average since 1929

92 Days

Feb 8, 2018

-10.1% 2017 S&P 500 +21.8%

1%+ Declines

2017 in Review S&P/TSX

Sept 8, 2017

+9.2%

2017

S&P/TSX

+9.1%

2017 in Review Canadian and U.S. Yield Curves

Yield Curve

Yield Curve

Dec 31, 2017

Dec 30, 2016

Dec 31, 2017

Dec 30, 2016

0.74%

1.69%

2.04%

1.72%

+95 bps

+32 bps

1.19%

1.88% 2.44%

2.41%

+69 bps

Mar 20, 2018

Investment Road Map The Art of Forecasting – Tricks of the Trade

Business Insider Jan 4, 2016

Investment Road Map

Investment Road Map

Maximum sustainable output

Recession

rate cuts

Early recovery,

low inflation,

low policy

rates

Late

recovery,

rate hikes,

rising inflation

Stagflation,

High Inflation

Slowing Growth

Rate

Cuts

Rate

Hikes

Time Federal reserve: +1.8%

Investment Road Map

The Daily Shot – Jan 9, 2018

Investment Road Map

Maximum sustainable output

Federal reserve: +1.8%

Rate

Hikes

INFLATION

Investment Road Map

Barron’s – Dec 30, 2017 The Daily Shot – Jan 30, 2017

5% 10 Year 3.5% 10 Year

Investment Road Map

Investment Road Map

Investment Road Map

Morgan Stanley Research – Sunday Start – What’s Next in Global Macro Dec 10, 2017

Investment Road Map

U.S. Tax Reform: • Corp rate 35% to 21%

• U.S. Corporations hold estimated $2.6 trillion overseas

• Full expensing of business investment for five years

http://download.tomtom.com/open/manuals/LIVE/TomTom-EU-LIVE-RG-en-gb.pdf

Maximum Sustainable GDP

Time

Investment Road Map

McKinsey & Co.

Productivity +2.0% vs. +0.5%

+1.8%

Bad Neighborhood Trump

Source: Financial Times, February 2018

Trade War – China

North Korea

Syria/Middle East

Mueller Investigation

Stormy Daniels

Tomorrows Headlines Hedgeye – Cartoon of the Day – Mar 5, 2018

Investment Road Map

Bad Neighborhood Monetary Policy

Past 7 recessions

Fed cuts rates +500 bps

Fed Funds - 1.50%

Expected Peak – 3.0%

Can’t cut 500 bps

Bad Neighborhood Fiscal Policy

JP Morgan Michael Cembalest “Eye on the Market – Feb 21, 2018

Bad Neighborhood Debt: Canadian Consumer

WSJ – Feb 19, 2018 https://www.bankofcanada.ca/wp-content/uploads/2017/12/san2017-24.pdf

Bad Neighborhood

DEFLATION INFLATION

Secular Stagnation

Low Productivity

High Debt Levels

Stagflation

Inflationary

Expectations

Points of Interest

Bloomberg – Feb 3, 2018

Points of Interest Bitcoin: Blockchain

MIT Study: $270 - $317 million raised by ICO’s are

frauds or scams

Charles Kindleberger: “There is nothing so disturbing to

one’s wellbeing and judgement as to see a friend get rich.”

Blockchain

• A secure database, or ledger, spread across multiple computers

Bitcoin • Digital Global Currency – used for everyday transactions?

• Store of value?

• Bitcoin Energy Consumption Index = Algeria

Points of Interest Bitcoin: Useless Etherium Token

Contributions in US$’s - $276,342

Enough to buy 230 televisions!

Points of Interest Marijuana

1 Year Cannabis Stock Performance

Barron’s – Mar 30, 2018

Canopy CEO Bruce Linton ROB Magazine – Nov 12, 2017

Barely existed 3 years ago

Now dozens of companies

~$30 billion market cap

Points of Interest Marijuana

Globe & Mail – Feb 8, 2018 Globe & Mail – Feb 8, 2018

Barron’s Mar 30, 2018

60 Private and public companies

Health Canada granted 89 licenses

Feb 1 – 244 more in review stage

Oregon/Colorado – wholesale $0.50 - $2.00

Commodity business

Low barriers to entry

No sustainable advantage

Canada • Deloitte: After legalization

• $4.9-$8.7 billion market

• Low=rum, High=wine

• Price: $10/gram initially

Constellation Brands • U.S. $50 billion Market

• Global: $200 billion in 15 years

• Wine: $60 billion

• Tobacco: $75 billion

Points of Interest Active vs. Passive Investing

Strategas – Technical Strategy & Analysis October, 2017

Active equity mutual funds

• 2009-2017 $1.0 trillion in

outflows

ETFs - Passive

• 2009-2017 $1.7 trillion in

inflows

• 44% of equity AUM ETFs or

passive mutual funds

Strategas Technical Analysis Research – May 16, 2017

Points of Interest Active vs. Passive Investing

Strategas Technical Analysis Research – May 16, 2017

Low interest rates mean more bad companies are able to survive

WSJ – Feb 13, 2018

Long time horizon

$1.7 Trillion in Dry Powder

Manager Selection

Points of Interest Active vs. Passive Investing: Private Equity

Summary

• Next recession at least 12 months away

• Conditions more challenging during next recession

• Risk asset still attractive in this environment

• Watch for sign of end of the cycle – lower risk exposure

• Avoid investment fads

• Active management to outperform

• We have reached our destination Business Insider – Feb 7, 2018

2018 Strategic Outlook Mark Therriault, Financial Advisor/Partner

Where are markets going?

Many Happy Returns (1870-2015)

Asset Class Returns 1870-2015 (NBER)

4.6% 6.1%

11.1% 10.8%

3.3%

8.9% 10.7%

22.8%

T-Bills Bonds Real Estate Equities

Nominal Return Volatility

Same Return

Liquidity and

behaviour

Great Expectations

Cape Shiller 10-Year PE (peaks)

1929

1936 1966

2000

2008

2018

Higher than 1929

0.2%

-0.8%

-2.2%

-0.9%

2.3%

-0.3%

4.0%

1929 1937 1966 2000 2008 Average GoalNo real return

for five years

5 Year 60/40 Balanced After Inflation and Fees After CAPE Peak

Our Asset Allocation

CDN/US

CDN /

Foreign

(Private &

Public) Bonds

Mortgages

Private Debt

Hedge Funds

Precious Metals

Real Estate

20%

Equity

38% Fixed

Income

36%

Alternative

6%

-2.1%

-0.1%

-1.1%

4.0%

5.1%

3.1%

4.1% 4.0%

2000 2008 Average Goal

60/40 vs. Core Net of Inflation and Fees 5 Years After CAPE Peak

Less Risk and More Return

13% more

over 20 years

and 30% less risk

7.2%/year

6.7%/year

Much bigger difference in bear markets

3.17% +74% 14% Less

Harbour Towers Hotel & Suites

Acquired: October 2015

Purchase Price: $23.0 M

Hotel Rooms: 196

Pre-Acquisition

• NOI – $1.5M

• NOI Yield – 6.5%

• Occupancy – 62%

• ADR* – $130

Post-Acquisition (2016)

• NOI – $2.0M

• NOI Yield – 8.7%

• Occupancy – 70%

• ADR* – $148

*Average Daily Rate

Acquisition, Victoria

Harbour Towers – Value Creation Multi-Family Rental Conversion

219 New Rental Units

Projected Cost: ~$56.4 M

Projected Value: ~$67 M

Return on Cost: ~19%

Projected IRR: ~17%

BEFORE

AFTER

Portfolio acquired in January 2007 for $31.2 Million

Partnership with Venterra Realty

Three (3) multi-family properties built in mid 1980’s,

totaling 738 units

Value-Add Strategy with capital program to increase

rents

Strong operational and customer-focused

management platform.

Sold in 2016 for $57.75 Million

Leveraged IRR of approximately 18% from

acquisition in 2007

SPIRE US LP The Huntcliff Portfolio, Houston, Texas

Acquired in May 2017 in partnership with

Hopewell

76,709 sf industrial warehouse facility on a 4.55

acre site in Foothills Industrial District

47% leased at acquisition

Repositioning of existing building

Physical upgrades include “white-boxing”

vacant warehouse space

Vacant unit leased within six (6) months of

acquisition

7703 30th Street

Work in Progress

7703 30th Street

Original at Acquisition

SPIRE Value Add LP 7703 30th Street SE, Calgary, AB

NWM Private Debt Fund

Why private debt investing?

Higher Yields – less competition

Better Risk Control – stronger collateral, covenants and info

Equity Participation – shares, warrants or bonus payments for some equity upside

Why NWM Private Debt Fund?

1. Diversification – across niche markets and deals

2. Full Investment – IRR is on full investment; NWM manages liquidity and commitments with the Fund

3. Cost Efficiency – NWM negotiates lower manager fees and no-fee co-investments access due to pooled fund size

Launch Date: October 2017

Current Size: $125 million invested ($63 million on waitlist)

Estimated Yield: 8.2% Gross, 7.3% Net

Target IRR: 9.8% Gross, 8.5% Net

Baylin Technologies 1st Lien Loan - $1.5 million

As one Crown Capital Fund IV’s largest

investors, NWM Private Debt Fund was

provided with this Co-Investment opportunity

on a no-fee basis.

Interest Income: 9% per year

Fees Earned: 1%

Equity Participation: 30,000 Warrants

Leverage: 2.1x Debt/EBITDA;

25% Loan-to-Value

Target Gross Return: 9.7% to 13.7% IRR (before Warrants)

Drill down

Documents

Newsletters

Net Worth Retirement and

Estate projections

Trust Fund Buddies

Tax Reform 2017

What’s Being Plucked?

• Income splitting of dividends from private corporations

• Increase tax on passive corporate income that could reach 71% when paid

out as dividends

• Pipeline planning that converts dividends to capital gains is prevented

How is the Goose Doing Now?

• Income splitting allowed over age 65 with a spouse

• Otherwise no, unless labour or financial contribution

• Passive rules stay the same except reduction in SBD if passive income over

$50,000/year; more expensive to recover RDTOH in some cases

• Integrated tax on passive income can be as high as 56% in Ontario

Tax Reform 2018

Before Tax Reform

• Dividend compensation if SBD

• Income split using dividends and trust

• Accumulate passive assets in CCPC and recover RDTOH when dividends paid

• SBD not impacted by passive assets

After Tax Reform

• Salary RRSP/IPP better

• Over 65 on with spouse otherwise labour or capital

• CCPC still better but try and minimize taxable passive income

• Start losing SBD at $50,000 of passive income. 100% gone at $150,000. Does it make much difference?

Bonds

15%

Mortgages

30%

High Yield

Bonds

15%

Global

Bonds

15%

Private Debt

25%

Asset Allocation for Registered Plans and Foundations

Interest Bearing Tax deferred in

registered accts.

Cdn Equities

25%

Foreign

Equities

15%

Real Estate

35%

Life Insurance

10%

Pref. Shares

5%

Private Equity

5% Alternatives

5%

Asset Allocation for Taxable Private Corporation

Historical Tax Analysis 11.5%

9.7% 10.1%

5.0% 4.6% 5.4% 5.9%

9.3%

Annual Returns

53.0% 41.0%

17.0% 0.0%

75.0%

20.0% 5.0%

30.0%

% Taxable

15.2%

Expected Return 6% Expected Return 7.5%

• $2.2M portfolio in

private company

• Qualifies for SBD

What is overall tax and tax rate going forward?

A Tale of Two Taxpayers

$170,000

$50,000 $23,500

$0 $0 $23,500

Total return Taxable return Corporate tax Impact on

SBD

Additional tax Total tax

$140,000

$72,000

$34,200

$110,000

$16,500

$50,700

Total return Taxable returnCorporate tax Impact on

SBD

Additional tax Total tax

21% more return, 54% less tax

13.8%

36.2%

Tax Efficient Portfolio Analysis

Saving Corporately $100,000 pre-tax income

$88,000 $73,000

$12,000 $27,000

12% Business Tax 27% Business Tax

Tax

Saving

20% more to save

Assumptions

• Save for 30 years

• 6% after tax return

• Take out income at

retirement as dividends

$7,300,000

$6,100,000

Assets in 30 years

SBD General Rate

20% more saved

$227,000 $213,000

Spendable Income

Wealth Accumulation Corporately

$7,300,000

$6,100,000

Assets in 30 years

SBD

General Rate

6.5% less

$290,000/yr.

$250,000/yr.

20% more

saved

Planning Factors

• Corporate assets

• Age

• Business Income

• Spending needs

Planning needs to be customized and will change over time.

Planning Options

Tax Efficient Asset Allocation

IPP vs. RRSP

Over Age 50

Prescribed Rate

Loans

Insurance With or

Without Leverage

THANK YOU

QUESTION AND ANSWER