(04/2018)

InsightsRBC RETIREMENT PORTFOLIOS

A smoother ride with RBC Retirement PortfoliosA diversified portfolio and investment timeline designed for a less volatile investing experience.

Over the past several years, North American markets have continued to reach record highs. Since 2009, investors have witnessed an almost-uninterrupted bull market for equities with below-average levels of volatility. This combination of consistently rising markets and few large moves in either direction can cause us to forget that volatility is a natural part of investing. However, when a low-volatility environment, particularly like the one experienced in 2017, is quickly followed by a more volatile experience, like the one that kicked off 2018, the result may be a harsh reminder.

Fewer speedbumpsIt is important to remember that the occasional large swings associated with a single asset class are not necessarily reflective of how your RBC Retirement Portfolio is performing. The chart below compares the results for the S&P 500 Index – which tracks the value of America’s largest companies and is often used as a gauge of how equities as a whole are performing – against the performance of the RBC Retirement Portfolios during a recent period of volatility.

Diversification reduces volatility (Market & portfolio performance from Feb. 01 to Feb. 14, 2018)

In this issue1 A smoother ride with RBC Retirement Portfolios

2 What happened in world markets last quarter

3 Portfolio Manager viewpoint

Retirement resource centreLooking to learn more about how to save for retirement, or how to prepare for transition into retirement? No matter what stage of life you’re in, our online resource centre of educational articles, tools and checklists will help you stay informed and up-to-date on retirement trends, saving strategies and investing tips.

To learn more, visit www.rbcgam.com/resourcecentre

SPRING 2018

2020

-4.4%S&P 500 Index

2025

2030

2035

2040

2045

2050

RBC Retirement Income Solution*

-1.5%

-1.8%

-1.9%

-1.9%

-1.9%

-1.9%

-1.6%

-0.8%

February 1st to February 14th, 2018

RBC Retirement Portfolios*

Note: S&P 500 Index returns are in local currency. Source: RBC GAM. *Series A.

Why portfolio diversification is important

2013 2014 2015 2016 2017

US Equities41.6%

US Equities24.4%

US Equities 20.8%

CDN Equities 21.1%

EM Equities28.3%

INTL Equities31.0%

Balanced Portfolio11.4%

INTL Equities19.0%

US HY Bonds14.3%

INTL Equities16.8%

Balanced Portfolio14.2%

CDN Equities 10.6%

Balanced Portfolio6.5%

US Equities8.6%

US Equities14.1%

CDN Equities 13.0%

Global Bonds 9.4%

CDN Bonds 3.5%

EM Equities7.3%

CDN Equities 9.1%

US HY Bonds7.1%

CDN Bonds 8.8%

EM Equities2.0%

Balanced Portfolio6.5%

Balanced Portfolio8.8%

EM Equities3.9%

EM Equities6.6%

Global Bonds 1.9%

Global Bonds 3.5%

US HY Bonds6.4%

Cash1.0%

US HY Bonds4.3%

Cash0.6%

CDN Bonds 1.7%

CDN Bonds 2.5%

Global Bonds 1.0%

INTL Equities3.7%

US HY Bonds-2.7%

Cash0.5%

Global Bonds 1.8%

CDN Bonds -1.2%

Cash0.9%

CDN Equities -8.3%

INTL Equities-2.5%

Cash0.6%

As of December 31, 2017. Source: RBC GAM. CDN Bonds= FTSE TMX Canada Universe Bond Index; US HY Bonds= Bank of America Merrill Lynch High-Yield BB-B TR Index; Global Bonds= FTSE World Government Bond Index; CDN Equities= S&P/TSX Composite Total Return Index; US Equities = S&P 500 Total Return Index; INTL Equities= MSCI EAFE Total Return Index; EM Equities= MSCI Emerging Markets Total Return Index; Cash= FTSE TMX Canada 30 Day T-Bill Index. Balanced Portfolio represented by 2% Cash, 43% Fixed Income, 19% Canadian Equities, 20% U.S. Equities, 12% International Equities and 4% Emerging Market Equities.

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Cont. from page 1

While this is a limited example, it does demonstrate that what you see on the news regarding volatility in any single market is not indicative of the impact on your RBC Retirement Portfolio.

Consistent performance via a diversified approachRBC Retirement Portfolios are designed to experience reduced volatility because they invest in more than one asset class and across multiple investment strategies. Because individual markets are unpredictable, no single asset class consistently outperforms the others. When some asset classes or sectors are experiencing tough times, others may be thriving. Since the equity weighting alone is not a perfect proxy for market risk exposure, the investment timeline considers both how much to hold in equities and what type of equity to hold at

different points along the retirement timeline. Investment risk and volatility are gradually reduced along the timeline as your RBC Retirement Portfolio becomes less focused on investing for growth and more focused on producing cash flow in retirement.

The table below, which shows the performance of each major asset class over the last five years, illustrates how different asset classes have performed over time. We’ve also included a typical balanced portfolio to illustrate the benefits of diversification. Each year, the list of best-performing to poorest-performing changes. This highlights the benefit of a diversified approach and showcases why holding multiple asset classes can help moderate swings in portfolio returns.

A smoother path to your goalsThe path to your retirement goals becomes a clearer one with a smoother investment experience. A diversified approach along with a well-designed retirement timeline is what makes your RBC Retirement Portfolio a good travelling companion along your investment journey. The suite builds on over three decades of asset allocation expertise, offering a time-tested approach that mitigates risk through diversification while still delivering long-term investment outcomes aligned with investor expectations.

Portfolio Manager viewpoint Sarah Riopelle, CFA , Vice President & Senior Portfolio Manager, Investment Solutions

The economic backdrop is quite good by post-crisis standards and, while the aging business cycle, rising interest rates and protectionism pose challenges, we think the global economy in 2018 will grow at the fastest pace in eight years. Given the positive outlook, central banks will likely continue dialing back monetary accommodation and we expect bond yields to rise at a gradual pace. While rising yields could act as a drag on fixed-income returns, bonds play a critical role as ballast against market volatility in a balanced

portfolio. For a global, balanced portfolio, we took advantage of the recent increase in yields to reduce our underweight position in fixed income by one percentage point, sourced from cash. We remain overweight stocks as we expect them to continue outperforming bonds, but our asset mix is closer to neutral than it has been in many years given maturation in the business and market cycles and demanding valuations.

RBC RETIREMENT PORTFOLIOS | SPRING 2018 | 3

What happened in world markets last quarter

Fixed incomeGlobal fixed-income markets were mixed. Bond indices edged higher in the U.S. and Canada, while Europe and Japan also rose marginally, helped by relative currency strength. After a year of strong economic data, capped off by a positive Business Outlook Survey and a string of strong employment reports, the Bank of Canada elected to hike its overnight rate in mid-January to 1.25% – the highest level since the financial crisis. Bond yields are poised to rise further as most of the factors that have

constrained them over the past decade are now fading, including: quantitative easing, negative-yielding bonds in Europe, lacklustre inflation and wage growth, and an increased demand for safe assets. This quarter, the FTSE TMX Canada Universe Bond Index rose 0.1%, and the FTSE World Government Bond Index increased 0.6%.

Canadian equities Canada’s benchmark stock index closed 2017 as the worst-performing developed-

world equity market and continued to underperform during the first quarter of 2018. The underperformance was likely due, in part, to concerns about the sustainability of domestic economic growth and competitiveness, as well as uncertainty surrounding NAFTA negotiations. The S&P/TSX Composite Index fell 4.5% during the three-month period.

U.S. equitiesDespite a correction early in the quarter, the U.S. stock market recorded

modest returns, which were driven by solid performance in the Consumer Discretionary, Information Technology, Financials and Industrials sectors. Performance was supported by the continued synchronized global economic expansion, still-accommodative global central-bank policies and low market interest rates and inflation. Solid earnings growth on the back of tax cuts implemented in December 2017 led to better-than-expected profits for many U.S. companies. The S&P 500 rose 1.7% this quarter.

International equitiesGlobal equity markets had a strong start in 2018, buoyed by a robust economic outlook

and anticipation of the positive impact of U.S. tax reform taking effect this year. However, concerns about rising inflation and interest rates caused markets to retreat in early February, and they have remained volatile ever since. European equities remained fairly robust into the end of 2017 and rallied further during the early part of January 2018 before falling back. Asia-Pacific markets managed to edge higher, rebounding from a broad global stock sell-off in late January. The MSCI EAFE Index finished up 1.4% and the MSCI Emerging Markets Index added 4.4% in the quarter.

All returns are in C$ except where indicated. Canadian, U.S., MSCI EAFE and MSCI Emerging Markets index returns are total returns.

Ultimately, when we do a good job, people have a better retirement or future generations have more.”

rbcgam.com/ourstoryPersonally invested.

®

Taham MahimwallaInstitutional Portfolio Manager

Dagmara FijalkowskiHead of Global Fixed Income and Currencies

Sarah RiopelleVP & Senior Portfolio Manager, Investment Solutions

Habib SubjallySenior Portfolio Manager and Head, Global Equities

Series A returns for 1-yr and since inception (Oct. 2016) as of Feb. 28, 2018 for RBC Retirement Income Solution: 1.2% and 1.7%; and for Retirement Portfolios (by Fund target date): 2020: 4.2%, 5.0%; 2025: 4.9%, 6.0%; 2030: 5.4%, 6.6%; 2035: 5.5%, 6.5%; 2040: 5.4%, 6.5%; 2045: 5.8%, 6.9%; 2050: 4.6%, 5.3%.All opinions contained in this document constitute our judgment as of March 31, 2018, are subject to change without notice and are provided in good faith but without legal responsibility. RBC Funds, PH&N Funds and BlueBay Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers. Please consult your advisor and read the prospectus or Fund Facts documents before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual fund securities are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual

compounded total returns for the periods indicated including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2018

4 | RBC RETIREMENT PORTFOLIOS | SPRING 2018

We thank you for your ongoing trust in continuing to hold RBC Retirement Portfolios as part of your investment plan. If you have any questions or comments, please contact us or your advisor.

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