A Brief History of ETFs: From TIPS to Levered Inverse Replication Barry Gordon President and CEOSeptember 10, 2014

2 | | Agenda 1.Evolution of the ETF Market 2.Intellectual Underpinnings 3.Fixed Income 4.Recent Developments 5.Where to From Here?

3 | | Evolution of the ETF Marketplace Current State of the ETF Market  ETFs are available that track investments in all liquid asset classes – equities, fixed income, commodities and currencies.  TIPs very first ETF  Variations to achieve either long or short exposure to the underlying, including on a levered basis.  Active and Passive variants  Structural advantages to users −Price Maker vs. Price Taker −Bulk order capabilities  Size of Market −Total Global Capitalization of over $2.25 Trillion as at December 31, 2013 −Canadian ETF Market of over $63 billion −Total Value Traded of over $15.7 Trillion in 2013

4 | | The Global ETF Industry Growth of ETFs Globally (AUM in millions)

5 | | The Canadian ETF Industry Growth of ETFs in Canada (AUM in millions)

6 | | Perspective – Relative Size of Markets Global equity market = $53T Equity Mutual Funds Global fixed income market = $100T Fixed Income Mutual Funds

7 | | Intellectual Underpinnings  Equity ETF Evolution mirrors MPT Debate  Beta = Broad capitalization weighted indexation  Product extension into Sectors, Sub-Sector, Industry  Macro Consistent  Low cost  Persistent Flaws in CAPM – Challenge to Orthodoxy  Existence of Value, Momentum, Size anomalous returns  Different Weighting Methodologies

8 | | Fixed Income  Evolved Similarly to Equity  Broad Benchmark Developed Market Indices weighted on basis of face value  Expanded beyond Investment Grade Credit  Strategy ETFs −Ladder −Bullet −Barbell  Challenges Emerge  Opaque Markets −OTC Markets anathema to a structure that thrives on transparency  Illiquid Assets? −Bank Loans −Viatical Settlements  Hedging Proxies

9 | | Recent Developments  Derivatives - Tools to Facilitate/Enhance Replication  Synthetic exposure  Derivative Overlays  Leveraged and Short Exposure  Boon or Bane?  Will ETF’s suffer from Over-Engineering?  In rapid growth markets like ETFs, we often observe the “build it and they will come” phenomenon.  There have been and will continue to be ETFs which never reach their desired potential

10 | | Where to From Here?  Evolving demand from retail, advisors and institutions  Tools versus solutions  Active Versus Passive  Can Active add Alpha when costs are neutral?