Skinner, Sureka, Yan1

S&P500 Sector Weighting Information Technology Largest Sector : 18.6% Telecommunication Services Smallest Sector: 3.0% Financials Second largest sector 15.1% Source: S&PSource: Seeking Alpha Skinner, Sureka, Yan2

Sector Weighting Financials are underweighted by 610 BPs Skinner, Sureka, Yan3

Various Industries in Sector Banks Consumer Finance Diversified Financial Services Insurance-Brokers Insurance-Life/Health Insurance-Multi–Line Insurance-Property/Casualty Multi-sector Hldgs Real Estate Investment Trusts Skinner, Sureka, Yan4

Largest Companies by Market Cap  American Express  Bank of America  Citigroup  Goldman Sachs  JP Morgan Chase  Metlife  Travelers  Wells Fargo Skinner, Sureka, Yan5

Current Holdings in Financials  Berkshire Hathaway Inc. (BRK/A)  Goldman Sachs Group Inc. (GS)  Hudson City Bancorp Inc. (HCBK)  JP Morgan Chase & Co. (JPM)  Visa Inc. (V) Skinner, Sureka, Yan6

Financial Sector Layout Financial are in the mature phase.Cyclical in Nature Skinner, Sureka, Yan7

Sector Performance Financial Sector  Year to Date %  Quarter to Date -.93% S&P 500  Year to Date – 19.52%  Quarter to Date – 2.13 Skinner, Sureka, Yan8

Demand  GDP  Interest Rates  Business Profitability  Investor Confidence  Investible Assets Skinner, Sureka, Yan9

Supply  Market Saturation  Consolidation in industry since 1990s  Government forced consolidation during financial crisis  Consumer and commercial credit losses  Future Government regulations  Strict lending standards Skinner, Sureka, Yan10

Sector Attractiveness  High barriers to entry  Well established brands  Economies of scale  Economies of scope  Relationships  Customer Loyalty Skinner, Sureka, Yan11

Unattractiveness  Intense Rivalry  Substitute products  Government Regulations on capital requirements and wages  Lack of consumer confidence  Highly cyclical Skinner, Sureka, Yan12

Regression Analysis Skinner, Sureka, Yan13

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Skinner, Sureka, Yan17 Absolute BasisHighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF EntValue/EBITDAn/a Relative to SP500HighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF EntValue/EBITDAn/a

Sector P/E  P/E close to High end  Relatively expensive but may vary by industry Skinner, Sureka, Yan18

Ratios Across Sector  Cheap: Regional Banks  Expensive:  Diversified financial services  Insurance-life/health Skinner, Sureka, Yan19

 Market value lower than book value  Regional banks drop the most  Insurance is almost even Skinner, Sureka, Yan20

 P/S looks good so far  Not the whole story Skinner, Sureka, Yan21

Sector EBITDA  Worse than S&P 500  No sign for a break Skinner, Sureka, Yan22

 Industries reflect the  Big picture Skinner, Sureka, Yan23

Recommendation  Increase SIM Holdings by 400BPs  But, still keep it underweight relative to S&P500  We are bullish for long run and bearish for short run  Real Estate-Avoid; Regional Banks- trading at attractive multiples  Regional Banks will benefit from long term growth Skinner, Sureka, Yan24