Magnifier - October 2010

Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com.au/research/disclosures.

UNITED STATES

Cooley May, CFA +1 212 231 2586 [email protected]

1 October 2010

Macquarie Magnifier US Small-/Mid-Cap Monthly Mobilize to globalize

We think it is rational to invest international, as the investment environment appears

ideal to accumulate equity positions in US firms with foreign exposure. Our study

reveals that the average stock among US companies generating more than 10% of

sales from foreign markets trades at a 15% relative discount (versus a 12% historic

premium) to domestic-focused peers – a relationship that we think will shortly revert

back to the historic setting. In our opinion, a favorable US$ exchange rate and a

healing global economy will lift demand for US products at a faster pace, particularly

outside the US, than investor expectations imply. We also predict a capex surge into

higher-growth regions will bolster market share capture among US firms abroad.

Top ten small-/mid-cap picks

The determinants for our top ten picks run deeper than merely buying US stocks with

exposure to foreign markets - the firms possess either a sustainable competitive

advantage, ranging from technology to location, direct exposure to above-industry

growth rates in target foreign markets, or a compelling mix of these items. Our picks,

which mostly fall within the industrials or healthcare sector, also trade at a discount

to historic relative peer valuations despite above-average return outlooks. Each pick

averages nearly 30% upside to our analyst‘s one-year forward target price.

Top ten US small-/mid-cap picks (below US$5bn market cap)

Company Ticker Rating Company Ticker Rating

Interpublic Group Of Cos. IPG OP Mettler-Toledo International Inc. MTD OP Iron Mountain Inc. IRM OP Reinsurance Group of America Inc. RGA OP Global Payments Inc. GPN OP Sonoco Products Co. SON OP Manpower Inc. MAN OP Terex Corp. TEX OP McDermott International Inc. MDR OP Websense Inc. WBSN OP

Source: Macquarie Capital (USA), September 2010

The quantitative view

Our October EMC2 quantitative screen portrays the US materials sector, chiefly

chemicals and containers & packaging producers, in a positive light, while taking a

bearish view of media and financials. The outputs ring positive for an investment

framework to play a period of rising consumer health and low energy prices. In

addition to sector picks, our screen of the Russell 2500 yields 20 long and short

ideas derived from value, volatility and fundamental momentum indicators.

Top US small-/mid-cap long ideas from EMC2 quant screen

Company Ticker Rating Company Ticker Rating

Crown Holdings Inc. CCK OP International Flavors & Fragrances IFF NR Scotts Miracle-Gro Co. SMG NR Nalco Holding Co. NLC NR Sealed Air Corp. SEE Neutral Koppers Holdings Inc. KOP NR Albemarle Corp. ALB NR Silgan Holdings Inc. SLGN Neutral Owens-Illinois Inc. OI Neutral Solutia Inc. SOA NR

Source: Macquarie Research, September 2010

Macquarie (USA) Research Macquarie Magnifier

1 October 2010 2

Inside

US Small-/Mid-Cap Monthly 3

Mobilize to globalize 8

A quantitative view 21

Top ten US small-/mid-cap picks 22

Global Payments Inc. 23

Interpublic Group of Cos. 24

Iron Mountain Inc. 25

Manpower Inc. 26

McDermott International Inc. 27

Mettler-Toledo International 28

Reinsurance Group of America Inc. 29

Sonoco Products Co. 30

Terex Corp. 31

Websense Inc. 32

Performance of prior top ten picks 33

Appendix 1: US sub-sector view 41

Appendix 2: Small-/mid-cap coverage 47

Appendix 3: Quant EMC2-USE model 53

Contributing analysts 57

Introduction and event calendar The Macquarie Magnifier scopes out undervalued, underfollowed companies with

an unrecognized positive dynamic for change or continued operational performance.

Each month, we erect an investment theme. With this theme in hand, we perform

fundamental and quantitative screens to determine top sector and individual picks

among the 361 companies that we cover with a market capitalization below US$5bn.

We intend for the Macquarie Magnifier to serve as an idea generation tool and point

out salient market features to small-/mid-cap investors.

US event calendar Corporate marketing

October

5-Oct Iron Mountain (IRM) NDR New York

5-Oct West Coast Entertainment Tour Los Angeles

Oct 7-12 Asian Gaming Tour Macau & Singapore

Oct 12-13 Oklahoma Energy Day Oklahoma City

Oct 12-13 Solar Power Conference Mgm't Meetings Anaheim, CA

Oct 31-Nov 2 EEI Financial Conference Mgm't Meetings Palm Springs, CA

November

3-Nov First Horizon (FHN) NDR Boston

3-Nov SunTrust Banks (STI) NDR Boston

8-Nov Columbia Banking System (COLB) Client Tour Seattle

8-Nov Washington Federal (WFSL) Client Tour Seattle

10-Nov Mettler-Toledo International (MTD) NDR Boston

11-Nov Corrections Corp (CXW) Facility Tour Nashville, TN

12-Nov Silgan Holdings (SLGN) NDR New York

Nov 15-16 Boston Life Sciences Bus Tour Boston

Nov 15-16 CNO Financial Group (CNO) NDR Milwaukee, Minneapolis,

US Conferences – 2010 Nov 1-2 Korea & Taiwan Corporate Day New York

Nov 15-16 Global TMET Conference New York

Nov 22-23 Global Metals & Mining Conference New York

Dec. 2-3 Global Property Conference New York

Dec. 8-9 Wind & Solar New York


1 October 2010 3

US Small-/Mid-Cap Monthly It is not the strongest of the species that survive, or the most intelligent, but the one most

responsive to change.

— Charles Darwin

Investment thesis. We broadly advise investment in US small-/mid-cap firms with fundamental

exposure to foreign markets, as we predict product demand outside the US will outpace domestic

demand in coming months and surpass implied market expectations. Our study demonstrates that

US firms generating more than 10% of sales abroad trade at a 15% average discount (vs a 12%

average premium since 1978) to domestic-focused peers – a setting that will likely revert toward the

historic mean as benefits from a competitive US dollar exchange rate and rising global consumer

health begin to materialize. We also predict a low interest rate setting will bolster capex among US

firms into higher-growth regions, resulting in market share capture.

Top 10 picks. We view our top ten picks for October as an ideal way to invest in US companies

benefiting from foreign exposure. The picks comprise firms that hold a sustainable competitive

advantage abroad, direct exposure to above-industry growth rates in target foreign markets, or a

mixture of both. Additionally, the stocks, which mostly sit in the industrials or healthcare sector,

trade at a discount to historic peer relative valuations despite above-average return outlooks. Our

picks average nearly 30% upside to our analyst‘s one-year forward target price and seem well

poised for appreciation in coming months, in our view.

Our top 10 picks outperformed the Russell 2000 and S&P 500 in ten/eleven of the last

fourteen months, respectively, posting a rolling time-weighted monthly return of 3.2%

since August 2009, relative to a 1.5% result for the Russell 2000 and 1.1% for the S&P 500.

Fig 1 Top 10 small-/mid-cap picks (US$)

Company Ticker Rating Current

price Target price

Market cap

(US$m) GICS Analyst Phone Email

Interpublic Group Of Cos. IPG OP $10.04 $12.00 $4,951.8 Media Tim Nollen (+44) 20 3037 4524 [email protected] Iron Mountain Inc. IRM OP $22.20 $35.00 $4,497.7 Commercial Services & Supplies Kevin McVeigh (1 212) 231-6191 [email protected] Global Payments Inc. GPN OP $42.47 $52.00 $3,347.2 IT Services Roger Smith (1 212) 231-8016 [email protected] Manpower Inc. MAN OP $49.33 $67.00 $4,087.1 Professional Services Kevin McVeigh (1 212) 231-6191 [email protected] McDermott International Inc. MDR OP $14.67 $19.00 $3,356.1 Energy Equipment & Services Sameer Rathod, CFA (1 212) 231-2474 [email protected] Mettler-Toledo International MTD OP $124.19 $133.00 $4,135.5 Life Sciences Tools & Services Jon Groberg (1 212) 231-2612 [email protected] Reinsurance Grp of America RGA OP $48.47 $65.00 $3,559.8 Insurance Mark Finkelstein (1 312) 660-9179 [email protected] Sonoco Products Co. SON OP $33.71 $39.00 $3,421.4 Containers & Packaging Al Kabili (1 212) 231-2473 [email protected] Terex Corp. TEX OP $22.67 $26.00 $2,452.3 Machinery Sameer Rathod, CFA (1 212) 231-2474 [email protected] Websense Inc. WBSN OP $18.15 $24.00 $800.5 Software Brad Zelnick (1 212) 231-2618 [email protected]

Priced as of 29 September, 2010 Source: Compustat, Macquarie Capital (USA), September 2010

Setting the stage – the EM-DM split, economic cycle and market

Introduction. The split between developed markets (DM) and emerging markets (EM) held a

steady path in September as still-vigorous EM growth, in countries such as Brazil and China, was

more determined by domestic demand, while DM economies, such as the US and the UK, shifted

away from construction and spending-led expansion towards capital expenditure and export-led

growth. Our study reveals that most economists predict the US economy is poised for a tepid

advance during the next six months, and foresee better growth outcomes in other parts of the

world and a still-sensible global growth picture – we agree. All in, we think that coming months

will be dominated by a set of investor judgments relating to these areas.

The US economy appears in the midst of a cyclical upturn, in our view, albeit a tepid one, that we

think will further support growth in EM and other DM areas in coming periods. Mindful of this, we

think that an investment in US firms with operations in foreign markets, particularly EM, exposes

investors to generally higher growth characteristics than purely domestic players, while providing

lower volatility and, in many cases, trustier financials than a direct investment into foreign markets.

All told, we do not think the well-known investor trend to invest in stocks with foreign exposure is

played out; in fact, we view this trend as timely and at the point of gaining positive traction in the

current investment cycle. Investors should take notice.

US small-/mid-cap firms with international exposure tend to offer above-average growth

but greater volatility

It is rational to invest

international, given

above-par growth

prospects and below

average valuations


1 October 2010 4

The decoupling debate and the US business cycle. The growth witnessed among some EM

economies, particularly China and India, during the past few years sparked an investor debate

over whether these economies have mostly decoupled from the US and other DM. Despite the

differing opinions, we think that both sides of the argument will agree that a healing US economy

will ultimately reinforce growth in these regions and benefit the global economy – a position that

we think will transpire in coming periods. Mindful of this, we broadly do not think that the benefits

of tapping overseas market growth, at least in the near term, will prove great enough to offshoot a

US firm‘s historical spot in the investment cycle. Thus, we advise investors to pick stocks likely to

benefit from above-par foreign growth but to keep the historical investment cycle in mind.

Fig 2 Ideal sector rotation through an average economic cycle


Fig 3 The typical business and equity market cycle

Fig 4 Equity price rotation during an economic cycle

Source: Macquarie Capital (USA), September 2010 Source: Macquarie Capital (USA), September 2010

We think rising US

economic health will

bode well for growth

within virtually all EM

and DM areas


1 October 2010 5

The US economy – the rocky transition from recovery to expansion. Our research suggests

that the US economy is in a cyclical upturn, albeit a tepid one, as the basket of 10 US leading

indicators reflected further growth in September, manufacturer fundamentals denote expansion

and inflation remains at multi-year lows. We also find that labor productivity recently declined post

a period of rapid expansion, which coupled with our other findings suggests job creation. We do

find some offsets; notably, continued proof that producer (PPI) prices are outpacing consumer

(CPI) prices, which implies limited firm pricing power. We detail our findings in Figures 5, 6 and 7.

Fig 5 US leading indicators support a further rise in GDP

Source: Bureau of Economic Analysis (BEA), Macquarie Capital (USA), September 2010

Fig 6 Real wages, productivity and consumer spending

Fig 7 US credit, treasury yield and inflation spread

Source: BEA, Macquarie Capital (USA), September 2010 Source: BEA, Macquarie Capital (USA), September 2010

We maintain a broadly

positive long-term

view of the US

economy and stock

market


1 October 2010 6

A look at market volatility and fundamental expectations. Despite recent economic data

postings that suggest the US recovery could prove weaker than initial readings suggest, we find

market volatility declining toward historic levels and fundamental expectations on the rise. Indeed,

we view this framework as positive for US stock performance in late 2010 and 2011. In Figures 8

and 10, we illustrate that low market volatility rings positive for US stock returns. Mindful of this

and the upward trend in US analyst revisions, which we depict in Figures 9 and 11, we argue that

investor confidence appears sturdy and already factors in a subpar economic recovery.

Fig 8 Russell 2000 vs VIX

Fig 9 US SMID # of Sales and EPS revisions - MoM

Source: Compustat, Macquarie Capital (USA), September 2010 Source: Compustat, Macquarie Capital (USA), September 2010

Fig 10 S&P 500 vs VIX

Fig 11 S&P 500 Fwd Sales and EPS revisions - MoM


Falling market volatility

and rising earnings

outlooks imply that

investor confidence is

on the rise


1 October 2010 7

Small cap stocks maintain a noteworthy performance lead over large caps. US small-cap

stocks beat large caps again in September on a 6mo, 3yr and 5yr basis. We expect that this

dominance will carry into late 2010/early 2011; however, we do note that a healing US economy

should expand the operational growth of many US multi-nationals, which by-and-large comprise

large-cap firms. Given that US small-caps offer lower EM exposure than large caps, this could

bode well for leveling the playing field and lower the risk profiles of large-caps in a broad sense.

In Figure 12, 13 and 14, we show equity returns by capitalization and sector.

Fig 12 US small-caps outshine large caps on a 6mo, 3yr and 5yr basis in September

Note: Returns as of 29 September, 2010 Source: Compustat, Macquarie Capital (USA), September 2010

Fig 13 S&P 500 versus 600 sector returns – six months

Fig 14 S&P 500 versus 600 sector returns – three year


Our top picks

largely reside in US

industrials –

prominent exporters


1 October 2010 8

Mobilize to globalize We think it is rational to invest international and the time to do so is present. As the world

increasingly produces what Asia and EM consumes in coming periods, we argue that consumer

demand for US products will flourish; particularly, if the US economy begins to gain steam and

the US dollar remains at competitive levels. While we broadly advocate investment in small-/mid-

cap firms with foreign exposure, we advise investors to seek firms possessing unique competitive

and operational characteristics to limit downside risk and enhance appreciation potential. In this

part of the report, you will find our research of the global economy and a sector-level fundamental

and valuation analysis to support our theme and top picks for October. Indeed, we think our

findings suggest ―now‖ is an opportune time to enter international investment waters.

Key revelations from analysis

US healthcare, IT and consumer staples sector participants with foreign exposure appear

best poised to outperform as a healing US economy augments rising demand overseas.

Consensus growth projections for the foreign operations of US companies broadly suggest a

drop in earnings power in 2011 – these marks appear conservative given our GDP targets.

Our analysis reveals that US firms generating more than 10% of sales abroad trade at a 15%

discount (relative to a 12% average premium since 1978) to US-focused peers.

A competitive US dollar and low-to-no domestic price inflation will prove positive for the US

economy, as US goods become more appealing vs foreign substitutes at home and abroad.

The US exports nearly 50% of products to China, Latin America & Canada, while exporting

only 24% of products to Europe & Japan – the ratio has shifted away from Europe over time.

Investors should avoid firms with foreign operations that compete merely on price or where

local firms possess higher operational leverage – more than just foreign exposure is required.

We depict seven sectors in Figure 15 that offer exposure to foreign consumers. While our

screens view three of these sectors as broadly ideal for investment, we find appealing picks in

virtually every sector (i.e. our top picks largely comprise industrials). Mindful of this screen, we

deem it appropriate to illustrate that firms with greater than 10% of sales outside the US tend to

yield a significant relationship to GDP postings outside the US. While not entirely surprising, we

find that the ideal time to purchase stock is when the market overcompensates for GDP risk – we

view this setting as present and advise investment before expectations move upwards.

Fig 15 Our picks appear well suited to appreciate...

Fig 16 ...as GDP rises outside the US in late 2010/2011


No time for a growth

paddle – we think

compelling investment

opportunities now lie

with US firms guiding a

growth motor into

international waters


1 October 2010 9

A broad view of growth expectations, trends and performance

Let’s begin with growth - GDP expectations suggest strong demand for US goods globally.

We think a simple way to look at US exports and demand for US goods overseas is as a function

of non-US GDP, plus shifts in the real exchange rate and non-oil imports (the last variable

embodies the influence of ―round-trip‖ trade on exports). Macquarie‘s forecast for GDP through

2013 suggests little downward pressure on growth, which we view as positive for US firms with

greater than 10% of sales abroad. Figure 17 illustrates historic GDP and our projections for GDP

across most major markets. All told, we foresee a period of moderate growth through 2013.

Fig 17 Macquarie’s economics team foresees an uptick in average global GDP

Source: Compustat, Macquarie Capital (USA), September 2010

Concerns with the impact of a soft European economy on US exports appear overdone.

The share of US goods and services (G&S) exported to China, Latin America and Canada grew

notably during the past two decades, largely due to faster growth among these regions versus

other markets. The share of US goods exports going to Europe and Japan fell from 28% in 2007

to 24% in June 2010. Thus, the risk of lower US product demand in Europe has lessened.

Fig 18 Exports to China, Latin America & Canada Rise

Fig 19 Exports to Europe and Japan fall as % of total

Source: FactSet, FRB, Macquarie Capital (USA), September 2010 Source: FactSet, FRB, Macquarie Capital (USA), September 2010

Global GDP is on the rise

and US exports denote

growth – two items

favorable for investment

in US firms with foreign

exposure


1 October 2010 10

Growth expectations appear poised to rise – a likely share catalyst. Our analysis, which is

based on historical foreign sales/income percentages, GDP growth and consensus estimates,

reveals that Street expectations for the growth of US-based firms with foreign operations denotes

a drop-off in 2011 versus 2010 that is much greater than the drop-off in expected GDP outside

the US. While a pullback could prove likely given a robust rebound in some markets in 2010, we

view the results as broadly conservative. In Figures 20 and 21, we show our assumed consensus

growth expectations for foreign sales and income and the historical pattern.

Fig 20 US-based firm foreign sales growth by sector

Fig 21 US-based firm foreign income growth by sector

Source: FactSet Consensus, Macquarie Capital (USA), September 2010 Source: FactSet Consensus, Macquarie Capital (USA), September 2010

We do not think recent underperformance will persist. Our screens reveal that US companies

generating more than 10% of sales abroad outperformed domestic-focused peers during the past

decade – we illustrate our finding in Figure 22. However, this group of stocks underperformed the

market during the past year, likely due to concerns with Europe and the global economy. In our

view, stock performance will likely return to the historical pattern in coming periods as the global

economy gains steam and concerns with a drop-off in the foreign operations of US firms lessen.

Fig 22 Going global tends to yield outperformance...

Fig 23 ...but this has not been the case recently


Low Consensus

forecasts, coupled with

recent stock

underperformance, offer

an ideal time to invest


1 October 2010 11

Valuations should expand for US firms with foreign sales/income in coming periods. We

think valuations across most firms that target international markets overly factor in risk without

taking a rational view of growth prospects. Our research reveals that valuations across most

international US small-/mid-cap firms rest below relative averages, despite the strong possibility

for above-market growth in 2011. In Figures 24-35, we detail various valuation metrics across the

US small-/mid-cap energy sector and its six subsectors.

Fig 24 P/S ratio sits below average overall and across…

Fig 25 …most sectors among US firms with foreign exposure



Fig 26 EV/S ratio sits below average overall and across...

Fig 27 …most sectors among US firms with foreign exposure



Fig 28 EV/EBITDA sits at the relative average overall but…

Fig 29 …below average across most sectors, per our estimates



US firms with foreign sales

exposure mostly trade at a

discount to historic

averages and domestic-

focused peers


1 October 2010 12

Fig 30 Fwd FY2 P/E sits below average overall and across... Fig 31 …most sectors among firms with foreign exposure


Fig 32 PEG ratio rests below average overall and across… Fig 33 …most sectors among firms with foreign exposure


Fig 34 Price/CF rests below average overall and across... Fig 35 …most sectors among firms with foreign exposure



1 October 2010 13

A look at fundamental growth – international versus domestic

Given our global macroeconomic outlook, a favorable US$ exchange rate environment and the

enhanced ability of many firms to put low-cost capital to work, we view above-market sales and

earnings growth as likely during the next two years for firms generating sales abroad; particularly,

in many emerging markets. To gauge sectors likely to benefit from this development, we utilize a

model that factors in sales (price/volume), margin, cashflow and ROIC factors, gauges consensus

expectations, and compared the findings to metrics posted during prior economic upturns. In

Figure 36, we illustrate the top fundamental and valuation drivers of our screens and provide a

relative ranking of these metrics. Broadly, consumer staples, health care and IT top our list.

Fig 36 Our screens cover seven sectors comprising of US firms with international sales/income exposure


Continued expansion overseas is likely to continue across most sectors. Our evaluation of

consensus growth expectations across firms that generate more than 10% of sales in/from

foreign markets suggests continued expansion to target foreign customers. In Figure 37, we show

that foreign sales increased as a percentage of total sales at a rapid pace across most industries

during the past three decades – a trend likely to continue. While operating income has been

lumpy and not as steady, per Figure 38, we argue that operating profits will expand in coming

periods. Furthermore, the major investor question, in our view, is not if firms will expand overseas

but how quickly. Indeed, we are bullish on global growth.

Fig 37 Foreign sales as a % of total

Fig 38 Foreign Operating Income as % of total


US-firms with foreign

exposure appear

broadly poised to

boost fundamentals


1 October 2010 14

We anticipate a margin and ROA rebound abroad for US firms. Our analysis shows that the

income margin and return on assets from US-firm foreign operations remains depressed on

average – a trend that we think will likely turn upwards as sales advance in coming periods. We

show the breakdown of these two metrics across US companies that generate more than 10% of

sales abroad in Figures 39 and 40 on both a historical basis and implied forward mean. Of note,

we base the implied forward mean for the 2009–2011E on Consensus forecasts and implied

returns. All in, we view most estimates as conservative and expect an uptick in coming periods.

Fig 39 Foreign Income margin

Fig 40 Foreign Income as a % of total is on the rise


Firms with foreign operations maintain above-average excess financial capacity. Our study

shows that US-based firms with sales exposure abroad tend to maintain higher cash balances

and lower overall debt balances relative to total capital than peers focused solely on the US

market – we display the findings in Figures 41 and 42. That said, the metrics currently reflect

record levels of excess financial capacity. While we partially link higher relative financial strength

to the risk of selling to more volatile foreign markets, we argue that a position of greater financial

flexibility supports our argument that many firms can/will expand operations further into foreign

markets. Indeed, this bodes well for capital deployment in coming periods.

Fig 41 Cash balances of firms with(out) foreign exposure

Fig 42 Debt/cap of firms with(out) foreign exposure



1 October 2010 15

A look at the US$, interest rates and inflation

Recent rise in US dollar competitiveness – a plus for US firm profits and market share. We

view the US dollar as ―strong at home‖ and ―competitive abroad‖, given its low relative position to

other major foreign currencies and the low domestic price inflation currently present in the US.

This setting will boost the dollar value of profits earned abroad and bolster demand for US goods

both at home and abroad – a positive scenario for US corporate market share growth and profits.

In our view, virtually no price inflation in the US will also keep a lid on the US Fed Funds rate, as

US policy makers seek to preserve a positive atmosphere for US product demand worldwide. We

also predict this scenario will spur central banks outside the US to run easier monetary policies,

which will also boost global liquidity and foster economic expansion on a global basis.

In addition to a favorable US dollar exchange rate setting for US producers, many macro data

points – GDP stabilization, ISM above 50, expanding exports versus imports, improving overall

US consumer health, and a low interest rate environment – bode well in aggregate for US and

global economic health and further shrinkage of the US trade deficit. Adding practically no US

inflation to the mix provides us with confidence to urge investors to take notice. In Figures 43, 44,

45 and 46, we show the current state of the trade-weighted US dollar, interest rates and inflation.

Fig 43 Trade Weighted US$ vs. major currencies

Fig 44 YoY growth in trade weighted US$


Fig 45 US Fed funds rate vs real broad US$ index

Fig 46 US consumer inflation vs real broad US$ index


We think a weak

relative US dollar will

enhance US product

demand both

domestically and

abroad


1 October 2010 16

Translation gains factor in quickly, but competitive position shifts take time to factor in.

The market appears to adjust stock prices quickly and appropriately for changes in the value of

companies‘ overseas earnings. However, our research reveals that the market does not quickly

adjust to the long-term changes in an industry‘s export competitive position until actual evidence

of accelerating sales or earnings is near. Our analysis reveals that process can begin two years

after the dollar begins to fall. Depending on the industry and the rate and length of the fall and

subsequent rise in the dollar, these stocks can outperform for an average of 13 months after the

trough of the dollar. We illustrate these findings in Figures 47 and 48.

Fig 47 Translation gains quickly factor into stock prices

Fig 48 Shifts in competitive position take roughly 12mo


US dollar weakness yields US exporters a competitive edge. In Figures 49 and 50, we show

that import prices have increased as the dollar declined, while export volumes (and prices) have

also jumped briskly since mid-2009. We, at least partly, view this trend as linked to a decline in

the real exchange rate of the US$. At the same time, we find that currency appreciation in some

of the faster growth EM regions has swung in the positive direction for trade; particularly, in terms

of rising real household discretionary incomes and demand for US products.

Fig 49 Recent US$ weakness lifts import prices…

Fig 50 ...and provides a volume boost for exports


We view US firm

competitiveness

overseas as

positioned for

expansion


1 October 2010 17

Commodity prices broadly reflect a negative correlation to US$ shifts. Despite the negative

correlation, we do not predict higher commodity prices will pose a significant risk to US profits, as

the rise in sales and product flow offsets greater input costs in most cases. The negative linkage

between the US dollar and commodity prices is no secret and explained by the ―law of one price‖.

In principle, commodities cost the same as the underlying supply and demand setting determines,

considering the costs of production. These factors do not, in principal, shift with currency moves.

We show the link between the US dollar and the GSCI commodity index in Figures 51 and 52.

Fig 51 Negative correlation - US$ vs Commodities

Fig 52 Commodities are holding their ground


All in, a competitive US dollar will bode well for a trade deficit decline and spur US profits.

A competitive US$ exchange rate historically bodes well for our thesis that strong global growth

will support US (net) exports and thus output (GDP). In Figure 53, we illustrate that a falling real

broad effective exchange rate supported US trade deficit contraction in the late 1980s and early

1990s. We depict in Figure 54 that US corporate profits should expand as the US$ exchange

competitiveness increases. All told, we predict trade deficit expansion and profit growth in 2011.

Fig 53 The dollar is lifting import prices and will likely...

Fig 54 ...provide a profit tailwind for US producers



1 October 2010 18

The economic backdrop - A look at trade, inventories and capex

Tailwinds gather in favor of exports, and US-firm foreign growth and profits. Despite the

widening trade gap (imports-exports) during prior months, we predict an upward move in

domestic production will contribute to a narrower trade gap. In our view, this setting bodes well for

US-firms deriving sales outside the US. In Figures 55 and 56, we show the US trade gap and the

recent weakness in exports versus imports. As we move further along in this section, we will

show that rising manufacturer production (increasing demand), the restocking of inventories and

the strategic deployment of capex during a period of healing global economic health will bode well

for US-firm expansion into higher growth areas and US export volumes.

Fig 55 Imports surged versus exports in recent months

Fig 56 widening the trade gap for US goods and services


US manufacturer sentiment and consumer expectations appear largely bullish. We find that

US manufacturing new export orders, overall new orders and the purchasing managers index

(PMI) all denote expansion – we illustrate this finding in Figure 57. In addition, we illustrate that

consumer expectations appear largely on an upward trajectory globally in Figure 58. While we

recognize that consumer healing in the US and, particularly Europe, have lagged other major

markets worldwide, we still think the demand environment rings positive for US goods and service

demand globally. We anticipate these metrics will denote improvement in 2011.

Fig 57 US manufacturing seems sturdy and consumer...

Fig 58 ...expectations are mostly on the rise globally

Source: Compustat, FRB, Macquarie Capital (USA), September 2010 Source: Compustat, FRB, Macquarie Capital (USA), September 2010

The global economic

setting firmly supports

our pro-global thesis –

we advise investors to

take notice


1 October 2010 19

A look at manufacturing versus non-manufacturing (service) exports. Our analysis reveals

that manufacturing exports expanded in recent periods, while services exports retreated. We

argue that both should move in a positive direction in coming periods. We think two factors will

boost US exports across both areas: greater demand for US exports among faster-growth EM

economies and Canada, and a global capex upswing as firms begin to invest excess liquidity. Of

note, we think the Russian drought and export ban will also provide a boost in 2010, but we argue

that this will return to more historical levels in 2011. We show our findings in Figures 59 and 60.

Fig 59 Manufacturing exports denote expansion, while...

Fig 60 …Non-Manufacturing exports have contracted


Inventories play an important role in import/export shifts. Our study reveals that swings in

inventories, as US manufacturers restocked, intensified the latest import surge and dampened

the recovery in exports – items that we think will prove temporary as restocking levels off and US

product demand grows overseas. In addition, our findings suggest that US retailers will likely be

reluctant to increase inventories to historic levels until demand gains firm traction; however, retail

inventories overseas appear ready to grow. We show our findings in Figures 61 and 62.

Fig 61 A look at inventories illustrates that...

Fig 62 ...manufacturer restocking has begun

Source: Compustat, FRB, Macquarie Capital (USA), September 2010 Source: Compustat, FRB, Macquarie Capital (USA), September 2010


1 October 2010 20

A global capex revival appears ready to emerge. While a declining US dollar does not directly

bode well for US firm capital spending abroad, we argue that flush corporate balance sheets and

attractive growth opportunities overseas will largely offset this hindrance. Mindful of this, we think

global capex will take three forms: 1) domestic investment among US firms to back an export-

driven expansion; 2) direct investment from foreign firms in the US – a likely positive for the M&A

setting; and 3) investment opportunities outside the US will pick up as operators seek to expand

to capture growth and competitive stature. Given rising global GDP growth, strong US small-/mid-

cap firm balance sheets and mounting capacity usage globally, we think a capex upturn is near.

Fig 63 Expanding global GDP will bode well for capex

Fig 64 US & Europe sit in capacity usage catch-up mode

Source: PWC estimates (2010-2050), Macquarie Capital (USA), Sept. 2010 Source: Compustat, Macquarie Capital (USA), September 2010

Fig 65 Capital flows target higher growth areas – a trend that we think will undoubtedly continue



1 October 2010 21

A quantitative view The results from our October EMC

2 quantitative screen portrays the US materials sector,

specifically its chemicals and packaging & container sub-sectors, in a positive light – a similar

conclusion as for the second month in a row. The screen also takes a dire view of the US

consumer discretionary and financial sector, due to excessive valuation. In our view, the outputs

for October recommend an investment framework to play a cyclical economic upturn and low

energy feedstock cost environment. In addition to our sector picks, we provide 20 long and short

ideas from our quantitative screen of the Russell 2500 based on historical and relative value,

market volatility and profit momentum indicators – long-term gauges of firm viability and value.

Fig 66 Quantitative picks – 20 long (overweight) ideas (US$)

Symbol Company Name Price

9/29/2010 Sector Sub- Industry Mkt Cap

($m) Rating

Volume 52-week

average (000s)

EMC2 Score

EMC2 Decile Rank

(10=best)

CCK Crown Holdings Inc. $28.55 Materials Containers & Packaging $4,603 Outperform $1,586 21.4% 10 SMG Scotts Miracle-Gro Co. $51.87 Materials Chemicals $3,457 NR $493 18.4% 10 SEE Sealed Air Corp. $22.59 Materials Containers & Packaging $3,593 Neutral $1,177 18.1% 10 ALB Albemarle Corp. $46.13 Materials Chemicals $4,094 NR $756 18.0% 10 OI Owens-Illinois Inc. $27.92 Materials Containers & Packaging $4,488 Neutral $2,308 17.7% 10 IFF International Flavors & Fragrances Inc. $48.71 Materials Chemicals $3,899 NR $556 17.0% 10 NLC Nalco Holding Co. $25.23 Materials Chemicals $3,536 NR $1,179 17.0% 10 KOP Koppers Holdings Inc. $26.83 Materials Chemicals $537 NR $149 16.8% 10 SLGN Silgan Holdings Inc. $31.62 Materials Containers & Packaging $2,406 Neutral $502 16.7% 10

SOA Solutia Inc. $15.96 Materials Chemicals $1,935 NR $1,724 16.5% 10 GLT Glatfelter $12.14 Materials Paper & Forest Products $538 NR $252 16.5% 10 SAI SAIC Inc. $15.88 Information Technology IT Services $5,863 NR $3,399 16.0% 10 FMC FMC Corp. $67.95 Materials Chemicals $4,906 NR $758 16.0% 10 BRO Brown & Brown Inc. $19.87 Financials Insurance $2,822 Neutral $799 16.0% 10

PTV Pactiv Corp. $32.95 Materials Containers & Packaging $4,373 Neutral $3,206 15.6% 10 SON Sonoco Products Co. $33.71 Materials Containers & Packaging $3,385 Outperform $414 15.6% 10 TDS Telephone & Data Systems Inc. $32.78 Telecom Services Wireless Telecom $3,463 NR $271 15.3% 10 ATR AptarGroup Inc. $45.56 Materials Containers & Packaging $3,009 NR $187 15.2% 10 FUL H.B. Fuller Co. $20.00 Materials Chemicals $978 NR $287 15.2% 10 ATK Alliant Techsystems Inc. $73.89 Industrials Aerospace & Defense $2,399 NR $435 15.0% 10

Source: Compustat, Macquarie Research, September 2010

Fig 67 Quantitative picks – 20 short (underweight) ideas (US$)

Symbol Company Name Price

9/29/2010 Sector Sub- Industry Mkt Cap

($m) Rating

Volume 52-week

average (000s)

EMC2 Score

EMC2 Decile Rank

(10=best)

WWON Westwood One Inc. $8.07 Consumer Discretionary Media $156 NR $16 -26.1% 1 PMI PMI Group Inc. $3.71 Financials Thrifts & Mortgage Finance $574 Neutral $7,418 -23.7% 1 CETV Central European Media Enterprises Ltd. $24.99 Consumer Discretionary Media $1,618 NR $400 -22.7% 1 VVUS VIVUS Inc. $6.56 Health Care Pharmaceuticals $547 NR $4,360 -22.1% 1 LEE Lee Enterprises Inc. $2.59 Consumer Discretionary Media $110 NR $336 -21.9% 1 CRWN Crown Media Holdings Inc. (Cl A) $2.40 Consumer Discretionary Media $795 NR $51 -21.7% 1 PRM PRIMEDIA Inc. $3.80 Consumer Discretionary Media $161 NR $68 -21.3% 1 BTN Ballantyne Strong Inc. $8.94 Consumer Discretionary Media $121 NR $112 -21.3% 1 SOMX Somaxon Pharmaceuticals Inc. $3.98 Health Care Pharmaceuticals $142 NR $2,781 -21.1% 1 DRL Doral Financial Corp. $1.68 Financials Thrifts & Mortgage Finance $186 NR $461 -20.9% 1 WSBF Waterstone Financial Inc. $4.01 Financials Thrifts & Mortgage Finance $360 NR $24 -20.4% 1 OFG Oriental Financial Group Inc. $13.35 Financials Commercial Banks $649 NR $386 -20.2% 1 PCYC Pharmacyclics Inc. $7.99 Health Care Biotechnology $477 NR $328 -19.2% 1 SQNM Sequenom Inc. $6.80 Health Care Life Sciences Tools & Services $508 NR $4,343 -19.0% 1 ENER Energy Conversion Devices Inc. $4.92 Information Technology Semis & Semiconductor Equipment $232 Neutral $2,114 -18.9% 1 MTG MGIC Investment Corp. $9.27 Financials Thrifts & Mortgage Finance $1,790 Outperform $6,344 -18.7% 1 AXN Aoxing Pharmaceutical Co. Inc. $3.04 Health Care Pharmaceuticals $35 NR $37 -18.5% 1 SPWRA SunPower Corp. (Cl A) $14.30 Information Technology Semis & Semiconductor Equipment $1,321 Outperform $2,596 -18.4% 1 ZIOP ZIOPHARM Oncology Inc. $3.75 Health Care Biotechnology $187 NR $381 -18.4% 1 LYV Live Nation Entertainment Inc. $9.96 Consumer Discretionary Media $1,707 NR $1,971 -18.4% 1

Source: Compustat, Macquarie Research, September 2010


1 October 2010 22

Top ten US small-/mid-cap picks

Fig 68 Top 10 small-/mid-cap picks – key financial metrics (US$)

Company Ticker Current

Price Target Price

Upside To TP

Market Cap (US$m)

EV/ EBITDA

P/E 2011E

PEG 2011E P/B

2011E ROE

CF Yield

Net Debt/Cap

Net Debt/ EBITDA

Non-US Sales As %

Of Total

Foreign Assets As %

of Total

Non-US ROA (5yr Average)

Interpublic Group Of Cos. IPG $10.04 $12.00 19.5% $4,952 7.9x 18.1x 1.9x 2.5x 10.3% 6.7% -0.5% 3.1x 44.6% 12.0% 9.4% Iron Mountain Inc. IRM $22.20 $35.00 57.7% $4,498 9.0x 16.8x 0.9x 2.1x 8.1% 7.5% 50.3% 3.5x 30.2% 27.9% 8.2% Global Payments Inc. GPN $42.47 $52.00 22.4% $3,347 8.7x 13.7x 1.1x 3.9x 23.6% 8.0% -12.6% 1.3x 37.2% 48.4% 9.5% Manpower Inc. MAN $49.33 $67.00 35.8% $4,087 12.7x 19.2x 1.7x 1.6x 5.0% 5.7% 2.5% 2.0x 88.1% 82.7% 8.3% McDermott International Inc. MDR $14.67 $19.00 29.5% $3,356 7.8x 12.4x 1.2x 1.7x 17.7% 21.6% -25.2% 0.1x 54.4% 13.0% 15.2% Mettler-Toledo International Inc. MTD $124.19 $133.00 7.1% $4,135 12.4x 17.0x 1.4x 5.8x 27.9% 14.1% 16.3% 0.9x 69.4% 59.7% 19.4% Reinsurance Group of America Inc. RGA $33.71 $39.00 15.7% $3,421 - 6.8x 0.7x 0.8x 12.1% 3.0% 23.1% 0.8x 39.3% 30.2% 3.4% Sonoco Products Co. SON $48.47 $65.00 34.1% $3,560 7.5x 12.9x 1.9x 2.4x 14.4% 6.9% 19.2% 1.2x 36.2% 22.8% 8.7% Terex Corp. TEX $22.67 $26.00 14.7% $2,452 - 26.4x 3.8x 1.3x 7.1% 10.7% 3.0% -9.1x 68.0% 15.7% 19.7% Websense Inc. WBSN $18.15 $24.00 32.2% $800 13.9x 13.5x 1.2x 1.4x -6.0% 8.6% -4.0% 1.3x 41.2% 12.0% 12.5%

MEAN: 26.9% $3,461 10.0x 15.7x 1.6x 2.3x 12.0% 9.3% 7.2% 0.5x 50.9% 32.4% 11.4%

Note: Prices as of 29 September, 2010 Source: Compustat, Macquarie Capital (USA), September 2010

Fig 69 Top Ten Picks – ROA and Gross Margin

Fig 70 Top Ten Picks – Financial Leverage


Fig 71 Top Ten Picks – Valuation Fig 72 Russell 2000 vs. Top Ten Picks



1 October 2010 23

UNITED STATES

GPN US Outperform

Price 29 Sep 10 US$42.47 12-month target US$ 52.00

12-month TSR % +22.6

Valuation US$ 52.00 - EV/EBITDA GICS sector Software & Services

Market cap US$m 3,385

30-day avg turnover US$m 14.9

Number shares on issue m 79.71

Investment fundamentals

Year end 31 May 2010A 2011E 2012E 2013E

Sales revenue m 1,642.5 1,765.5 1,968.6 2,197.5 EBIT m 323.3 341.9 400.5 466.8 Reported profit m 207.1 217.3 256.2 303.4 Adjusted profit m 207.1 217.3 256.2 303.4 Gross cashflow m 290.0 303.1 348.7 398.8 CFPS US$ 3.53 3.74 4.24 4.79 CFPS growth % 103.8 5.9 13.4 12.7 PGCFPS x 12.0 11.3 10.0 8.9 EPS adj US$ 2.52 2.68 3.12 3.64 EPS adj growth % 449.2 6.4 16.2 16.7 PER adj x 16.8 15.8 13.6 11.7 Total DPS US$ 0.08 0.08 0.08 0.08 Total div yield % 0.2 0.2 0.2 0.2 ROA % 17.4 16.1 17.0 17.3 ROE % 21.7 22.5 20.6 18.8 EV/EBITDA x 7.9 7.7 6.8 6.0 Net debt/equity % -27.7 -40.8 -54.6 -64.2 P/BV x 4.1 3.2 2.5 2.0

GPN US vs S&P 500, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Capital (USA), September 2010

(all figures in USD unless noted)

Roger Smith 1 212 231 8016 [email protected]

1 October 2010

Global Payments Positioned For Global Expansion Company description

Global Payments Inc. is a provider of electronic payments transaction processing

services for consumers, merchants, ISOs, financial institutions, government

agencies and multi-national corporations located throughout the United States,

Canada, the United Kingdom, the Asia-Pacific region, the Czech Republic and the

Russian Federation.

Investment thesis

Long term outlook remains attractive as we expect the international business to

represent a larger portion of earnings in the future. GPN has established a

number of global relationships. GPN has made numerous steps to grow its

international reach with the HSBC relationship in Asia, the UK acquisition and

most recently in Russia. The transition to the G2 platform has the potential to turn

divisional operations into a global platform that can leverage greater efficiencies.

Catalysts

Improved economic outlook stemming from improved consumer spending,

potential accretive acquisitions.

Key investment themes

G2 conversion…timeline is set. Management targeted going live with its G2

roll-out in the U.S. in September and we expect an update during earnings. The

company announced that the Canadian business will migrate to G2 by the end of

fiscal 2012 and that the UK business will migrate in the middle of 2013. GPN

remains confident that the new platform will provide operating leverage that will

add to the company’s competitive advantage.

China is seeing progress – Beijing market approved. The company

announced that HSBC has gained a similar approval in the Beijing card market for

its Renminbi launch. The company expects to start offering acquiring services for

China UnionPay (CUP) cards by the end of the summer. We are anticipating

services to begin shortly. The announcement falls in the category of being a long

term positive, but supports the view that GPN’s Asia/Pacific revenue growth

trajectory is sustainable for the next couple of years.

Valuation/risks

Our price target suggests a forward earnings multiple of 18.0x (based on 2011

calendar year EPS estimate of $2.89). Our price target is based on an

EV/EBITDA multiple of 10.1x our 2011 EBITDA estimate. GPN‘s historical

average is 22.3x forward earnings. We expect that the company will benefit from

multiple expansion as increased confidence builds around top-line growth as well

as the operating leverage from streamlining the platform.

Risks include a decline in economic activity both in the US or abroad resulting in a

slower consumer spending environment, as well as the potential for regulatory

actions to result in a more competitive business model.


1 October 2010 24

UNITED KINGDOM

IPG US Outperform



Valuation US$ 11.77 - DCF (WACC 11.6%, beta 1.3, ERP 8.3%, RFR 3.0%, TGR 3.0%) GICS sector Media





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 6,027.6 6,255.9 6,499.2 6,829.1 EBIT m 341.3 550.3 626.1 740.2 Reported profit m 93.6 228.1 298.3 367.7 Adjusted profit m 93.6 228.1 298.3 367.7 Gross cashflow m 373.8 456.6 527.6 602.5 CFPS US$ 0.73 0.88 1.02 1.16 CFPS growth % -37.8 20.5 16.1 14.2 PGCFPS x 13.8 11.4 9.9 8.6 EPS adj US$ 0.18 0.44 0.58 0.71 EPS adj growth % -65.1 140.4 31.4 23.3 PER adj x 55.1 22.9 17.4 14.1 Total DPS US$ 0.00 0.00 0.00 0.00 Total div yield % 0.0 0.0 0.0 0.0 ROA % 2.8 4.5 5.0 5.6 ROE % 3.8 9.2 11.4 12.5 EV/EBITDA x 8.0 6.0 5.4 4.7 Net debt/equity % -21.6 -31.5 -43.7 -54.4 P/BV x 2.3 2.2 2.0 1.7

IPG US vs S&P 500, & rec history




Tim Nollen 44 20 3037 4524 [email protected] Angus Tweedie 44 20 3037 4099 [email protected]

1 October 2010

Interpublic Group From value to growth Company description

Interpublic is the fourth largest global advertising & marketing services company,

with agencies such as McCann Erickson, DraftFCB and Lowe-Deutsch. Although

revenues are US-weighted (58% in 1H 10) IPG has a vibrant emerging markets

business (20% of 1H 10) which is growing rapidly. IPG also has a strong digital

marketing franchise with agencies such as MRM and R/GA accounting for ~20%

of revenue.

Investment thesis

Moving past the turnaround story: after a lost decade, IPG has mostly fixed its

agencies and finally brought cost ratios down to manageable levels.

Top line performing more in line with peers. Organic growth in 2Q was +8.5%,

leading the peer group. This was flattered by its higher weighting to the US

(+13.5%) and particularly soft comps, but net new business wins were positive

after a long time, and we see momentum building from here.

Strong earnings potential. Management is confident in attaining operating

margins of 8% for full-year 2010, which is still 400-800bps below peers, but off a

base of 5% last year, this leads to a more than doubling in EPS. We believe costs

are aligned now with revenues such that IPG can eventually get back to a peer

group level, implying a 20% earnings CAGR from 2010-14.

Net cash position can spur catalysts. We expect IPG to continue to replace its

legacy hybrid securities, which should simplify the balance sheet and render EPS

easier to forecast. IPG may also reinstate its dividend: a major vote of confidence.

Catalysts

3Q results late October/early November; any announcements of use of cash.


We believe IPG’s days as a turnaround story are ending, yet the stock is still

priced at a valuation mismatch to peers. We expect strong results in coming

quarters; the valuation gap should close as IPG is priced more as a growth stock.

Valuation/risks

IPG on PER still carries a turnaround premium multiple of 17x 2011E vs. peers at 11-

13x. But on a PEG ratio, IPG at 0.7x looks cheap vs. the peer average of 1.2x, and on

EV/EBITDA IPG at 5.9x is cheap vs. peers at 7-8x. We value IPG using a DCF.

Key risks include any economic slowdown, plus company-specific risks of

mitigating client losses and continuing to manage internal re-organization. EPS

can also be difficult to forecast due to tax losses and dilutive securities.


1 October 2010 25

UNITED STATES

IRM US Outperform



Valuation US$ 34.63 - DCF (WACC 8.4%) GICS sector

Commercial & Professional Services





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 3,013.6 3,150.0 3,340.0 3,575.0 EBIT m 540.5 628.2 691.5 801.5 Reported profit m 220.9 199.7 288.5 353.3 Adjusted profit m 215.9 220.7 288.5 353.3 Gross cashflow m 471.9 505.0 599.5 660.3 CFPS US$ 2.31 2.47 2.94 3.23 CFPS growth % nmf 6.9 18.8 10.1 PGCFPS x 9.6 9.0 7.6 6.9 EPS adj US$ 1.06 1.08 1.41 1.73 EPS adj growth % nmf 2.2 30.9 22.4 PER adj x 21.0 20.6 15.7 12.8 Total DPS US$ 0.00 0.25 0.25 0.25 Total DPS growth % nmf nmf 0.0 0.0 Total div yield % 0.0 1.1 1.1 1.1 ROA % 7.9 9.2 9.9 10.8 ROE % 10.1 10.0 12.2 13.4 EV/EBITDA x 8.5 7.7 7.1 6.5 Net debt/equity % 131.0 118.2 93.2 65.3 P/BV x 2.1 2.0 1.8 1.6

IRM US vs S&P 500, & rec history




Kevin McVeigh +1 212 231 6191 [email protected]

1 October 2010

Iron Mountain Recent Weakness = Buying Opportunity Company description Based in Boston, MA, Iron Mountain is the global leader in information protection

and storage services for various types of media in North America, Europe, Latin

America, and Asia Pacific. The company generates revenue across three

segment—records management (approximately 72% of revenue), data protection

(19%), and information destruction (9%).

Investment thesis Risk-reward of about +60%/-10% coupled with recurring business model +

recent weakness drives Outperform. Over the last decade, leveraging its highly

recurring internal revenue growth, Iron Mountain has become a $3 billion global

leader in information protection and storage services. This transformation,

coupled with an intense focus on margin expansion and capital efficiency, has

enabled Iron Mountain to generate free cash flow that has been better-than-

expected and to begin to return capital to shareholders earlier-than-expected.

Share repurchase and dividend should drive multiple expansion. We believe

changes in Iron Mountain’s use of capital could attract investors that have

invested in other services companies, including publicly-traded processors ADP

and PAYX, given its recurring revenue and strong free cash flow. We also believe

Iron Mountain’s ability to generate sustainable free cash flow has enabled it to not

only return capital, but also invest both organically and inorganically.

$150m share repurchase program (3% of float);

25c annual cash dividend—payable 4/15 to shareholders of record on 3/25.

Catalysts Use recent weakness as a buying opportunity before 10/5 NYC investor day.

We are reiterating our outperform rating based on what we consider to be an

attractive opportunity to invest in the IRM stock, which is down almost 25% since

Sep-09, underperforming S&P 500 by 2,900bps. This level is only modestly above

its credit crisis low of $17.07 reached in Mar-2009. We believe the weakness

creates an attractive entry point in front of its October 5th investor day. We also see

meaningful upside toward our $35 price target and expect the shares to appreciate

driven by what we expect will be solid preliminary 2011 internal revenue growth

guidance at the investor day, likely in the low- to- mid-single-digit range.

Valuation/risks US$35 DCF-based target price implies 10.0x estimated EV-to-EBITDA, versus the

current multiple of 7.0x, both of which are attractive relative to its ten-year average

EV-to-EBITDA multiple of 14.5x and typical historical range of 10.0x-20.5x. Internal

revenue growth fell to 3.0% in 2010E from 10.5% in 2007 because of weak core

(85%) and complementary services (15%). We will focus on the pace of recovery.

Iron Mountain has net debt of $2.8 billion, or 3.1x net-debt-to-EBITDA, below its

range of 3.5-4.5x. We are comfortable with its debt, but will monitor this carefully.

As the industry shifts more towards digital technologies, Iron Mountain needs to

focus more on these types of services. This area will be even further scrutinized

given the $112m acquisition of Mimosa that closed this past February.


1 October 2010 26

UNITED STATES

MAN US Outperform



Valuation US$ 67.00 - DCF (WACC 10.2%) GICS sector

Commercial & Professional Services





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 16,039 17,821 20,379 23,736 EBIT m 112 290 384 593 Reported profit m 61 120 210 338 Adjusted profit m 70 120 210 338 Gross cashflow m 169 230 343 471 CFPS US$ 2.15 2.80 4.09 5.58 CFPS growth % -64.3 30.1 46.0 36.6 PGCFPS x 22.9 17.6 12.1 8.8 EPS adj US$ 0.89 1.47 2.50 4.01 EPS adj growth % -81.1 64.2 70.5 60.1 PER adj x 55.2 33.6 19.7 12.3 Total DPS US$ 0.74 0.71 0.71 0.72 Total div yield % 1.5 1.4 1.4 1.5 ROA % 1.7 4.6 5.7 8.1 ROE % 2.8 4.6 7.7 11.6 EV/EBITDA x 18.8 10.2 7.9 5.6 Net debt/equity % -10.1 -9.1 -5.9 -6.3 P/BV x 1.5 1.5 1.5 1.4

MAN US vs S&P 500, & rec history




Kevin McVeigh +1 212 231 6191 [email protected]

1 October 2010

Manpower More Upside as Macro Concerns Ease Company description

Based in Milwaukee, WI, Manpower is a global staffing company that provides

light industrial (50% of total revenue), clerical (10%), and professional staffing

services as well permanent placement, outplacement, and outsourcing services

with approximately 35% of its revenue derived from Other EMEA, 30% from

France, 10% from Asia Pacific, 10% from the United States, 5% each from Other

America and Italy, and 4% from Right Management, and 1% from Jefferson Wells.

Investment thesis

Recent macro uncertainty has created a buying opportunity. Given that the

company has effectively managed the EBIT runoff from its counter-cyclical

outplacement business (3% of revenue, 60% of 2009 EBIT) as evidenced by its

much better-than-expected Q2 results and that macro concerns about a double-

dip have been easing, we believe this is an attractive level to own the MAN stock.

At this level, we believe concerns about its European exposure are more than

discounted in the stock.

Positioned to benefit from fundamental + secular shift in temporary help.

The severity of the last downturn, coupled with demographics—aging baby

boomers—should drive the penetration rate of temporary/permanent workers

above the prior peak of 2.0% in 2000 + 1.62% currently.

Catalysts

With history as a guide, MAN stock should continue rebounding as

macro concerns ease. In the 2002 economic slowdown, GDP growth fell to

0.1% in 4Q02 from 3.5% in 1Q02, driving an almost 40% sell-off in the MAN

stock from May through October of that year. As GDP reaccelerated,

averaging 2.5% growth in 2003, the MAN stock rebounded 70%. Even with

the recent bounce off the bottom, the MAN stock could return almost 35%+ as

macro concerns ease, similar to 2003/04, we believe.

Valuation/risks

US$67 DCF-based target price implies 26.8x 2011E EPS of US$2.50. Our target

is based on our view that MAN should trade at a higher multiple in the early stage of

a recovery, off cyclically lower earnings; consistent with 23.3x average in early

stages of last two recoveries.

Despite positive secular growth trends, revenues and earnings tend to be cyclical.

In a weaker-than-expected economic recovery, it could be difficult for Manpower

to achieve consensus earnings estimates.

The staffing industry has experienced pricing pressure. If the economy expands

below-trend for a long time, the industry may see continued pricing pressure.

Following periods of macro weakness, the staffing industry has experienced

margin pressure as a result of higher state unemployment taxes. This could be

concerning if management is unable to pass it along to its clients.


1 October 2010 27

UNITED STATES

MDR US Outperform



Valuation US$ 19.00 - DCF (WACC 19.0%) GICS sector Energy





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 6,193.1 2,530.2 3,018.8 3,337.3 EBIT m 514.5 347.7 377.3 417.2 Reported profit m 389.9 283.7 299.2 331.4 Adjusted profit m 387.0 263.9 283.2 311.4 Gross cashflow m 547.3 431.1 459.2 491.4 CFPS US$ 2.34 1.84 1.96 2.10 CFPS growth % -2.9 -21.5 6.5 7.0 PGCFPS x 6.3 8.0 7.5 7.0 EPS adj US$ 1.66 1.13 1.21 1.33 EPS adj growth % -11.1 -32.1 7.3 10.0 PER adj x 8.9 13.0 12.1 11.0 Total DPS US$ 0.00 0.00 0.00 0.00 Total div yield % 0.0 0.0 0.0 0.0 ROA % 10.9 9.0 11.3 11.4 ROE % 24.6 15.4 14.9 13.6 EV/EBITDA x 4.2 5.7 5.3 4.9 Net debt/equity % -48.9 -71.6 -53.1 -53.3 P/BV x 1.9 2.2 1.5 1.5

MDR US vs S&P 500, & rec history




Sameer Rathod, CFA +1 212 231 2474 [email protected] Smitha Balasubramanian 1 212 231 2638 [email protected]

1 October 2010

McDermott International Offshore oil and gas play Company description

McDermott International provides front-end engineering & design (FEED);

engineering, procurement, construction and installation (EPCI); fabrication; and

maintenance services domestically and internationally to clients in the energy

space.

Investment thesis

We find the offshore oil and gas market very attractive and think McDermott is

well positioned to take advantage of the growth. We think the company will be

one of the first to benefit from an uptick in capex given its upstream oil and gas

exposure. Despite backlog being down, we think new awards have inflected

positively and think the second half of 2010 will be robust, though we fully

acknowledge the lumpiness in awards. We expect margins to expand in 2010 as

legacy zero-margin projects roll off in the first half.

Catalysts

Large contract award, oil and gas markets


Focus list expands to US$14bn. MDR reported a sharp increase in the value of

projects on their focus list to US$14bn compared to last quarter of US$10.5bn.

Although bids outstanding declined to US$4bn from US$7bn last quarter, the

~33% increase in the focus list is inline with a bullish second half of year.

Bullish on oil long term. Our commodities team continues to see higher

sustainable oil prices in the foreseeable future. Our oil vs. construction cost index

shows that we are passing over a critical inflection point for attractive investment.

That said, we think new awards will start to accelerate in the second half of 2010

and into 2011. We expect clients of E&C firms to lock in services on the back of

an improving outlook for oil, natural gas, Canadian oil sands and other

commodities. We think MDR will be one of the first to benefit from an uptick in

capex, given its upstream oil and gas exposure. We like McDermott over the next

few years, as the oil and gas space focuses on upstream vs. downstream.

Valuation/risks

Our US$19 target price is based on an adjusted target multiple of 15x our one-

year forward NTM EPS estimate of US$1.26.

Risks include credit, prolonged weakness in oil prices, backlog

cancellation/adjustments, cost overruns and competition.


1 October 2010 28

UNITED STATES

MTD US Outperform


12-month TSR % +7.1

Valuation US$ 133.00 - PER GICS sector

Pharmaceuticals, Biotechnology & Life

Sciences





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 1,728.9 1,864.5 1,933.3 2,021.0 EBIT m 286.6 318.3 344.8 369.0 Reported profit m 191.5 222.6 244.0 262.7 Adjusted profit m 191.5 222.6 244.0 262.7 Gross cashflow m 232.9 262.4 281.7 300.3 CFPS US$ 6.79 7.66 8.49 9.28 CFPS growth % -2.4 12.7 10.9 9.3 PGCFPS x 18.3 16.2 14.6 13.4 EPS adj US$ 5.58 6.50 7.36 8.12 EPS adj growth % -4.3 16.3 13.2 10.3 PER adj x 22.2 19.1 16.9 15.3 Total DPS US$ 0.00 0.00 0.00 0.00 Total div yield % 0.0 0.0 0.0 0.0 ROA % 17.0 18.1 18.8 19.3 ROE % 31.5 30.0 30.3 30.0 EV/EBITDA x 13.4 11.9 10.8 9.9 Net debt/equity % 29.3 16.3 10.9 6.8 P/BV x 5.9 5.3 4.7 4.2

MTD US vs S&P 500, & rec history




Jon Groberg +1 212 231 2612 [email protected] Dane Leone, CFA +1 212 231 6369 [email protected]

1 October 2010

Mettler-Toledo International Still wind in the sails Company description

Mettler-Toledo is the world’s largest supplier of weighing instruments, and has

more than twice the market share of its nearest competitor. Its instruments are

often used in critical applications, and they are highly precise – some can

measure down to one-millionth of a gram. The company’s largest served markets

are pharmaceutical (approximately 25% of sales), food & beverage processing

(approximately 15%) and food retailing (approximately 15%). Mettler-Toledo’s

customers are the blue-chip companies in each of these markets.

Investment thesis

Our Outperform rating on MTD and target price of US$133 is based on the stock

trading at a forward multiple of 18x our FY2011E earnings estimates, near the

higher end of our target range for LSAT stocks, but in line with its five-year

average. We think this target multiple is logical, given our view that MTD’s

earnings will continue to grow much faster than its peers.

Catalysts

Quarterly earnings results, corporate actions, and economic data.


Rapid growth and investment into Emerging markets such as China, where the

company has ~20 years of operating experience. Emerging markets represent

~28% of total MTD revenues, and based on continued double-digit growth

expectations for the remainder of 2010, EM should surpass ~30% by year-end.

MTD holds a leading share position in ~75% of the markets in which they

compete, although generally only control ~15-25% of any individual market; which

leaves opportunity for continued market share gains, in our opinion.

Opportunity for increased anti-counterfeit screening from specific legislation within

the US Health Care reform bill that requires increased product inspection for

counterfeit drugs. MTD acquired a company called CI Vision that has developed

advanced visual inspection technology applicable to counterfeit screening.

Valuation/risks

Our target price of US$133 is based on the stock trading at a forward multiple of

18x our FY2011E earnings estimate. Risks to our thesis include an unexpected

slowdown in the global economic recovery, adverse FX movements between the

Euro and Swiss Franc, and volatility in operations from increasing exposure to

emerging markets.


1 October 2010 29

UNITED STATES

RGA US Outperform



Valuation US$ 65.00 - PER GICS sector Insurance





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 7,000.3 7,919.8 8,444.9 9,028.7 Reported profit m 404.2 456.8 480.4 556.2 Adjusted profit m 438.3 472.2 520.4 566.2 EPS rep US$ 5.51 6.14 6.49 7.47 EPS rep growth % 103.5 11.3 5.7 15.1 EPS adj US$ 5.98 6.34 7.03 7.60 EPS adj growth % -2.2 6.1 10.8 8.2 PER adj x 8.1 7.6 6.9 6.4 Total DPS US$ 0.36 0.48 0.52 0.56 Total div yield % 0.7 1.0 1.1 1.2 ROE % 13.5 11.1 10.7 10.6 P/BV x 0.9 0.8 0.7 0.6

RGA US vs S&P 500, & rec history




Mark Finkelstein 1 312 660 9179 [email protected] Paul Sarran 1 312 660 9137 [email protected] Jiyang Zhang +1 312 660 9028 [email protected]

1 October 2010

Reinsurance Group of America Inc. Undervalued mortality play Company description

RGA is a leading global life reinsurer primarily reinsuring traditional mortality risk

with smaller blocks of annuity and financial reinsurance. RGA recently expanded

its capabilities with the purchase of ReliaStar’s group reinsurance business.

Investment thesis

We see RGA as one of the more fundamentally undervalued stocks in the life

space. We believe at 6.9x ’11E EPS and 0.9x BVPS ex FAS 115, the stock is

attractively valued given ROEs in the 12% range, less equity and credit sensitivity

than peers, strong core top-line growth in the high single digits, and the potential

for earnings upside from ~$500m of deployable capital. Our $65 PT is just 9.0x

our NTM estimates one year forward and 1.15x YE’10E BVPS.

Catalysts

RGA has shown some higher than expected mortality in recent quarters. As

mortality experience normalizes and investors regain confidence in the core

earnings and growth profile of the business, multiples should expand. Further bulk

deals / acquisitions could also provide catalysts for the stock.


Steady growth outlook. We believe RGA is well positioned to take advantage of

its market leading underwriting expertise and excess capital position to continue

to grow the in-force book. We are projecting 15% premium growth in the US for

’10, which includes a ~5-6% contribution from the ReliaStar acquisition, and

double-digit, currency-adjusted growth internationally. We expect continued solid

growth from both organic means and acquisitions.

Stable mortality-based earnings. While mortality can be volatile quarterly,

longer-term trends have been stable and slightly favorable. In a market where

longer-term earnings and capital stability is valued, RGA is well positioned.

Earnings upside from deployable capital. RGA has an estimated $500m in

redundant capital, and we believe a large portion could be readily deployed on

additional block transactions. Assuming RGA was able to use $400m of the

capital organically, this alone would likely add $0.40-$0.50 to EPS, which is not

fully factored into current estimates.

Valuation/risks

Our US$65 price target is based on a PER methodology. Risks include large

negative quarterly fluctuations in mortality, sustained deterioration in loss ratios or

a resumption of declines in cession rates (in the US in particular).


1 October 2010 30

UNITED STATES

SON US Outperform



Valuation US$ 34.13 - DCF (WACC 10.0%, beta 1.2, ERP 5.0%, RFR 4.5%, TGR 1.5%) GICS sector Materials





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 3,597.3 4,060.7 4,291.6 4,428.5 EBIT m 279.6 369.3 418.1 446.5 Reported profit m 151.5 240.4 273.9 292.2 Adjusted profit m 180.1 244.4 273.9 292.2 Gross cashflow m 353.7 411.6 458.9 477.2 CFPS US$ 3.50 4.02 4.48 4.66 CFPS growth % -13.6 14.9 11.3 4.0 PGCFPS x 9.6 8.4 7.5 7.2 EPS adj US$ 1.78 2.39 2.67 2.85 EPS adj growth % -20.5 34.0 11.9 6.7 PER adj x 18.9 14.1 12.6 11.8 Total DPS US$ 1.08 1.12 1.20 1.30 Total div yield % 3.2 3.3 3.6 3.9 ROA % 9.3 12.2 13.2 13.4 ROE % 14.2 17.0 17.4 16.9 EV/EBITDA x 8.4 7.1 6.3 6.1 Net debt/equity % 28.7 28.1 12.2 -1.8 P/BV x 2.5 2.3 2.1 1.9

SON US vs S&P 500, & rec history




Albert Kabili +1 212 231 2473 [email protected]

1 October 2010

Sonoco Products Company Sunny forecast ahead Company description

Sonoco is a manufacturer of industrial and consumer packaging products as well

as a provider of packaging fulfilment services.

The company is the market share leader in the industrial tubes and cores market

in the United States, Europe, and Brazil. In consumer packaging, Sonoco’s

portfolio breadth is unique in the industry, consisting of rigid/flexible plastic,

composite can, and closure technologies.

Investment thesis

Significant operating leverage to ongoing cyclical volume recovery in the

industrial tubes and cores market. As volumes continue to recover, we forecast

35% incremental operating margins (versus current Tubes & Cores segment

margins of ~6%).

Robust pipeline of new product initiatives in Consumer Packaging adds to

the momentum. New business opportunities in rigid plastics, additional

opportunities for composite can conversions, as well as an improving macro

should drive further volume growth in the consumer business.

Better cycle ahead as 2010 EPS is already on pace to match the prior peak.

We see a considerably better cycle ahead noting structural improvements as a

result of cost reductions and an improved consumer packaging business that

continues to successfully expand via new product introductions.

Catalysts

Volume improvement, margin expansion, and acquisitions.


In our view, valuation does not adequately reflect Sonoco’s earnings

power. The current forward PER (next 12 months) is 13.5x our estimates, versus

a historical average of ~15x as we believe investors continue to underestimate the

earnings power of the company.

Significant financial flexibility for value-added acquisitions in an improving

M&A environment. Noting that the balance sheet is currently under-leveraged at

0.8x net debt to EBITDA, acquisitions remain the priority for use of FCF.

Attractive FCF profile and 3.4% dividend yield.

Valuation/risks

Our US$39 target price is based on an equal-weighted average of our PER-,

EV/EBITDA-, and DCF-based valuation methodologies.

Key risks include slower-than-expected volume recovery, potential secular

declines in paper end markets, and poor executions.


1 October 2010 31

UNITED STATES

TEX US Outperform



Valuation US$ 26.00 - PER GICS sector Capital Goods





Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 3,858.4 4,124.1 5,245.0 6,207.1 EBIT m -401.7 -10.0 263.0 508.4 Reported profit m -340.2 482.2 95.8 273.6 Adjusted profit m -392.5 -105.5 95.8 273.6 Gross cashflow m -294.6 -11.6 195.5 391.6 CFPS US$ -2.87 -0.11 1.80 3.60 CFPS growth % nmf 96.3 nmf 100.3 PGCFPS x nmf nmf 12.6 6.3 EPS adj US$ -3.83 -0.97 0.88 2.52 EPS adj growth % nmf 74.6 nmf 185.5 PER adj x nmf nmf 25.7 9.0 Total DPS US$ 0.00 0.00 0.00 0.00 Total div yield % 0.0 0.0 0.0 0.0 ROA % -7.2 -0.2 4.3 7.6 ROE % -23.1 -5.5 4.3 11.5 EV/EBITDA x -8.6 32.7 7.3 4.2 Net debt/equity % 61.9 7.0 16.8 10.3 P/BV x 1.5 1.1 1.1 1.0

TEX US vs S&P 500, & rec history




Sameer Rathod, CFA +1 212 231 2474 [email protected] Smitha Balasubramanian 1 212 231 2638 [email protected]

1 October 2010

Terex Corporation Genie in a bottle Company description

Terex manufactures equipment for use in the construction, infrastructure,

quarrying, recycling, transportation, refining, utility and maintenance industries.

The company operates in four segments: Aerial Work Platforms, Construction,

Cranes and Materials Processing. Terex has an estimated market share of 9% for

construction machinery, behind Caterpillar and Komatsu.

Investment thesis

We think the aerial work platform and material processing businesses will be

near-term drivers to the story, as we see orders picking up in both segments while

construction and cranes remain a drag. Although the macro picture remains

uncertain, we think the company provides a compelling risk reward at current

valuations.

Catalysts

Orders, economic news, acquisitions, commodity prices, rental data.


Aerial work platforms (AWP) to drive the story. In our view, orders in the AWP

segment should pick up ~84% in 2011 compared to 2010 as leading indictors

such as orderly liquidation values, utilization, fleet age, and rental rates all

continue to move in the right direction, encouraging rental companies to increase

their capex. We also think international orders will be a larger part of the mix as

AWP becomes more relevant overseas driven by applicability and safety

regulations. In our view, the pick up in orders, combined with the recent cost cuts

should help boost profitability in 2011 and beyond.

Material processing business going strong; cranes and construction likely

to remain uneventful. We believe the early cycle nature combined with the larger

aftermarket business should continue to help the segment perform well. The

segment should continue to benefit from increasing demand in developing

markets driven by infrastructure needs and strong global mining markets followed

by early signs of a recovery in the US construction markets. We think both the

crane and construction segments have reached sensible bottoms with backlogs

bottoming in the second half of the year.

Valuation/risks

We use a 13.9x multiple on a one-year forward NTM earnings estimate of

US$1.86 to arrive at our US$26 target price. This corresponds to a 9.2x multiple

on a normalized 2011 earnings estimate of US$2.82, inexpensive compared to

the mid-cycle normalized multiple range of 10–12x.

Risks include economic indicators, stronger than expected crane market demand,

utilization/rates, cost controls, acquisitions, credit constraints, raw materials costs


1 October 2010 32

UNITED STATES

WBSN US Outperform



Valuation US$ 24.16 - DCF (WACC 12.0%, beta 1.5, ERP 6.0%, RFR 4.0%, TGR 3.0%) GICS sector Software & Services

Market cap US$m 771




Year end 31 Dec 2009A 2010E 2011E 2012E

Sales revenue m 330.9 333.7 351.3 374.3 Reported profit m -10.7 22.0 32.8 39.0 Adjusted profit m 53.2 51.7 55.5 58.7 EPS adj US$ 1.19 1.19 1.31 1.41 EPS adj growth % -7.9 -0.1 10.1 7.9 PER adj x 15.3 15.3 13.9 12.9

WBSN US vs NASDAQ, & rec history




Brad Zelnick 1 212 231 2618 [email protected] Bhavin Shah 1 212 231 2619 [email protected]

1 October 2010

Websense Value with product cycle optionality Company description

Websense develops web security and data loss solutions to help protect sensitive

information from web-based, email-based and internal threats. The company’s

core products include Websense Security Gateway, a solution defending against

malicious attacks using URL filtering and ThreatSeeker technology; Websense

Filter, a policy and reporting platform; and Websense Data Security Suite, a data

loss prevention solution to protect against data leaks by identifying and

categorizing information. Fifty percent of the company’s 2009 revenue was

generated outside the United States.

Investment thesis

We believe the shares trade at a discount to the financial value of the company’s

recurring revenue stream alone. We believe this value will be ultimately realized

by the market and can potentially be attractive to either a financial or strategic

acquirer.

Catalysts

Near-term catalysts include 3Q10 earnings which we expect to be released

October 26th, 2010.


New products expand market opportunity. “WSG Anywhere,” based on the new

Triton architecture, enables unified management of web, data, and email security

across hosted and on-premise deployment models. Channel feedback validates

this is the most competitive offering from the company in years and we expect the

product to increase Websense’s market opportunity to US$3.3bn.

We believe the specter of consolidation will continue to provide upside to current

valuations in the software industry and that recurring subscription revenues,

similar to traditional software maintenance, are a predictable annuity which can be

readily valued. This provides us with a floor value of US$20/share and assumes

absolutely no strategic value can be offered to an acquirer, no upside from new

products beyond modest assumptions for the forward 12 months and no cross-

selling within the installed base.

Valuation/risks

We reiterate our Outperform rating and our US$24 target price is based on our DCF

analysis and implies 12.9x TTM EV/FCFE vs the peer group average of 15.5x.

Risks to our target price include a prolonged recession, failure to execute and

increased competition from Blue Coat, McAfee, and Barracuda.


1 October 2010 33

Performance of prior top ten picks The Macquarie Magnifier serves as an idea generation tool for clients. The monthly report

recommends undervalued, underfollowed companies with an unrecognized positive dynamic for

change and continued operational performance. We provide a synopsis of the thematic and

calculate the performance of our prior top ten picks below – we base our recommendations on a

one-year forward time horizon from the date of report issuance.

Our top picks posted a 3.2% average time-weighted rolling monthly return from the date of

recommendation, versus a 1.5% increase for the Russell 2000 and 1.1% boost for the S&P

500 on a comparable basis. Past performance is not a guarantee of future returns.

Wise to energize (September 2010)

In September, we advised investors to ―boost their energy‖. We argued that modest economic

growth will boost fundamental prospects across the US small-/mid-cap energy sector in late 2010

and early 2011 – a setting that should bolster investor sentiment and spur stock performance. To

us, energy sector valuations, which sat at multi-year lows in August, overly factored in regulatory

threats post the Gulf of Mexico (GOM) oil spill and the risk of excess energy supplies if economic

conditions faltered. Our study implied that global energy demand had troughed and energy prices

(i.e. crude, coal and natural gas) would likely sit near September levels for most of 2H10 before

rising in 2011. We viewed earnings releases, economic data postings and the lifting of the GOM

drilling moratorium as the next catalysts to spur our forecast.

Fig 73 Top 10 picks – Wise to energize

Fig 74 Top 10 picks for September – absolute return


Rock to restocking (August 2010)

In August, we predicted retail inventory restocking would spur fundamental growth and stock

returns across many links of the US supply chain in 2H10 and early 2011. Our study revealed that

real retail inventory levels relative to sales rest near a 30yr low, while manufacturing inventories

sit above the historical mean on this basis. As a modest rise in consumer health renders greater

retailer confidence in return prospects, we think retail inventories will ratchet upwards toward the

trend-adjusted historic mean. We also think real retail inventory-to-sales levels will rise in relation

to the real manufacturing ratio – a trend that coincided with the outperformance of US product

producers, distributers and certain financial stocks during the last six inventory-cycle upturns.

Our top picks

outperformed the Russell

2000 and S&P 500 in

ten/eleven of the last

fourteen months,

respectively


1 October 2010 34

Fig 75 Top 10 picks – a special occasion

Fig 76 Top 10 picks for August – absolute return


A special occasion (July 2010)

In July, we issued the premise that stocks backed by positive earnings momentum, and above-

par ability to distribute excess cash to shareholders and discounted relative valuations will be the

market in 2H10, before likely tax hikes on dividends and capital gains in 2011. Additionally, we

view firms with these traits as well poised to issue a special dividend in 2H10 and repurchase

stock – attributes that we prefer more than the establishment/continuation of recurring dividend

payouts in late 2010. Our analysis of stock returns, investor tax rates and dividend/repurchase

yield movements implies that many stocks fail to factor in 2011 tax hikes and puts forth a bearish

outlook for equities with above-average dividend yields in 2H10.

Fig 77 Top 10 picks – a special occasion

Fig 78 Top 10 picks for July – absolute return


The power of pricing (June 2010)

In June, we favored the stocks of firms with absolute or rising levels of pricing power and discount

relative values versus peers and history. Our analysis of consumer (CPI) and producer (PPI)

prices indicated that input/material costs were increasingly outpacing consumer prices – a setting

that we view as likely to persist into 2H10 and squeeze corporate fundamentals. With few firms

able to lift prices or adjust operations to offset these costs, we view firms with an above-average

ability to pass along or benefit from rising input costs as best positioned to uphold or lift margins.

We think, and history implies, that the shares of firms possessing these traits will beat the broader

market if our fundamental outlook materializes.


1 October 2010 35

Fig 79 Top 10 picks – the power of pricing

Fig 80 Top 10 picks for June – absolute return


Take off from work (May 2010)

In May, we argued economic and corporate fundamentals suggest the worst lies behind the US

labor market. We predicted mounting product demand and corporate return prospects would add

stature and breadth to the nascent US job market recovery. Mindful of this, US small-/mid-cap

stocks with an above-par relationship to US payroll shifts, such as staffing firms, apartment/office

REITs and workers‘ comp. insurers, outperformed the Russell 2500 Index as US job metrics

healed post the last six recessions. We predicted another repetition of this trend as positive US

employment metrics actualize in coming periods.

Fig 81 Top 10 picks – take off from work

Fig 82 Top 10 picks for May – absolute return


There’s value in value (April 2010)

In April, we advised investors to keep it simple. Our research revealed that low relative value

stocks backed by positive corporate fundamental momentum beat the market over time with less

risk. Historically, the outperformance gap expands as the economy enters the mid-to-late stages

of recovery. We viewed evidence of rising US economic health and mounting return prospects as

positive for corporate profit growth and risk shrinkage in coming periods. In our view, this scenario

will hoist value stock returns, which mostly underperformed since 2005, above the overall market.

Our outlook resembles market activity pos the last six recessions; investors should pay heed.


1 October 2010 36

Fig 83 Top 10 picks – value stock portfolio

Fig 84 Top 10 picks for April – absolute return


Return of the capex phoenix (March 2010)

In March, we argued that capital goods and services stocks were well poised for appreciation in

coming periods, given our forecast for an upturn in US capital spending across a rising number of

industries. We based this thesis on mounting evidence of cyclical and secular factors that usually

spur capital investment: such as a rise in corporate profits and sentiment, boosting capacity

usage, expanding balance sheet flexibility, a favorable US currency setting, the low cost of capital

and a budding US corporate ROIC outlook. We recommended that investors take notice – capital

goods and services stocks tend to advance before a capital spending pickup.

Fig 85 Top 10 picks – return of the capex phoenix

Fig 86 Top 10 picks for March – absolute return


Ahead of the curve (February 2010)

In February, we argued that US fixed income market indicators ring positive for the sustainability

of the US economic recovery and cyclical and financial sector performance. Our analysis

revealed that a positive, steepening US Treasury yield curve (ten-year–three month) and falling

credit spreads (Moody‘s BAA-AAA) coincided with the upturn in economic health post the last

three recessions. Our analysis revealed cyclical and financial sector outperformance during

periods following the alignment of these factors. In our view, the market was set for a similar act –

our confidence in this view only heightened when we added low inflation, which the US Fed thinks

will keep a lid on Fed funds rate hikes, and the low cost of debt to the mix.


1 October 2010 37

Fig 87 Top ten picks – positive fixed income findings

Fig 88 Top ten picks for February – absolute return

Source: Compustat, Macquarie Capital (USA), May 2010 Source: Compustat, Macquarie Capital (USA), September 2010

An ace in the hole (January 2010)

In January, we argued that the deployment of capital from underleveraged balance sheets would

bolster US small-/mid-cap shareholder returns in coming periods. Our analysis revealed that

recessionary conditions and a greater overall aversion to risk during the past two years resulted

in cash hoarding and major balance sheet restructure – US small-/mid-cap cash holdings dwelled

at a 40-year high relative to total assets, and financial leverage ratios sat well below the historical

average. Adding this to our analysis of low interest rates and our forecast for greater cashflow in

2010, our research revealed many US small-/mid-cap firms well poised to invest in positive NPV

projects, chiefly M&A, and/or return capital to shareholders.

Fig 89 Top ten picks – excess financial capacity

Fig 90 Top ten picks for January – absolute return



1 October 2010 38

Did you say leverage? (December 2009)

In December, we argued that greater operating leverage would spearhead earnings growth in

2010 as the recovery in US economic conditions translates into a step-up in corporate revenue.

With this in mind, we sourced ten picks from the US consumer, healthcare and industrials sectors

– market segments that we think are prone to reap significant benefits from operating efficiency

enhancements taken in 2009 as revenue expands in 2010. We found the companies to trade at a

discount to the respective sector historical averages and, in our view, factor in consensus

earnings forecasts that, in some cases, exclude margin growth and will likely be exceeded in

coming periods. We recommended that investors purchase stock before our outlook materializes.

Fig 91 Top 10 picks – operating leverage

Fig 92 Top 10 picks for December – absolute return


Garner strength from weakness (November 2009)

In November, we argued that the US dollar was ―strong at home‖ and ―competitive abroad‖ – a

positive scenario for the US economy and for companies that generate in excess of 10% of sales

abroad or compete with foreign producers that serve more than 10% of the US market. With this

in mind, we sourced our top picks from the US consumer, technology, healthcare and industrials

sectors. We found these companies boast compelling growth profiles and returns on capital but

underappreciated value – many of our top picks traded at the low end of their historical valuation

range despite evidence of improving macro conditions and core fundamentals.

Fig 93 Top 10 picks – playing a weak US dollar

Fig 94 Top 10 picks for November – absolute return



1 October 2010 39

A smokestack comeback (October 2009)

In October, we argued that industrials sector participants trade at an undeserved discount to

historical valuation levels – most notably, the aerospace, machinery, packaging, industrials

REITs, engineering and construction providers that dominated our top ten list — despite the

earnings leverage, cost-save sustainability and cyclical positioning that we think favored a

marked turnaround in the group. We advised that investors accumulate shares ahead of the

fundamental betterment and uptrend in investor sentiment that we envisioned.

Fig 95 Top ten picks – industrials portfolio

Fig 96 Top ten for October – absolute return


Return of the consumer (September 2009)

In September, we argued that recent macro-economic data boded well for an upturn in US

consumer health in coming periods. We, therefore, warmed to early cycle companies, as our top

10 picks resided within the US gaming & leisure, wireless communication and consumer REIT

industries. In our view, investors had largely overlooked these companies during the rally from

market lows in 2009. On the whole, we viewed our top ten picks as companies that reflected

attractive growth profiles and returns on capital but underappreciated value – traits that would

likely gain stature among investors as our fundamental forecast materialized.

Fig 97 Top ten picks – consumer portfolio

Fig 98 Top ten picks for September – absolute return



1 October 2010 40

It’s time to visit infrastructure (August 2009)

In August 2009, we maintained somewhat of a defensive posture, as we recommended

infrastructure companies that generate above-mean ROIC, offer moderate to low financial risk

and benefit from a ten-year forward industry-level growth profile in the mid- to high-single digits.

In addition, we liked that these companies benefit from highly predictable cashflow streams that

limit downside risk, given that financial risk remains in check. We view US infrastructure plays as

companies with defensive demand/return profiles and, at the time, attractive relative valuations –

qualities viewed as positive for relative outperformance to the general market.

Fig 99 Top ten picks – infrastructure portfolio

Fig 100 Top ten picks for August – absolute return



1 October 2010 41

Appendix 1: US sub-sector view

US Small-/-Mid-Cap Averages GICS - Subsector

Foreign

Inc % Total

Income

5Yr Avg

Foreign Inc %

Tot Inc

Foreign Income Margin

5Yr Avg


1 Year

Growth Foreign Income

5 Year


Foreign

Sales % Total Sales

5Yr Avg

Foreign Sales % T Sales

1 Year

Growth Foreign Sales

5 Year


Foreign

Assets% Total

Assets

Foreign

Asset Turn- over

Foreign Asset

Turnover

Total

Foreign Currency

Adjust

10101010 Oil & Gas Drilling Median 41.6 62.1 25.7 30.7 -11.1 8.4 72.3 86.8 -11.2 0.0 34.8 0.5 16.8 -0.1 Weighted Average 85.9 73.2 30.3 24.8 -11.8 18.1 70.3 84.9 -13.3 7.4 58.6 0.4 10.8 -2.5 Weighted Median 96.0 62.1 25.7 18.1 -11.6 8.4 96.9 86.8 -22.4 -0.4 76.8 0.3 8.4 -5.5

10101020 Oil & Gas Equipment & Services Median 19.2 9.5 12.1 11.3 0.0 46.3 30.6 29.4 -11.8 17.4 14.2 1.2 17.3 0.9 Weighted Average 38.6 27.3 14.4 14.0 1.2 46.9 38.7 38.7 -9.8 15.0 24.6 1.3 17.6 2.7 Weighted Median 19.9 13.0 12.1 11.3 0.0 41.4 36.8 32.3 -9.5 17.4 21.4 1.2 13.7 2.0

10102020 Oil & Gas Exploration & Production Median 0.0 0.0 -43.2 -7.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 -19.2 0.0 Weighted Average -21.9 -2.0 -68.0 -7.2 0.0 0.0 9.4 4.8 -7.7 15.0 8.4 0.2 -14.6 4.9 Weighted Median 0.0 0.0 -28.7 -6.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 -6.6 0.0

10102030 Oil & Gas Refining & Marketing Median 43.7 39.8 2.2 1.2 -3.9 15.1 27.7 27.7 -18.9 7.1 32.9 5.5 11.7 -0.6 Weighted Average 48.1 43.9 2.2 1.2 -4.3 16.6 30.5 30.5 -20.8 7.9 36.3 5.5 11.7 -0.6 Weighted Median 87.3 79.7 2.2 1.2 -7.9 30.2 55.4 55.4 -37.8 14.3 65.8 5.5 11.7 -0.6

10102040 Oil & Gas Storage & Transportation Median -0.2 49.7 9.2 129.6 -50.0 -41.3 0.0 26.4 -50.0 -37.1 0.0 0.3 3.0 0.0 Weighted Average -0.1 25.4 9.2 129.6 -25.6 -21.2 0.0 13.5 -25.6 -19.0 0.0 0.3 3.0 0.0 Weighted Median 0.0 0.0 9.2 129.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 3.0 0.0

10102050 Coal & Consumable Fuels Median 0.0 - - - 0.0 - 0.0 - 0.0 - 0.0 - - 0.0 Weighted Average 0.0 - - - 0.0 - 0.0 - 0.0 - 0.0 - - 0.0 Weighted Median 0.0 - - - 0.0 - 0.0 - 0.0 - 0.0 - - 0.0

15101010 Commodity Chemicals Median - - - - - - 42.2 43.9 -4.3 2.7 14.5 2.8 - - Weighted Average - - - - - - 42.2 43.9 -4.3 2.7 14.5 2.8 - - Weighted Median - - - - - - 42.2 43.9 -4.3 2.7 14.5 2.8 - -

15101020 Diversified Chemicals Median 8.2 40.3 4.2 5.8 -15.3 3.6 23.7 28.3 -19.5 10.6 13.5 2.3 6.2 -8.4 Weighted Average -2.8 50.6 4.0 7.8 8.7 3.6 44.2 37.6 -7.1 13.3 17.2 2.5 7.6 -16.6 Weighted Median 8.2 40.3 4.2 5.8 47.1 3.6 37.3 30.3 -18.6 13.9 13.5 2.3 6.2 -17.0

15101030 Fertilizers & Agricultural Chemicals Median 0.0 - - - 0.0 - 16.4 16.9 -2.8 4.2 0.0 - - -0.1 Weighted Average 0.0 - - - 0.0 - 10.5 16.9 -3.5 4.2 0.0 - - -0.1 Weighted Median 0.0 - - - 0.0 - 16.4 16.9 -5.6 4.2 0.0 - - -0.1

15101050 Specialty Chemicals Median 25.3 22.1 4.9 6.2 -28.4 3.9 51.3 45.0 -16.1 4.9 23.1 2.1 9.8 -0.6 Weighted Average 31.9 31.2 4.9 6.3 -18.6 7.3 54.5 50.8 -13.7 8.0 43.0 1.9 11.8 -1.9 Weighted Median 23.3 22.1 5.0 6.3 -22.2 9.4 60.0 61.8 -9.3 9.1 26.4 1.2 9.8 -1.4

15102010 Construction Materials Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

15103010 Metal & Glass Containers Median 23.7 46.3 5.4 8.4 -47.3 -0.9 42.2 33.5 -19.4 11.6 21.6 2.1 16.1 -0.7 Weighted Average 54.6 64.6 8.6 10.3 -39.2 5.0 49.1 44.8 -13.6 18.9 26.2 2.0 15.7 -0.7 Weighted Median 73.4 79.1 11.4 12.0 -24.1 6.3 70.1 49.8 -14.2 15.4 35.5 2.0 20.2 -0.7

15103020 Paper Packaging Median 3.2 4.6 6.3 4.9 0.0 7.6 5.5 4.5 -2.9 2.2 0.5 4.5 29.1 2.8 Weighted Average 13.2 9.5 6.3 4.8 18.7 7.0 17.1 17.1 -7.8 2.4 9.9 3.8 24.5 2.8 Weighted Median 3.2 4.6 6.1 4.4 0.0 7.6 5.5 4.5 -2.9 2.2 0.5 1.9 11.7 2.8

15104010 Aluminum Median 16.2 11.8 -5.1 9.5 -94.5 - 26.0 21.1 -41.6 11.0 25.8 6.9 1.8 - Weighted Average 18.7 11.8 -6.0 9.5 -94.5 - 27.8 21.7 -41.1 14.2 29.7 5.9 0.9 - Weighted Median 31.6 11.8 -10.8 9.5 -94.5 - 37.1 24.7 -38.5 31.0 50.2 0.4 -3.8 -

15104020 Diversified Metals & Mining Median 22.2 24.7 5.2 6.4 -38.7 -10.9 35.6 32.7 -21.9 8.7 10.0 1.8 6.6 0.7 Weighted Average 27.1 28.4 6.2 7.5 -33.6 -7.6 35.6 31.1 -18.6 16.3 18.1 5.8 7.1 1.0 Weighted Median 47.9 43.6 10.2 11.9 -12.5 6.2 35.6 32.7 -21.9 8.7 10.0 1.8 9.1 2.1

15104050 Steel Median 8.2 0.0 1.2 - -41.3 -10.6 17.1 18.0 -47.6 0.3 1.6 10.5 -12.2 -0.1 Weighted Average 2.6 0.0 3.2 - -22.1 -5.7 16.1 18.1 -29.1 1.4 3.5 23.9 1.3 -1.2 Weighted Median 0.0 0.0 4.5 - 0.0 0.0 5.7 7.4 -20.8 0.0 0.4 5.4 10.7 -0.2

15105010 Forest Products Median 21.2 17.1 -17.6 -7.8 0.0 0.0 16.7 16.0 1.0 -9.7 7.9 1.0 -17.4 6.7 Weighted Average 27.5 22.2 -17.6 -7.8 0.0 0.0 21.6 20.7 1.3 -12.5 10.3 1.0 -17.4 8.7 Weighted Median 42.4 34.3 -17.6 -7.8 0.0 0.0 33.4 32.0 2.0 -19.4 15.9 1.0 -17.4 13.4

15105020 Paper Products Median 24.7 -38.7 4.7 -2.1 320.3 -13.6 21.5 26.3 -19.1 0.2 51.1 0.9 3.8 0.2 Weighted Average 28.3 -0.4 5.8 0.9 320.3 -13.6 30.6 34.1 -40.2 10.8 52.5 1.0 4.9 0.2 Weighted Median 30.1 19.9 6.3 2.5 320.3 -13.6 21.5 42.9 -18.6 0.6 72.6 0.9 5.5 0.0

20101010 Aerospace & Defense Median 0.0 15.6 7.1 10.8 0.0 0.0 30.7 27.0 0.2 12.5 2.6 3.4 23.6 -1.0 Weighted Average 19.3 26.1 8.1 10.4 -4.7 3.6 33.1 32.4 69.3 20.1 15.2 3.2 25.3 -6.0 Weighted Median 29.9 31.1 9.6 9.3 0.0 0.0 34.5 36.6 0.0 18.1 5.4 2.0 23.4 -4.7

20102010 Building Products Median 0.4 0.0 0.1 - -24.6 0.0 2.5 3.6 -8.0 0.0 2.4 2.3 1.2 -0.7 Weighted Average 7.6 0.2 3.6 - -70.0 -15.5 17.0 16.1 -16.2 -11.4 5.8 4.8 9.0 -0.7 Weighted Median 0.7 0.0 0.1 - -93.8 -27.7 27.4 21.9 -8.0 2.3 6.6 3.0 1.2 -0.7

20103010 Construction & Engineering Median 12.7 7.9 2.9 3.1 0.0 12.4 14.8 18.1 -2.7 20.0 1.5 12.9 73.2 0.0 Weighted Average 25.6 26.2 6.3 4.9 48.1 19.1 33.6 34.4 -7.0 20.1 4.5 33.4 163.8 -77.2 Weighted Median 32.2 15.9 2.4 3.1 59.3 24.8 22.1 18.1 -2.7 20.9 2.1 20.9 185.5 0.0

20104010 Electrical Components & Equipment Median 8.8 9.4 8.6 8.9 -11.8 18.5 34.5 24.5 -15.8 12.7 3.2 4.8 49.6 -0.1 Weighted Average 23.9 17.0 11.3 12.0 -19.1 23.2 34.2 30.4 -11.8 12.3 6.0 6.1 66.2 -0.1 Weighted Median 23.7 11.7 8.6 8.9 -17.9 25.3 48.9 35.2 -15.8 14.0 3.7 5.3 72.7 -0.2


1 October 2010 42


Foreign

Inc % Total

Income

5Yr Avg

Foreign Inc %

Tot Inc


5Yr Avg


1 Year


5 Year


Foreign

Sales % Total Sales

5Yr Avg


1 Year


5 Year


Foreign

Assets% Total

Assets

Foreign

Asset Turn- over

Foreign Asset

Turnover

Total

Foreign Currency

Adjust

20104020 Heavy Electrical Equipment Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

20105010 Industrial Conglomerates Median 25.5 30.7 13.2 12.6 38.6 6.8 21.0 21.9 -3.6 -3.7 12.4 3.7 79.9 - Weighted Average 25.5 30.7 13.2 12.6 38.6 6.8 23.0 24.2 -8.1 -5.9 15.4 2.9 79.9 - Weighted Median 25.5 30.7 13.2 12.6 38.6 6.8 27.2 29.1 -17.4 -10.4 21.7 1.4 79.9 -

20106010 Construction & Farm Machinery & Heavy Trucks Median 31.5 40.8 4.3 5.7 -18.1 25.2 40.2 38.0 -22.7 11.9 7.5 6.7 7.6 -0.3 Weighted Average 60.7 47.3 3.9 10.9 5.8 24.1 43.7 43.5 -15.5 21.3 8.8 7.6 49.7 -1.4 Weighted Median 31.3 48.8 10.3 13.1 -35.0 31.2 35.1 50.7 -27.1 17.3 6.8 6.9 72.5 0.4

20106020 Industrial Machinery Median 22.1 19.1 4.7 5.1 -30.6 5.7 39.8 38.0 -21.8 4.5 10.1 3.8 6.8 0.0 Weighted Average -3.1 19.8 -0.6 5.9 13,357.6 14.2 41.2 40.9 -29.1 -2.1 15.4 5.2 -15.2 -2.2 Weighted Median 22.1 19.1 4.3 5.0 -30.6 5.8 39.8 38.0 -18.4 4.7 5.2 4.8 6.8 0.0

20107010 Trading Companies & Distributors Median 0.0 2.5 5.3 8.2 0.0 0.0 13.2 11.9 -8.5 2.3 4.0 1.8 4.1 - Weighted Average 7.3 0.2 18.0 8.2 -5.3 0.0 8.0 10.6 -10.5 1.2 7.7 3.3 21.9 - Weighted Median 0.0 0.0 5.3 8.2 0.0 0.0 13.2 11.7 0.0 0.0 0.0 0.9 4.1 -

20201010 Commercial Printing Median 0.0 4.0 7.9 - 0.9 0.0 5.1 2.7 -3.7 -58.3 2.3 4.3 11.0 -0.4 Weighted Average 6.1 2.7 5.3 - 0.6 0.0 7.5 6.3 -5.4 -28.5 2.7 4.5 7.4 -0.7 Weighted Median 0.0 0.0 0.0 - 0.0 0.0 5.1 2.0 -3.7 -16.7 1.3 4.3 0.0 0.0

20201050 Environmental & Facilities Services Median 3.5 3.5 2.0 - -32.7 0.0 4.6 5.3 114.4 17.7 0.6 8.5 1.0 0.0 Weighted Average 2.5 2.6 2.0 - -23.8 0.0 8.7 3.8 181.6 10.2 12.6 7.1 1.0 0.0 Weighted Median 0.0 0.0 2.0 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 1.0 0.0

20201060 Office Services & Supplies Median 44.6 12.7 5.4 6.2 -37.9 12.0 49.5 46.9 -26.0 7.6 7.3 13.4 37.7 0.9 Weighted Average 39.4 12.7 4.1 6.2 -39.1 11.0 46.0 46.9 -19.6 10.4 6.9 11.2 43.6 5.6 Weighted Median 41.5 12.7 3.5 6.2 -53.8 6.0 49.5 45.9 -26.0 2.0 7.3 13.4 37.7 0.9

20201070 Diversified Support Services Median 7.7 11.4 12.2 13.4 0.0 -3.4 8.1 8.5 -17.5 1.5 4.5 2.7 17.8 -0.1 Weighted Average 8.2 9.5 12.3 13.5 2.0 -2.0 8.1 9.4 -19.0 -0.6 4.8 3.7 19.0 -0.1 Weighted Median 7.7 11.4 12.7 13.6 0.0 0.0 3.1 5.0 -17.5 0.0 0.6 1.8 23.1 -0.1

20201080 Security & Alarm Services Median 75.9 - 5.4 - -35.0 - 44.3 39.7 3.4 1.3 36.3 1.9 19.3 -41.4 Weighted Average 75.9 - 5.4 - -35.0 - 38.8 35.2 3.9 2.0 35.4 1.7 19.3 -41.4 Weighted Median 75.9 - 5.4 - -35.0 - 12.0 13.0 6.6 5.7 31.3 0.3 19.3 -41.4

20202010 Human Resource & Employment Services Median -143.9 -25.5 -2.6 5.1 -44.9 0.0 28.1 32.2 -28.8 0.7 6.7 2.9 -4.0 -0.5 Weighted Average -282.8 0.2 -1.6 4.1 -26.1 0.9 55.6 55.4 -21.7 11.6 47.9 28.3 -20.7 -0.8 Weighted Median -143.9 49.6 -1.5 2.6 0.0 0.0 56.3 46.9 -31.3 0.9 50.2 2.9 -4.3 -0.8

20202020 Research & Consulting Services Median 0.0 0.0 7.8 - 0.0 0.0 7.2 3.3 0.0 6.1 0.1 9.4 511.7 0.1 Weighted Average 0.7 0.0 7.8 - -9.3 0.0 11.8 9.8 -5.3 6.5 3.8 19.7 511.7 0.4 Weighted Median 0.0 0.0 7.8 - 0.0 0.0 7.2 0.0 0.0 0.0 0.1 9.4 511.7 0.6

20301010 Air Freight & Logistics Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

20302010 Airlines Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

20303010 Marine Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

20304010 Railroads Median - - - - - - 41.6 - -24.7 - 41.0 0.3 - 2.1 Weighted Average - - - - - - 41.6 - -24.7 - 41.0 0.3 - 2.1 Weighted Median - - - - - - 41.6 - -24.7 - 41.0 0.3 - 2.1

20304020 Trucking Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.7 - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 1.7 1.9 -5.7 2.8 0.2 8.7 - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.7 - 0.0

25101010 Auto Parts & Equipment Median 0.0 84.3 4.3 6.5 0.0 -1.9 65.4 39.7 -19.4 8.0 11.8 2.8 11.0 0.1 Weighted Average 105.2 82.1 5.3 8.1 9.4 -3.6 65.9 58.1 -18.9 10.5 20.3 3.3 14.7 0.1 Weighted Median 124.0 84.3 5.4 8.4 13.5 -3.9 72.2 65.0 -23.7 13.0 22.4 2.8 15.3 0.0

25102010 Automobile Manufacturers Median 0.0 0.0 0.0 - 0.0 0.0 5.6 2.6 -72.7 - 0.0 - - 0.0 Weighted Average 0.0 0.0 0.0 - 0.0 0.0 5.6 2.6 -72.7 - 0.0 - - 0.0 Weighted Median 0.0 0.0 0.0 - 0.0 0.0 5.6 2.6 -72.7 - 0.0 - - 0.0

25201010 Consumer Electronics Median 23.3 45.5 4.2 - -31.2 -11.1 38.8 - - 7.9 1.6 33.4 138.6 -0.2 Weighted Average 23.3 45.5 4.2 - -31.2 -11.1 38.8 - - 7.9 1.6 33.4 138.6 -0.2 Weighted Median 23.3 45.5 4.2 - -31.2 -11.1 38.8 - - 7.9 1.6 33.4 138.6 -0.2

25201020 Home Furnishings Median 4.2 - 9.0 - - 0.0 7.8 9.7 346.5 -0.3 2.1 1.5 30.3 0.0 Weighted Average 6.6 - 7.4 - - 0.0 13.0 9.2 613.1 -6.6 15.9 0.8 30.3 0.0 Weighted Median 4.2 - 4.9 - - 0.0 15.5 9.1 688.1 -0.3 18.8 0.7 30.3 0.0

25201030 Homebuilding Median 0.0 0.0 0.0 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 0.0 - 0.0 0.0 0.2 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 0.0 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

25201040 Household Appliances Median 74.1 43.3 48.0 27.6 - -2.4 21.1 20.8 -6.8 5.1 43.8 0.4 17.9 1.7 Weighted Average 74.1 43.3 48.0 27.6 - -2.4 21.1 20.8 -6.8 5.1 43.8 0.4 17.9 1.7 Weighted Median 74.1 43.3 48.0 27.6 - -2.4 21.1 20.8 -6.8 5.1 43.8 0.4 17.9 1.7


1 October 2010 43


Foreign

Inc % Total

Income

5Yr Avg

Foreign Inc %

Tot Inc


5Yr Avg


1 Year


5 Year


Foreign

Sales % Total Sales

5Yr Avg


1 Year


5 Year


Foreign

Assets% Total

Assets

Foreign

Asset Turn- over

Foreign Asset

Turnover

Total

Foreign Currency

Adjust

25201050 Housewares & Specialties Median 0.0 0.0 7.3 4.5 15.8 4.0 33.7 31.3 0.4 -2.4 4.2 12.2 -7.3 5.9 Weighted Average 52.7 53.7 12.6 9.8 24.9 6.3 47.6 48.5 -1.1 4.6 52.3 4.9 7.7 8.8 Weighted Median 83.3 92.4 16.7 13.9 31.7 8.0 67.9 69.5 3.3 9.6 86.1 1.1 19.2 13.4

25202010 Leisure Products Median 0.0 1.4 5.2 1.8 -32.4 -3.8 23.9 20.4 -14.8 4.4 2.4 11.0 12.9 -0.2 Weighted Average 0.2 3.1 3.0 3.5 -35.1 -13.4 28.7 25.3 -19.3 4.7 13.8 21.0 94.7 -0.3 Weighted Median 2.1 0.0 1.6 2.6 -32.4 -19.8 31.4 27.6 -14.8 4.7 3.9 3.7 5.8 -0.5

25203010 Apparel Accessories & Luxury Goods Median 36.3 28.3 10.5 12.0 4.9 6.1 11.4 30.0 -10.3 12.9 7.6 2.5 21.6 -0.3 Weighted Average 59.7 62.0 13.2 16.2 38.8 13.9 27.6 30.2 -4.7 18.5 14.8 14.1 136.2 0.2 Weighted Median 56.2 64.2 12.2 20.1 -22.1 9.3 11.4 35.8 -6.6 13.9 13.2 5.0 106.1 -0.3

25203020 Footwear Median 7.7 0.0 12.9 13.0 37.6 -13.9 31.1 28.9 -11.9 9.2 12.1 1.8 21.3 0.7 Weighted Average -34.1 7.2 11.8 13.0 129.0 -6.1 27.3 24.5 0.1 14.8 18.6 21.9 23.2 1.0 Weighted Median 15.3 0.0 16.7 13.0 75.2 0.0 24.9 21.1 -9.7 8.5 1.3 31.9 21.3 0.7

25301010 Casinos & Gaming Median 0.0 0.0 20.9 16.5 0.0 0.0 10.1 6.9 0.0 8.7 0.0 0.9 26.5 0.0 Weighted Average 36.1 7.6 22.4 16.5 57.5 11.9 24.1 19.3 14.5 21.5 16.6 1.1 25.6 0.0 Weighted Median 20.5 14.3 25.5 16.5 24.0 0.0 29.0 24.2 10.6 18.6 11.5 0.9 23.6 -0.2

25301020 Hotels Resorts & Cruise Lines Median 4.5 0.0 14.2 - -25.9 0.0 8.0 8.5 -2.6 0.0 0.1 51.9 737.0 -1.3 Weighted Average 6.8 0.0 14.2 - -39.0 0.0 12.0 12.8 -3.9 0.0 0.1 51.9 737.0 -1.3 Weighted Median 9.0 0.0 14.2 - -51.7 0.0 15.9 16.9 -5.2 0.0 0.1 51.9 737.0 -1.3

25301030 Leisure Facilities Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

25301040 Restaurants Median 0.0 0.0 5.2 -23.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.5 0.1 0.0 Weighted Average 8.9 -0.4 13.4 -23.9 0.0 3.4 5.9 0.1 35.3 -3.1 4.6 2.1 12.2 1.3 Weighted Median 0.0 0.0 17.8 -23.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 18.6 0.0

25302010 Education Services Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.4 - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.3 0.5 2.9 -0.5 0.3 1.4 - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.4 - 0.0

25302020 Specialized Consumer Services Median 11.2 8.3 5.9 10.7 -25.0 -3.2 9.0 11.0 0.0 7.8 4.0 1.0 33.4 0.2 Weighted Average 24.3 32.4 9.5 14.1 -14.2 -3.3 22.5 24.2 -7.0 6.8 8.0 5.6 26.7 0.7 Weighted Median 11.2 10.6 17.2 18.2 -25.0 -6.5 9.0 13.6 -1.6 2.5 4.0 1.0 10.0 0.2

25401010 Advertising Median 0.0 0.0 9.3 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.3 96.1 - Weighted Average 1.8 0.0 9.3 - 8.2 0.0 1.9 1.4 -2.7 1.8 0.2 10.3 96.1 - Weighted Median 0.0 0.0 9.3 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.3 96.1 -

25401030 Movies & Entertainment Median - - - - - - 34.8 33.3 -3.3 13.4 52.2 1.2 - - Weighted Average - - - - - - 34.8 33.3 -3.3 13.4 52.2 1.2 - - Weighted Median - - - - - - 34.8 33.3 -3.3 13.4 52.2 1.2 - -

25401040 Publishing Median 16.6 17.0 11.6 10.2 24.4 0.0 21.5 20.6 3.3 1.1 18.6 1.1 11.3 -5.7 Weighted Average 36.9 34.5 13.4 11.9 98.3 2.3 36.6 34.5 3.6 11.1 34.6 1.0 11.7 -9.4 Weighted Median 51.6 47.8 16.0 14.4 24.4 3.8 49.1 46.2 4.3 17.2 47.2 0.8 12.2 -10.9

25501010 Distributors Median 87.6 40.8 9.8 4.3 345.8 0.0 6.1 7.2 -14.9 -0.9 2.0 3.4 33.6 0.0 Weighted Average 8.1 3.8 9.8 4.3 32.1 0.0 0.6 0.7 -1.4 -0.1 0.2 3.4 33.6 0.0 Weighted Median 0.0 0.0 9.8 4.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.4 33.6 0.0

25502010 Catalog Retail Median - - - - - - 0.0 - - - 0.0 - - - Weighted Average - - - - - - 0.0 - - - 0.0 - - - Weighted Median - - - - - - 0.0 - - - 0.0 - - -

25502020 Internet Retail Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 115.4 - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.7 0.3 1.2 0.0 0.0 115.4 - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 115.4 - 0.0

25503010 Department Stores Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

25503020 General Merchandise Stores Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

25504010 Apparel Retail Median 0.0 0.0 6.8 13.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.6 54.0 0.0 Weighted Average 13.3 10.0 8.7 13.8 -9.7 -0.6 6.2 11.2 -16.9 -12.7 3.5 5.3 52.1 1.1 Weighted Median 0.0 0.0 6.8 20.1 0.0 0.0 0.0 4.1 -1.2 0.0 2.2 3.9 74.9 0.0

25504020 Computer & Electronics Retail Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

25504030 Home Improvement Retail Median - - - - - - - - - - - - - - Weighted Average - - - - - - - - - - - - - - Weighted Median - - - - - - - - - - - - - -

25504040 Specialty Stores Median 0.0 0.0 3.1 308.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.3 28.2 0.0 Weighted Average 11.0 165.6 3.1 129.0 115.8 0.0 3.0 2.6 2.6 8.0 0.5 9.0 28.2 0.0 Weighted Median 0.0 0.0 3.1 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.1 28.2 0.0

25504050 Automotive Retail Median 0.0 0.0 3.5 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 6.9 0.0 Weighted Average 0.1 0.0 3.5 - -0.9 0.0 0.2 0.2 -0.1 0.0 0.1 2.0 6.9 0.0 Weighted Median 0.0 0.0 3.5 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.0 6.9 0.0


1 October 2010 44


Foreign

Inc % Total

Income

5Yr Avg

Foreign Inc %

Tot Inc


5Yr Avg


1 Year


5 Year


Foreign

Sales % Total Sales

5Yr Avg


1 Year


5 Year


Foreign

Assets% Total

Assets

Foreign

Asset Turn- over

Foreign Asset

Turnover

Total

Foreign Currency

Adjust

25504060 Homefurnishing Retail Median 0.0 0.0 0.0 - 0.0 0.0 0.0 0.1 -28.3 0.0 0.0 0.6 0.0 - Weighted Average 4.7 5.7 0.0 - 0.2 4.4 0.1 1.2 -80.1 -87.8 0.1 0.6 0.0 - Weighted Median 7.1 6.5 0.0 - 0.3 6.7 0.0 1.7 -100.0 -100.0 0.0 0.6 0.0 -

30101020 Food Distributors Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

30101030 Food Retail Median -0.6 0.8 -1.4 1.1 0.0 0.0 1.7 2.4 -12.3 -1.4 1.0 3.8 -5.4 - Weighted Average -0.5 0.7 -1.4 1.1 0.0 0.0 1.5 2.1 -10.6 -1.2 0.9 3.8 -5.4 - Weighted Median 0.0 0.0 -1.4 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.8 -5.4 -

30101040 Hypermarkets & Super Centers Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

30201010 Brewers Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

30201030 Soft Drinks Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

30202010 Agricultural Products Median 96.7 56.2 18.8 11.0 187.0 18.5 25.0 43.6 -28.6 10.2 - - - -6.0 Weighted Average 96.7 56.2 18.8 11.0 187.0 18.5 33.2 43.6 -17.7 10.2 - - - -6.0 Weighted Median 96.7 56.2 18.8 11.0 187.0 18.5 38.2 43.6 -10.8 10.2 - - - -6.0

30202030 Packaged Foods & Meats Median 0.0 0.0 -3.6 6.7 0.0 0.0 4.7 0.0 -1.7 0.0 4.0 0.8 -5.1 0.0 Weighted Average -1.3 0.1 -5.3 6.1 0.0 0.0 4.5 3.7 -2.8 1.5 5.5 0.8 -4.8 1.4 Weighted Median 0.0 0.0 -3.6 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.0 -1.7 0.0

30203010 Tobacco Median 65.4 12.6 7.7 3.4 81.4 4.9 86.9 83.3 1.3 4.7 11.5 9.7 69.2 4.1 Weighted Average 72.8 37.5 8.6 5.0 100.8 3.6 87.3 83.1 0.7 1.0 12.8 8.2 66.0 0.3 Weighted Median 81.3 65.5 9.5 6.8 122.7 2.2 87.7 82.8 0.1 -3.3 14.2 6.6 62.4 -4.0

30301010 Household Products Median 22.8 27.5 13.1 13.5 -5.1 7.4 30.7 29.9 -10.3 7.7 7.3 1.7 31.4 0.0 Weighted Average 24.2 32.2 10.2 12.8 -19.1 9.1 33.0 35.3 -10.0 9.0 8.2 3.6 41.5 -0.1 Weighted Median 38.4 43.9 13.1 13.5 -9.9 5.3 42.3 38.8 -10.5 5.2 5.6 1.7 31.4 0.0

30302010 Personal Products Median 10.5 - 7.0 - -34.2 0.0 34.2 38.8 -10.1 3.3 13.0 2.1 23.0 -1.1 Weighted Average 18.9 - 7.0 - -34.2 0.0 32.3 37.1 -2.8 0.7 23.5 2.1 23.0 -1.9 Weighted Median 21.0 - 7.0 - -34.2 0.0 32.4 37.0 4.5 6.5 13.0 3.3 23.0 -3.6

35101010 Health Care Equipment Median 4.7 4.8 2.8 4.7 0.0 14.3 25.8 25.7 0.0 14.0 3.5 6.7 65.9 0.0 Weighted Average 19.4 -68.5 10.2 10.0 21.2 27.8 33.8 35.6 0.9 14.2 9.3 8.6 62.0 2.8 Weighted Median 18.7 8.6 8.3 6.4 19.7 15.1 34.0 34.9 0.8 18.5 6.5 5.6 85.0 -0.4

35101020 Health Care Supplies Median 18.8 29.0 16.0 16.4 12.2 25.4 33.6 28.1 13.4 18.7 16.8 1.8 19.5 0.0 Weighted Average 36.2 38.4 30.4 18.8 25.0 30.7 32.1 35.6 -9.3 13.4 17.5 7.0 22.4 2.3 Weighted Median 40.4 29.0 18.1 21.7 -6.7 25.4 33.6 42.9 -1.7 14.8 16.8 1.9 22.9 0.0

35102010 Health Care Distributors Median 0.0 0.0 5.5 3.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.1 16.8 0.0 Weighted Average 20.2 13.6 5.5 3.9 33.8 -4.3 26.3 22.9 4.0 27.2 14.8 3.1 16.8 0.0 Weighted Median 30.9 20.9 5.5 3.9 51.7 -6.6 40.3 35.1 6.2 41.7 22.6 3.1 16.8 0.0

35102015 Health Care Services Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21.2 - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.9 1.1 -3.5 1.1 0.0 21.2 - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21.2 - 0.0

35102020 Health Care Facilities Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

35102030 Managed Health Care Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

35103010 Health Care Technology Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.7 0.0 - - -2.2 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

35201010 Biotechnology Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -0.2 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

35202010 Pharmaceuticals Median 0.0 0.0 32.3 21.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.4 38.7 0.0 Weighted Average 22.4 35.1 31.6 20.7 24.1 10.6 15.9 19.3 5.0 7.1 13.2 1.5 40.4 -0.8 Weighted Median 32.5 39.1 25.2 16.5 6.1 0.0 20.7 26.2 0.1 2.6 7.0 2.2 54.4 -1.5

35203010 Life Sciences Tools & Services Median 55.2 37.1 15.4 14.8 -1.8 15.3 49.7 48.4 1.8 11.0 8.9 4.0 22.5 -1.0 Weighted Average 55.4 42.0 16.2 13.8 5.7 15.8 58.2 52.2 7.2 13.2 38.8 5.0 93.1 -1.9 Weighted Median 59.9 40.6 18.1 14.8 9.4 17.4 49.7 49.2 3.6 11.1 13.5 1.0 18.2 -1.0

40101015 Regional Banks Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 - 0.0

40102010 Thrifts & Mortgage Finance Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0


1 October 2010 45


Foreign

Inc % Total

Income

5Yr Avg

Foreign Inc %

Tot Inc


5Yr Avg


1 Year


5 Year


Foreign

Sales % Total Sales

5Yr Avg


1 Year


5 Year


Foreign

Assets% Total

Assets

Foreign

Asset Turn- over

Foreign Asset

Turnover

Total

Foreign Currency

Adjust

40201040 Specialized Finance Median 13.7 15.6 43.3 50.9 -37.5 9.0 29.7 17.4 0.0 17.4 0.8 11.4 - - Weighted Average 10.6 12.1 43.3 50.9 -29.0 7.0 39.2 13.5 -4.4 15.0 1.3 11.4 - - Weighted Median 0.0 0.0 43.3 50.9 0.0 0.0 52.0 0.0 3.7 18.7 1.7 11.4 - -

40202010 Consumer Finance Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.9 - 0.2 Weighted Average 2.3 0.0 - - 0.0 0.0 13.6 14.9 11.1 0.0 4.4 6.9 - 0.3 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.9 - 0.3

40203010 Asset Management & Custody Banks Median 0.0 0.0 - - 0.0 0.0 0.0 5.9 0.0 0.0 0.0 0.7 - 0.2 Weighted Average 0.0 0.0 - - 0.0 0.0 4.1 7.4 -9.6 3.3 4.0 0.7 - 0.2 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 11.9 0.0 0.0 0.0 0.7 - 0.2

40203020 Investment Banking & Brokerage Median 0.0 12.6 -3.1 26.8 0.0 0.0 8.6 11.0 -6.1 3.2 7.4 0.3 -0.6 0.0 Weighted Average -7.2 26.4 -21.4 25.4 -49.8 -6.0 9.6 20.4 -12.8 5.2 16.8 0.3 -9.1 0.0 Weighted Median -3.0 31.8 -3.1 24.4 -83.8 -10.2 10.9 11.0 -31.0 6.4 7.4 0.2 -0.6 0.0

40301010 Insurance Brokers Median 0.0 0.0 14.2 9.2 21.3 0.0 0.0 0.0 0.0 0.0 0.2 0.2 -42.4 0.4 Weighted Average 4.8 6.0 14.2 9.2 35.8 5.3 4.9 8.0 -2.8 2.7 7.6 0.3 -3.6 0.7 Weighted Median 0.0 7.9 14.2 9.2 42.6 0.0 0.0 0.0 0.0 0.0 0.0 0.4 5.3 0.8

40301020 Life & Health Insurance Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

40301030 Multi-line Insurance Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 10.9 10.8 5.1 5.1 13.5 0.2 - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 19.0 18.8 8.9 9.0 23.5 0.2 - 0.0

40301040 Property & Casualty Insurance Median 0.0 0.0 7.0 12.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.7 2.0 0.0 Weighted Average 0.6 0.8 7.0 12.6 -12.7 0.0 2.1 1.2 -2.3 0.0 1.6 0.5 2.0 -3.2 Weighted Median 0.0 0.0 7.0 12.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 2.0 -4.2

40301050 Reinsurance Median 37.2 3.3 11.4 11.0 6.3 14.3 41.5 39.3 9.0 3.2 38.3 0.3 3.9 0.0 Weighted Average 37.1 4.3 11.4 10.9 6.5 14.5 42.9 41.7 7.5 6.7 38.3 0.3 3.9 0.0 Weighted Median 36.6 35.4 10.1 9.0 11.9 19.2 41.5 39.3 9.0 3.2 38.3 0.3 2.9 0.0

40402010 Diversified REITs Median 0.0 0.0 78.8 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 1.3 0.0 78.8 - 2.8 0.0 0.3 0.5 0.8 -13.6 0.0 - - 0.0 Weighted Median 2.5 0.0 78.8 - 5.3 0.0 0.6 1.0 1.5 -25.9 0.0 - - 0.0

40402020 Industrial REITs Median 201.7 0.0 65.5 - -10.9 0.0 13.2 8.0 -8.1 0.0 20.4 0.1 3.9 - Weighted Average 326.9 0.0 65.5 - -17.7 0.0 21.3 13.0 -13.2 0.0 33.0 0.1 3.9 - Weighted Median 403.4 0.0 65.5 - -21.9 0.0 26.3 16.1 -16.3 0.0 40.7 0.1 3.9 -

40402040 Office REITs Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

40402050 Residential REITs Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

40402060 Retail REITs Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

40402070 Specialized REITs Median 0.0 0.0 -9.1 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 -7.8 0.0 Weighted Average -0.5 0.0 -13.6 - 0.0 0.0 0.5 0.5 25.4 -4.0 0.5 0.4 -7.8 0.0 Weighted Median 0.0 0.0 -18.2 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 -7.8 0.0

40403030 Real Estate Development Median 0.0 - - - 0.0 - 0.0 - 0.0 - 0.0 - - - Weighted Average 0.0 - - - 0.0 - 0.0 - 0.0 - 0.0 - - - Weighted Median 0.0 - - - 0.0 - 0.0 - 0.0 - 0.0 - - -

40403040 Real Estate Services Median - - - - - - - - - - - - - - Weighted Average - - - - - - - - - - - - - - Weighted Median - - - - - - - - - - - - - -

45101010 Internet Software & Services Median 3.6 6.8 10.2 5.8 25.3 0.0 13.8 8.2 0.0 10.7 0.2 29.0 14.5 0.0 Weighted Average 12.8 6.9 1.5 4.3 436.9 5.7 24.1 16.6 12.4 49.7 13.9 15.2 -15.2 0.3 Weighted Median 15.7 7.7 15.2 3.3 649.4 0.0 20.7 15.7 19.7 73.5 22.3 0.5 7.8 0.4

45102010 IT Consulting & Other Services Median 0.0 0.4 3.1 4.6 0.0 0.0 9.1 12.7 -0.5 8.0 2.1 1.9 14.2 0.0 Weighted Average 15.7 18.7 5.8 5.9 -1.9 9.4 19.8 21.0 0.5 11.4 6.2 15.0 119.7 -0.3 Weighted Median 6.0 11.4 10.0 5.1 -7.1 18.6 16.6 14.4 -1.7 7.3 2.1 2.3 62.2 0.0

45102020 Data Processing & Outsourced Services Median 0.0 10.9 13.1 25.9 0.0 23.3 12.7 13.3 0.0 10.3 6.7 2.1 36.0 0.0 Weighted Average 35.0 19.6 5.1 28.3 13.1 21.6 20.7 21.3 63.5 9.0 23.0 2.0 39.6 0.3 Weighted Median 26.8 21.8 17.2 32.0 0.0 23.3 16.5 23.3 0.0 10.4 7.2 1.2 36.0 0.0

45103010 Application Software Median 24.2 24.5 16.9 16.5 0.0 0.0 31.4 32.0 -2.7 8.7 1.1 17.5 361.9 0.0 Weighted Average 105.8 28.4 20.6 14.6 -0.4 15.3 41.2 37.8 -1.8 11.9 3.2 25.4 395.3 0.5 Weighted Median 40.8 24.5 20.6 13.9 0.0 0.0 45.1 39.3 0.0 8.7 1.1 18.3 423.1 0.0

45103020 Systems Software Median 30.8 23.4 2.2 11.7 -30.3 8.8 50.4 45.3 10.4 20.5 17.0 3.3 19.4 0.0 Weighted Average 13.2 76.3 8.4 27.7 -19.9 5.5 46.8 45.7 17.4 22.2 20.1 12.2 40.7 -0.4 Weighted Median 30.8 61.4 11.3 41.0 -52.6 -8.3 50.5 49.3 11.2 26.0 2.0 5.6 63.2 -0.7

45103030 Home Entertainment Software Median -163.9 -0.2 -7.4 2.3 - 9.6 32.4 40.4 -42.6 -2.6 18.6 2.6 11.1 1.3 Weighted Average -60.0 32.9 -13.3 1.6 - 9.6 29.7 37.4 -46.9 -5.7 18.6 2.6 11.1 2.5 Weighted Median 43.3 65.7 -19.1 0.8 - 9.6 27.0 34.5 -51.2 -8.8 18.6 2.6 11.1 3.7


1 October 2010 46


Foreign

Inc % Total

Income

5Yr Avg

Foreign Inc %

Tot Inc


5Yr Avg


1 Year


5 Year


Foreign

Sales % Total Sales

5Yr Avg


1 Year


5 Year


Foreign

Assets% Total

Assets

Foreign

Asset Turn- over

Foreign Asset

Turnover

Total

Foreign Currency

Adjust

45201020 Communications Equipment Median 0.6 4.8 0.5 5.1 -17.0 3.0 37.8 36.4 -11.8 11.1 0.9 27.7 10.7 -1.0 Weighted Average -24.8 0.1 -0.4 4.6 -45.1 13.4 38.1 35.8 -5.4 19.6 2.2 1,010.5 21.4 -2.1 Weighted Median 2.5 7.4 1.1 5.2 -65.1 18.3 44.7 40.8 -7.7 18.9 0.9 22.5 65.5 -1.1

45202010 Computer Hardware Median 47.3 30.8 19.1 13.2 -31.1 13.9 41.6 41.8 -15.4 1.9 3.5 16.8 12.4 -0.6 Weighted Average 73.3 47.8 19.1 13.2 -14.3 13.9 39.6 39.9 -15.1 0.1 19.3 10.6 12.4 -0.8 Weighted Median 91.4 59.6 19.1 13.2 -2.7 13.9 56.2 56.9 -15.0 0.0 4.4 16.8 12.4 -0.9

45202020 Computer Storage & Peripherals Median 91.4 118.1 11.1 6.4 21.9 5.8 46.8 45.5 -32.1 -4.3 2.1 4.1 365.1 -0.1 Weighted Average 297.0 112.6 9.8 6.8 6.7 8.3 56.8 57.9 -4.9 4.8 7.0 43.5 635.3 0.7 Weighted Median 118.6 74.7 14.3 9.6 7.1 26.0 43.3 45.5 9.5 -3.6 1.5 42.6 697.8 0.0

45203010 Electronic Equipment & Instruments Median 21.6 40.3 0.0 7.5 -20.7 -18.6 58.2 62.6 -23.5 4.8 6.8 5.3 0.0 -0.2 Weighted Average 103.5 68.7 14.2 12.4 -30.7 3.7 50.6 52.2 -23.2 0.3 14.7 6.8 79.3 -0.5 Weighted Median 50.7 42.1 0.0 7.5 -20.7 7.2 62.7 65.6 -17.7 0.2 6.5 5.3 0.0 -0.1

45203015 Electronic Components Median -49.7 1.2 5.8 3.7 -16.2 -6.4 74.3 79.0 -19.8 -2.2 17.6 3.0 15.7 5.0 Weighted Average -33.4 7.1 7.5 3.2 -9.7 -17.5 72.2 74.5 -22.8 -1.0 22.1 10.0 219.4 5.0 Weighted Median -49.7 -58.1 5.8 -0.9 -16.2 -27.9 74.3 79.0 -19.8 -2.2 26.4 1.9 15.7 5.0

45203020 Electronic Manufacturing Services Median 55.3 19.9 7.0 2.9 -13.2 22.0 45.0 47.4 -13.7 15.8 12.6 4.3 19.7 0.0 Weighted Average 69.6 12.8 6.2 1.7 -5.6 27.4 44.9 47.5 -10.6 21.7 18.3 16.6 22.9 0.1 Weighted Median 27.2 16.0 7.5 0.1 6.3 33.9 50.2 53.4 -17.2 23.4 1.1 28.1 12.3 0.5

45203030 Technology Distributors Median 30.8 11.8 1.1 0.7 4.8 6.9 45.8 46.9 -12.4 7.9 5.6 4.9 9.9 -0.2 Weighted Average 39.1 10.5 1.2 0.7 18.1 8.1 48.2 45.6 31,041.7 8.0 21.9 51.2 42.4 3.2 Weighted Median 40.7 8.6 1.1 0.7 36.8 6.8 56.3 52.3 -8.2 11.1 2.2 44.2 4.6 -3.9

45204010 Office Electronics Median 26.5 16.4 4.8 5.1 12.9 1.2 55.0 52.0 -17.1 7.7 1.1 50.5 240.5 0.5 Weighted Average 26.5 16.4 4.8 5.1 12.9 1.2 55.0 52.0 -17.1 7.7 1.1 50.5 240.5 0.5 Weighted Median 26.5 16.4 4.8 5.1 12.9 1.2 55.0 52.0 -17.1 7.7 1.1 50.5 240.5 0.5

45301010 Semiconductor Equipment Median 12.3 -1.5 -4.1 3.1 0.2 17.4 71.5 68.4 -22.0 -0.4 3.6 10.9 -32.9 -0.7 Weighted Average 20.0 11.3 -6.5 2.3 8.8 8.4 73.9 71.9 13.5 2.6 3.8 43.0 -124.1 -0.8 Weighted Median 58.3 -1.5 -4.1 1.2 37.4 17.4 77.0 77.0 -12.8 3.7 4.0 19.8 -32.9 -0.1

45301020 Semiconductors Median 59.4 59.6 6.9 8.9 7.7 7.6 79.9 70.3 -9.1 3.7 4.6 7.0 19.4 0.0 Weighted Average 89.5 147.4 7.0 11.7 10,081.7 7.1 55.5 65.0 -25.1 -25.8 10.4 12.7 141.8 -1.7 Weighted Median 23.4 51.4 6.9 14.1 21.9 2.6 77.2 67.2 -10.3 -2.3 5.6 7.0 41.4 -0.2

50101010 Alternative Carriers Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

50101020 Integrated Telecommunication Services Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

50102010 Wireless Telecommunication Services Median 0.0 0.0 8.6 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 3.7 0.5 Weighted Average 3.4 0.0 8.6 - -13.8 0.0 11.3 0.0 -3.8 0.0 9.8 0.4 3.7 0.8 Weighted Median 0.0 0.0 8.6 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.4 3.7 0.9

55101010 Electric Utilities Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

55102010 Gas Utilities Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 1.5 2.2 - - 13.0 8.7 0.0 0.3 0.0 -22.2 0.0 - - 0.0 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

55103010 Multi-Utilities Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.6 Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0

55104010 Water Utilities Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Average 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - - Weighted Median 0.0 0.0 - - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - -

55105010 Independent Power Producers & Energy Traders Median - - - - - - - - - - 0.2 - - 1.0 Weighted Average - - - - - - - - - - 0.2 - - 1.0 Weighted Median - - - - - - - - - - 0.2 - - 1.0



1 October 2010 47

Appendix 2: Small-/mid-cap coverage Company Ticker Rating GICs Sector

NeoPharm Inc. NEO Neutral Biotechnology Pzena Investment Management Inc. PZN Underperform Capital Markets NGP Capital Resources Co. NGPC Outperform Capital Markets TradeStation Group Inc. TRAD Outperform Capital Markets Hercules Technology Growth Capital Inc. HTGC Outperform Capital Markets Fifth Street Finance Corp. FSC Neutral Capital Markets Fortress Investment Group L.L.C. (Cl A) FIG Outperform Capital Markets BlackRock Kelso Capital Corp. BKCC Neutral Capital Markets Prospect Capital Corp. PSEC Neutral Capital Markets optionsXpress Holdings Inc. OXPS Underperform Capital Markets MF Global Ltd. MF Neutral Capital Markets Apollo Investment Corp. AINV Outperform Capital Markets American Capital Ltd. ACAS Neutral Capital Markets Janus Capital Group Inc. JNS Neutral Capital Markets Federated Investors Inc. FII Neutral Capital Markets AllianceBernstein Holding L.P. AB Outperform Capital Markets Ares Capital Corp. ARCC Outperform Capital Markets E*TRADE Financial Corp. ETFC Neutral Capital Markets Eaton Vance Corp. EV Outperform Capital Markets Affiliated Managers Group Inc. AMG Outperform Capital Markets Legg Mason Inc. LM Neutral Capital Markets STR Holdings Inc. STRI Outperform Chemicals Intrepid Potash Inc. IPI Neutral Chemicals Southern Connecticut Bancorp Inc. SSE Outperform Commercial Banks Tennessee Commerce Bancorp Inc. TNCC Outperform Commercial Banks Encore Bancshares Inc. EBTX Neutral Commercial Banks Seacoast Banking Corp. of Florida SBCF Neutral Commercial Banks Sun Bancorp Inc. (New Jersey) SNBC Outperform Commercial Banks First Merchants Corp. FRME Outperform Commercial Banks CoBiz Financial Inc. COBZ Neutral Commercial Banks United Community Banks Inc. UCBI Neutral Commercial Banks Lakeland Bancorp Inc. LBAI Neutral Commercial Banks Wilshire Bancorp Inc. WIBC Neutral Commercial Banks Capital City Bank Group Inc. CCBG Neutral Commercial Banks Heartland Financial USA Inc. HTLF Neutral Commercial Banks Centerstate Banks Inc. CSFL Neutral Commercial Banks Nara Bancorp Inc. NARA Outperform Commercial Banks First Busey Corp. BUSE Neutral Commercial Banks Hudson Valley Holding Corp. HUVL Outperform Commercial Banks Renasant Corp. RNST Neutral Commercial Banks WesBanco Inc. WSBC Neutral Commercial Banks Boston Private Financial Holdings Inc. BPFH Neutral Commercial Banks First Commonwealth Financial Corp. (Pennsylvania) FCF Neutral Commercial Banks Western Alliance Bancorp. WAL Neutral Commercial Banks Sterling Bancshares Inc. SBIB Neutral Commercial Banks Texas Capital Bancshares Inc. TCBI Outperform Commercial Banks PacWest Bancorp. PACW Neutral Commercial Banks Columbia Banking System Inc. COLB Outperform Commercial Banks Community Bank System Inc. CBU Neutral Commercial Banks Wilmington Trust Corp. WL Underperform Commercial Banks CVB Financial Corp. CVBF Underperform Commercial Banks PrivateBancorp Inc. PVTB Neutral Commercial Banks Whitney Holding Corp. WTNY Underperform Commercial Banks MB Financial Inc. MBFI Underperform Commercial Banks First Financial Bankshares Inc. FFIN Neutral Commercial Banks Park National Corp. PRK Neutral Commercial Banks F.N.B. Corp. FNB Neutral Commercial Banks Wintrust Financial Corp. WTFC Neutral Commercial Banks Hancock Holding Co. HBHC Underperform Commercial Banks Susquehanna Bancshares Inc. SUSQ Neutral Commercial Banks BancorpSouth Inc. BXS Neutral Commercial Banks Umpqua Holdings Corp. UMPQ Neutral Commercial Banks Trustmark Corp. TRMK Neutral Commercial Banks Prosperity Bancshares Inc. PRSP Outperform Commercial Banks Signature Bank SBNY Neutral Commercial Banks Westamerica Bancorp WABC Outperform Commercial Banks SVB Financial Group SIVB Outperform Commercial Banks Synovus Financial Corp. SNV Neutral Commercial Banks FirstMerit Corp. FMER Neutral Commercial Banks Bank of Hawaii Corp. BOH Neutral Commercial Banks


1 October 2010 48

Company Ticker Rating GICs Sector

Associated Banc-Corp ASBC Neutral Commercial Banks TCF Financial Corp. TCB Neutral Commercial Banks East West Bancorp Inc. EWBC Neutral Commercial Banks First Horizon National Corp. FHN Neutral Commercial Banks City National Corp. CYN Neutral Commercial Banks Commerce Bancshares Inc. CBSH Neutral Commercial Banks Cullen/Frost Bankers Inc. CFR Neutral Commercial Banks Zions Bancorp ZION Neutral Commercial Banks Marshall & Ilsley Corp. MI Underperform Commercial Banks Huntington Bancshares Inc. HBAN Neutral Commercial Banks Superior Uniform Group Inc. SGC Outperform Commercial Services & Supplies Sykes Enterprises Inc. SYKE Neutral Commercial Services & Supplies EnerNOC Inc. ENOC Outperform Commercial Services & Supplies Tetra Tech Inc. TTEK Neutral Commercial Services & Supplies Geo Group Inc. GEO Outperform Commercial Services & Supplies Ritchie Bros. Auctioneers Inc. RBA Neutral Commercial Services & Supplies IESI-BFC Ltd. BIN Outperform Commercial Services & Supplies Corrections Corp. of America CXW Outperform Commercial Services & Supplies Iron Mountain Inc. IRM Outperform Commercial Services & Supplies EchoStar Corp. SATS Underperform Communications Equipment Granite Construction Inc. GVA Neutral Construction & Engineering Chicago Bridge & Iron Co. N.V. CBI Outperform Construction & Engineering Shaw Group Inc. SGR Outperform Construction & Engineering Shaw Group Inc. SHAW Neutral Construction & Engineering AECOM Technology Corp. ACM Neutral Construction & Engineering URS Corp. URS Neutral Construction & Engineering Foster Wheeler AG FWLT Outperform Construction & Engineering KBR Inc. KBR Outperform Construction & Engineering Jacobs Engineering Group Inc. JEC Neutral Construction & Engineering Cash America International Inc. CSH Neutral Consumer Finance AmeriCredit Corp. ACF Neutral Consumer Finance Graphic Packaging Holding Co. GPK Outperform Containers & Packaging Silgan Holdings Inc. SLGN Neutral Containers & Packaging Sonoco Products Co. SON Outperform Containers & Packaging Bemis Co. Inc. BMS Neutral Containers & Packaging Sealed Air Corp. SEE Neutral Containers & Packaging Pactiv Corp. PTV Neutral Containers & Packaging Owens-Illinois Inc. OI Neutral Containers & Packaging Crown Holdings Inc. CCK Outperform Containers & Packaging H&R Block Inc. HRB Neutral Diversified Consumer Services Asset Acceptance Capital Corp. AACC Underperform Diversified Financial Services CBOE Holdings Inc. CBOE Outperform Diversified Financial Services Interactive Brokers Group Inc. IBKR Neutral Diversified Financial Services Portfolio Recovery Associates Inc. PRAA Outperform Diversified Financial Services KKR Financial Holdings LLC KFN Outperform Diversified Financial Services NASDAQ OMX Group Inc. (The) NDAQ Outperform Diversified Financial Services MSCI Inc. (Cl A) MSCI Neutral Diversified Financial Services FairPoint Communications Inc. FRP Outperform Diversified Telecommunication Services UIL Holdings Corp. UIL Outperform Electric Utilities Portland General Electric Co. POR Outperform Electric Utilities Hawaiian Electric Industries Inc. HE Neutral Electric Utilities Servotronics Inc. SVT Underperform Electrical Equipment Broadwind Energy Inc. BWEN Outperform Electrical Equipment Baldor Electric Co. BEZ Neutral Electrical Equipment Babcock & Wilcox Co. BWC Neutral Electrical Equipment Comverge Inc. COMV Outperform Electronic Equipment Instruments & Components Hollysys Automation Technologies Ltd. HOLI Outperform Electronic Equipment Instruments & Components Itron Inc. ITRI Underperform Electronic Equipment Instruments & Components Seahawk Drilling Inc. HAWK Neutral Energy Equipment & Services Allis-Chalmers Energy Inc. ALY Neutral Energy Equipment & Services Hercules Offshore Inc. HERO Underperform Energy Equipment & Services Superior Well Services SWSI Neutral Energy Equipment & Services Atwood Oceanics Inc. ATW Outperform Energy Equipment & Services Patterson-UTI Energy Inc. PTEN Underperform Energy Equipment & Services Oceaneering International Inc. OII Outperform Energy Equipment & Services McDermott International Inc. MDR Outperform Energy Equipment & Services Rowan Cos. Inc. RDC Neutral Energy Equipment & Services Helmerich & Payne Inc. HP Neutral Energy Equipment & Services Ferrellgas Partners L.P. FGP Outperform Gas Utilities Cooper Cos. COO Outperform Health Care Equipment & Supplies Gen-Probe Inc. GPRO Underperform Health Care Equipment & Supplies Mindray Medical International Ltd. ADS MR Outperform Health Care Equipment & Supplies Alere Inc. ALR Outperform Health Care Equipment & Supplies


1 October 2010 49


Beckman Coulter Inc. BEC Underperform Health Care Equipment & Supplies Gaming Partners International Corp. PSON Outperform Hotels Restaurants & Leisure Isle of Capri Casinos Inc. ISLE Neutral Hotels Restaurants & Leisure Boyd Gaming Corp. BYD Underperform Hotels Restaurants & Leisure Pinnacle Entertainment Inc. PNK Outperform Hotels Restaurants & Leisure Ameristar Casinos Inc. ASCA Neutral Hotels Restaurants & Leisure Bally Technologies Inc. BYI Neutral Hotels Restaurants & Leisure WMS Industries Inc. WMS Outperform Hotels Restaurants & Leisure Penn National Gaming Inc. PENN Neutral Hotels Restaurants & Leisure International Game Technology IGT Outperform Hotels Restaurants & Leisure Dynegy Inc. DYN Neutral Independent Power Producers & Energy Traders RRI Energy Inc RRI Neutral Independent Power Producers & Energy Traders Ormat Technologies Inc. ORA Neutral Independent Power Producers & Energy Traders Mirant Corp. MIR Neutral Independent Power Producers & Energy Traders Crawford & Co. (Cl B) CRDB Outperform Insurance First Mercury Financial Corp. FMR Outperform Insurance SeaBright Holdings Inc. SBX Neutral Insurance NYMAGIC INC. NYM Outperform Insurance Donegal Group Inc. (Cl A) DGICA Neutral Insurance Global Indemnity PLC GBLI Neutral Insurance OneBeacon Insurance Group Ltd. (Cl A) OB Neutral Insurance FPIC Insurance Group Inc. FPIC Neutral Insurance AMERISAFE Inc. AMSF Outperform Insurance National Interstate Corp. NATL Outperform Insurance National Financial Partners Corp. NFP Neutral Insurance Maiden Holdings Ltd. MHLD Outperform Insurance State Auto Financial Corp. STFC Neutral Insurance Infinity Property & Casualty Corp. IPCC Neutral Insurance American Equity Investment Life Holding Co. AEL Outperform Insurance Employers Holdings Inc. EIG Outperform Insurance Navigators Group Inc. NAVG Outperform Insurance Horace Mann Educators Corp. HMN Neutral Insurance Greenlight Capital Re Ltd. Cl A GLRE Neutral Insurance Flagstone Reinsurance Holdings SA FSR Neutral Insurance AmTrust Financial Services Inc. AFSI Outperform Insurance Selective Insurance Group Inc. SIGI Neutral Insurance Harleysville Group Inc. HGIC Neutral Insurance Enstar Group Ltd. ESGR Outperform Insurance Tower Group Inc. TWGP Neutral Insurance Argo Group International Holdings Ltd. AGII Outperform Insurance RLI Corp. RLI Neutral Insurance Montpelier Re Holdings Ltd. MRH Neutral Insurance Delphi Financial Group Inc. (Cl A) DFG Neutral Insurance Symetra Financial Corp. SYA Neutral Insurance CNO Financial Group Inc. CNO Neutral Insurance Unitrin Inc. UTR Neutral Insurance First American Financial Corp. FAF Neutral Insurance Platinum Underwriters Holdings Ltd. PTP Outperform Insurance StanCorp Financial Group Inc. SFG Neutral Insurance Protective Life Corp. PL Neutral Insurance Endurance Specialty Holdings Ltd. ENH Neutral Insurance The Hanover Insurance Group Inc. THG Outperform Insurance Mercury General Corp. MCY Neutral Insurance Aspen Insurance Holdings Ltd. AHL Outperform Insurance Alterra Capital Holdings Ltd. ALTE Outperform Insurance Validus Holdings Ltd. VR Outperform Insurance White Mountains Insurance Group Ltd. WTM Neutral Insurance Arthur J. Gallagher & Co. AJG Outperform Insurance Allied World Assurance Co. Holdings Ltd. AWH Outperform Insurance Brown & Brown Inc. BRO Neutral Insurance Erie Indemnity Co. (Cl A) ERIE Neutral Insurance HCC Insurance Holdings Inc. HCC Outperform Insurance RenaissanceRe Holdings Ltd. RNR Neutral Insurance TransAtlantic Holdings Inc. TRH Neutral Insurance Assured Guaranty Ltd. AGO Neutral Insurance American Financial Group Inc. AFG Outperform Insurance Markel Corp. MKL Neutral Insurance Reinsurance Group of America Inc. RGA Outperform Insurance Fidelity National Financial Inc. FNF Outperform Insurance AXIS Capital Holdings Ltd. AXS Outperform Insurance W.R. Berkley Corp. WRB Outperform Insurance Arch Capital Group Ltd. ACGL Outperform Insurance Assurant Inc. AIZ Neutral Insurance


1 October 2010 50


Torchmark Corp. TMK Outperform Insurance Cincinnati Financial Corp. CINF Neutral Insurance Everest Re Group Ltd. RE Outperform Insurance DealerTrack Holdings Inc. TRAK Outperform Internet Software & Services SINA Corp. SINA Outperform Internet Software & Services Information Services Group Inc. III Outperform IT Services Integral Systems Inc. ISYS Outperform IT Services Teletech Holdings Inc. TTEC Neutral IT Services Convergys Corp. CVG Neutral IT Services CoreLogic, Inc. CLGX Neutral IT Services VeriFone Systems Inc. PAY Neutral IT Services Total System Services Inc. TSS Neutral IT Services Lender Processing Services Inc. LPS Outperform IT Services Global Payments Inc. GPN Outperform IT Services Alliance Data Systems Corp. ADS Neutral IT Services Affymetrix Inc. AFFX Neutral Life Sciences Tools & Services PerkinElmer Inc. PKI Neutral Life Sciences Tools & Services Mettler-Toledo International Inc. MTD Outperform Life Sciences Tools & Services Energy Recovery Inc. ERII Neutral Machinery Manitowoc Co. MTW Neutral Machinery Manitowoc Co. MTW Neutral Machinery Terex Corp. TEX Outperform Machinery Pall Corp. PLL Outperform Machinery Carmike Cinemas Inc. CKEC Outperform Media AirMedia Group Inc. ADS AMCN Neutral Media VisionChina Media Inc. ADS VISN Outperform Media Regal Entertainment Group RGC Outperform Media Cinemark Holdings Inc. CNK Outperform Media DreamWorks Animation SKG Inc. (Cl A) DWA Outperform Media Focus Media Holding Ltd. ADS FMCN Outperform Media DISH Network Corp. (Cl A) DISH Neutral Media Interpublic Group Of Cos. IPG Outperform Media Hemis Corp. HMSO Neutral Metals & Mining ADF Group Inc. DRX Underperform Metals & Mining Hecla Mining Co. HL Neutral Metals & Mining NovaGold Resources Inc. NG Outperform Metals & Mining Walter Energy, Inc. WLT Outperform Metals & Mining TECO Energy Inc. TE Neutral Multi-Utilities Alliant Energy Corp. LNT Outperform Multi-Utilities BMB Munai Inc. KAZ Outperform Oil Gas & Consumable Fuels Serica Energy PLC SQZ Neutral Oil Gas & Consumable Fuels Delta Petroleum Corp. DPTR Neutral Oil Gas & Consumable Fuels Hyperdynamics Corp. HDY Outperform Oil Gas & Consumable Fuels Alon USA Energy Inc. ALJ Underperform Oil Gas & Consumable Fuels BPZ Resources Inc. BPZ Outperform Oil Gas & Consumable Fuels Western Refining Inc. WNR Outperform Oil Gas & Consumable Fuels James River Coal Co. JRCC Outperform Oil Gas & Consumable Fuels Goodrich Petroleum Corp. GDP Neutral Oil Gas & Consumable Fuels Ivanhoe Energy Inc. IVAN Outperform Oil Gas & Consumable Fuels NuVista Energy Ltd. NVA Neutral Oil Gas & Consumable Fuels Patriot Coal Corp. PCX Neutral Oil Gas & Consumable Fuels Energy XXI (Bermuda) Ltd. EXXI Outperform Oil Gas & Consumable Fuels Rosetta Resources Inc. ROSE Neutral Oil Gas & Consumable Fuels Frontier Oil Corp. FTO Neutral Oil Gas & Consumable Fuels Holly Corp. HOC Outperform Oil Gas & Consumable Fuels Gran Tierra Energy Inc. GTE Outperform Oil Gas & Consumable Fuels Bill Barrett Corp. BBG Outperform Oil Gas & Consumable Fuels Tesoro Corp. TSO Outperform Oil Gas & Consumable Fuels Brigham Exploration Co. BEXP Outperform Oil Gas & Consumable Fuels Quicksilver Resources Inc. KWK Neutral Oil Gas & Consumable Fuels SM Energy Co. SM Neutral Oil Gas & Consumable Fuels Cabot Oil & Gas Corp. COG Neutral Oil Gas & Consumable Fuels Massey Energy Co. MEE Neutral Oil Gas & Consumable Fuels Forest Oil Corp. FST Outperform Oil Gas & Consumable Fuels Plains Exploration & Production Co. PXP Neutral Oil Gas & Consumable Fuels Arch Coal Inc. ACI Outperform Oil Gas & Consumable Fuels Sunoco Inc. SUN Outperform Oil Gas & Consumable Fuels Petrohawk Energy Corp. HK Neutral Oil Gas & Consumable Fuels Whiting Petroleum Corp. WLL Outperform Oil Gas & Consumable Fuels Alpha Natural Resources Inc. ANR Outperform Oil Gas & Consumable Fuels Wausau Paper Corp. WPP Neutral Paper & Forest Products Medicis Pharmaceutical Corp. MRX Outperform Pharmaceuticals Heidrick & Struggles International Inc. HSII Neutral Professional Services


1 October 2010 51


Kforce Inc. KFRC Outperform Professional Services TrueBlue Inc. TBI Neutral Professional Services Resources Connection Inc. RECN Outperform Professional Services Korn/Ferry International KFY Neutral Professional Services FTI Consulting Inc. FCN Neutral Professional Services Robert Half International Inc. RHI Outperform Professional Services Verisk Analytics Inc. (Cl A) VRSK Neutral Professional Services Manpower Inc. MAN Outperform Professional Services Armour Residential REIT Inc. ARR Neutral Real Estate Investment Trusts (REITs) New York Mortgage Trust Inc. NYMT Outperform Real Estate Investment Trusts (REITs) Newcastle Investment Corp. NCT Outperform Real Estate Investment Trusts (REITs) CapLease Inc. LSE Neutral Real Estate Investment Trusts (REITs) First Industrial Realty Trust Inc. FR Outperform Real Estate Investment Trusts (REITs) Education Realty Trust Inc. EDR Outperform Real Estate Investment Trusts (REITs) Glimcher Realty Trust GRT Neutral Real Estate Investment Trusts (REITs) Pennsylvania Real Estate Investment Trust PEI Neutral Real Estate Investment Trusts (REITs) Inland Real Estate Corp. IRC Outperform Real Estate Investment Trusts (REITs) Acadia Realty Trust AKR Outperform Real Estate Investment Trusts (REITs) Capstead Mortgage Corp. CMO Outperform Real Estate Investment Trusts (REITs) U-Store-It-Trust YSI Outperform Real Estate Investment Trusts (REITs) Anworth Mortgage Asset Corp. ANH Outperform Real Estate Investment Trusts (REITs) DCT Industrial Trust Inc. DCT Outperform Real Estate Investment Trusts (REITs) EastGroup Properties Inc. EGP Neutral Real Estate Investment Trusts (REITs) Sovran Self Storage Inc. SSS Underperform Real Estate Investment Trusts (REITs) Redwood Trust Inc. RWT Outperform Real Estate Investment Trusts (REITs) Hatteras Financial Corp. HTS Outperform Real Estate Investment Trusts (REITs) American Capital Agency Corp AGNC Outperform Real Estate Investment Trusts (REITs) Extra Space Storage Inc. EXR Outperform Real Estate Investment Trusts (REITs) Dupont Fabros Technology Inc. DFT Outperform Real Estate Investment Trusts (REITs) Equity One Inc. EQY Outperform Real Estate Investment Trusts (REITs) CBL & Associates Properties Inc. CBL Outperform Real Estate Investment Trusts (REITs) Tanger Factory Outlet Centers Inc. SKT Outperform Real Estate Investment Trusts (REITs) Mid-America Apartment Communities Inc. MAA Outperform Real Estate Investment Trusts (REITs) American Campus Communities Inc. ACC Outperform Real Estate Investment Trusts (REITs) Home Properties Inc. HME Outperform Real Estate Investment Trusts (REITs) Douglas Emmett Inc. DEI Outperform Real Estate Investment Trusts (REITs) MFA Financial Inc. MFA Neutral Real Estate Investment Trusts (REITs) Corporate Office Properties Trust OFC Neutral Real Estate Investment Trusts (REITs) Highwoods Properties Inc. HIW Neutral Real Estate Investment Trusts (REITs) BioMed Realty Trust Inc. BMR Outperform Real Estate Investment Trusts (REITs) Taubman Centers Inc. TCO Neutral Real Estate Investment Trusts (REITs) Apartment Investment & Management Co. AIV Neutral Real Estate Investment Trusts (REITs) Weingarten Realty Investors WRI Underperform Real Estate Investment Trusts (REITs) BRE Properties Inc. BRE Outperform Real Estate Investment Trusts (REITs) BRE Properties Inc. BRE Neutral Real Estate Investment Trusts (REITs) Developers Diversified Realty Corp. DDR Neutral Real Estate Investment Trusts (REITs) Duke Realty Corp. DRE Outperform Real Estate Investment Trusts (REITs) Camden Property Trust CPT Neutral Real Estate Investment Trusts (REITs) Regency Centers Corp. REG Underperform Real Estate Investment Trusts (REITs) Essex Property Trust Inc. ESS Neutral Real Estate Investment Trusts (REITs) UDR Inc. UDR Neutral Real Estate Investment Trusts (REITs) Liberty Property Trust LRY Neutral Real Estate Investment Trusts (REITs) AMB Property Corp. AMB Outperform Real Estate Investment Trusts (REITs) SL Green Realty Corp. SLG Neutral Real Estate Investment Trusts (REITs) Werner Enterprises Inc. WERN Neutral Road & Rail Knight Transportation Inc. KNX Neutral Road & Rail Con-Way Inc. CNW Neutral Road & Rail J.B. Hunt Transport Services Inc. JBHT Neutral Road & Rail Evergreen Solar Inc. ESLR Underperform Semiconductors & Semiconductor Equipment China Sunergy Co. Ltd. ADS CSUN Neutral Semiconductors & Semiconductor Equipment Energy Conversion Devices Inc. ENER Neutral Semiconductors & Semiconductor Equipment Canadian Solar Inc. CSIQ Neutral Semiconductors & Semiconductor Equipment Solarfun Power Holdings Co. Ltd. ADS SOLF Outperform Semiconductors & Semiconductor Equipment SunPower Corp. (Cl A) SPWRA Outperform Semiconductors & Semiconductor Equipment JA Solar Holdings Co. Ltd. ADS JASO Outperform Semiconductors & Semiconductor Equipment Suntech Power Holdings Co. Ltd. ADS STP Neutral Semiconductors & Semiconductor Equipment Yingli Green Energy Holding Co. Ltd. ADS YGE Neutral Semiconductors & Semiconductor Equipment Trina Solar Ltd. ADS TSL Outperform Semiconductors & Semiconductor Equipment National Semiconductor Corp. NSM Underperform Semiconductors & Semiconductor Equipment Advanced Micro Devices Inc. AMD Underperform Semiconductors & Semiconductor Equipment CDC Software Corp. ADS CDCS Outperform Software CDC Corp. Cl A CHINA Neutral Software Websense Inc. WBSN Outperform Software


1 October 2010 52


Novell Inc. NOVL Outperform Software TIBCO Software Inc. TIBX Neutral Software Hhgregg Inc. HGG Underperform Specialty Retail Penske Automotive Group Inc. PAG Outperform Specialty Retail Tractor Supply Co. TSCO Underperform Specialty Retail Gildan Activewear Inc. GIL Neutral Textiles Apparel & Luxury Goods Flushing Financial Corp. FFIC Outperform Thrifts & Mortgage Finance Dime Community Bancshares DCOM Neutral Thrifts & Mortgage Finance PMI Group Inc. PMI Neutral Thrifts & Mortgage Finance Radian Group Inc. RDN Outperform Thrifts & Mortgage Finance Astoria Financial Corp. AF Neutral Thrifts & Mortgage Finance MGIC Investment Corp. MTG Outperform Thrifts & Mortgage Finance First Niagara Financial Group Inc. FNFG Neutral Thrifts & Mortgage Finance Macquarie Infrastructure Co. LLC MIC Outperform Transportation Infrastructure Aqua America Inc. WTR Neutral Water Utilities American Water Works Co. AWK Outperform Water Utilities

Source: Macquarie Securities (USA), September 2010


1 October 2010 53

Appendix 3: Quant EMC2-USE model

This section provides a brief overview of our quant EMC2-USE model methodology. For a more

in-depth discussion on model methodology and back tests, please refer to our EMC2-USE equity

alpha model in our report, Introducing EMC2 US equity alpha model (15 November 2008).

There are a few distinguishing features of our research. First, we try to add value in every step of

the modeling process, from data integration, factor research, and alpha modeling, to performance

attribution. Second, we try to be innovative, by searching for new data sources, new signals, and

new ways to build models. Third, we construct our model based on an artificial intelligence

framework, with the model being dynamic; we select factors and weights every month for

inclusion in the model based on the macroeconomic environment. Fourth, the EMC2 model is a

balance of signals from six main categories: value, growth, momentum, analyst sentiment,

quality, and trading. Lastly, we strive to avoid data mining and look-ahead bias by emphasizing

pure out-of-sample back testing.

Our EMC2 model is very different from most published multifactor models. In most multifactor

models, analysts specify a set of factors to include in the model beforehand and then back test

these factors using historical data. In our opinion, this simple approach has problems. First, the

model tends to be static. There is no systematic way to adjust the factors in the model. More

important, this simple approach suffers from a look-ahead bias. At the time when the analysts

specify the factors, they already know which factors worked and which did not in the past. The

natural tendency, therefore, is to select factors based on their prior knowledge. Even though we

can back test historical data in an out-of-sample manner, the factors being selected already

incorporate knowledge that was not available at that point in time in history.

Instead of back testing the data across a set of pre-specified factors, we back test our

methodology or a set of decision rules according to varying methodologies. If the methodology or

decision rules produce desirable results, we would probably have much higher confidence that

the same methodology or decision rules will continue to work in the future.

We base our EMC2 model on an artificial intelligence system (see diagram on following page). We

specify the rules governing decisions, and the model selects factors, assigns weights, and ranks

the stocks. Because we specify only the rules and let the model select the factors instead of

selecting them ourselves, look-ahead biases substantially decline.

Four basic decision rules in the system

Factors have to add value as single factors before their addition to the factor pre-processing

algorithm.

Factors cannot be highly correlated before we perform the multivariate panel regression. Given

that we base our model on a regression framework, we strive to avoid multi-collinearity. The

other popular model-building technique is to optimize IC based on a set of factors. Again, in

this approach, analysts should look for uncorrelated factors to diversify their factor positions.

Factors cannot be redundant. We want to build smaller and more parsimonious models.

The weights applied to the factors should be dependent on the macroeconomic environment.

In every step of the model-building process, the data remains separated. Our models only use

data that are available at the time of construction. For the period from May 1987 to November

1991, we performed an exploratory analysis to understand the nature of the equity market. For

the period from December 1991 to December 1996, we use in-sample data to construct the first

EMC2 model, according to the following steps.

All factors available as of December 1996 include their single factor performance.

The first factor pre-processing algorithm selects factors with high efficacy and removes highly

correlated factors.


1 October 2010 54

We perform a factor pre-processing algorithm to remove highly correlated factors. The factor

pre-processing algorithm is a modified cluster analysis, adjusted for the time series nature of

our study.

We perform a multivariate panel regression to estimate an over-fitted model.

We use the second factor selection algorithm to select the most parsimonious model with the

best in-sample fit.

We built three dynamic models to forecast factor payoffs for the next period.

We combine stock exposures to each factor and the forecast factor payoffs to forecast the

excess returns of each stock for the next period (eg, May 1997).

At the end of each month (eg, May 1997), we calculated a series of performance measures for

our model built at the beginning of the month, including long-short spread, raw IC, rank IC,

sector-neutral IC and performance within each sector and size category.

We repeat the process every month from May 1997 through May 2008. We refit the model, re-

select factors, re-estimate factor payoffs, re-forecast stock returns, and re-construct 10 decile

portfolios every month. We then calculated the actual linked rates of return to the decile portfolios

after ranking the data.

From May 1997 to the present, we reserve all monthly data for true out-of-sample back tests. We

base all subsequent reinvestment from May 1997 to the current month on data and models

created using information available up to the beginning of those new portfolio formation dates.

That is, the portfolio simulation illustrates the value add from the EMC2 model in a pure out-of-

sample, forward-looking sense. It does not reflect the performance of one unchanging model

estimated at the end of the period (in-sample test).

Fig 101 EMC2 model methodology

Source: Bloomberg, Compustat, IBES, S&P, TSX, Macquarie Capital (USA), September 2010

MultivariatePanel

Regression

FactorInsights

(FI)

FactorReturn

Estimation

FactorStyle Timing

Stock ReturnForecasting

PerformanceMeasurement& Attribution

FactorPreprocessing

In sample (Dec 1991–Dec 1996)

Learning sample(Feb 1987–Nov 1991)

Proprietarydatabase

FactorSelectionAlgorithm

Out-of-sampleBack Testing &

Production System

(January 1997to Current)


1 October 2010 55

Six alpha categories

We divide all fundamental, quantitative and market alpha variables into six categories: value,

growth, momentum, analyst sentiment, quality, and trading (see Figure 102). Each category is

further broken down into 24 subcategories.

Fig 102 Classification of alpha-generating factors

Source: Bloomberg, Compustat, IBES, S&P, TSX, Macquarie Capital (USA), September 2010

Value

Value investing is a time-tested foundation of active stock selection. Value factors compare a

stock‘s price with its intrinsic value and buy stocks that are relatively cheap, using either multiples

or yields. We derive these factors based on the assumption that investors form modest but

realistic expectations for value stocks but are often overly optimistic about the prospects of

‗glamour‘ stocks. We calculate four subcategories of value factors: absolute value, historical

relative value, sector relative value, and valuation trend.

Growth

We measure a company's performance, in one way, by analyzing how fast the company grew

earnings, cashflow, and sales in prior periods. We calculate three subcategories of growth factors:

long-term growth, short-term growth, and growth trend.

Momentum

Our research has shown that momentum is a powerful alpha driver. Academic research suggests

that investors are slow to react to the release of investment-relevant information, especially when

the implications are complex or ambiguous. As investors gradually understand the implications of

this information, prices might trend upward following good news and downward following bad

news, thereby exhibiting momentum or positive serial correlation. More important, momentum

helps identify stocks in a ‗value trap‘ by distinguishing between cheap stocks that are likely to

remain cheap, and cheap stocks that appear undervalued by the market.

Category Sub-category U.S. Canada

Absolute Value 46 52

Historical Relative Value 36 15

Sector/Industry Relative Value 36 32

Valuation Trend 0 3

Long-term Growth 16 7

Short-term Growth 77 70

Growth Trend 0 11

Price Momentum 50 56

Earnings Surprise 8 3

Earnings Revision 79 104

Cash Flow Revision 60 81

Sales Revision 57 0

Recommendation Revision 22 23

Target Price Revision 0 31

Profitability 78 33

Earnings Stability 20 12

Dividend Sustainability 6 20

Balance Sheet Ratio 41 25

Earnings Quality 17 9

Size 3 3

Liquidity 5 6

Short Position 5 6

Risk 11 9

High Frequency 43 3

Macquarie North American Quant Research Factor Library 716 614

Facto

r In

sig

hts

Value

Growth

Momentum

Analyst Sentiment

Quality

Trading


1 October 2010 56

Analyst sentiment

Analyst sentiment factors capture the views of sell-side research analysts. Analysts generally

form conservative views in that they revise their views gradually; therefore, a revision in one

direction often follows similar revisions in the same direction (ie, positive serial correlation). In

addition, the market tends to under react to revisions. In recent years, earnings revision signals

have been heavily arbitraged, and the profitability of acting purely on earnings revisions has been

declining in most countries.

Quality

Quality factors assess the health of a company‘s business and the ability of its management to

add value. We measure the quality of a company‘s operations by calculating five subcategories.

Trading

Similar to price momentum factors, market activities produce trading-related factors. This

category includes size factors (eg, price, market capitalization, and revenue), liquidity, short

interest, risk (beta or volatility), and several technical indicators.


1 October 2010 57

Contributing analysts

Fig 103 Macquarie contributing analysts

Analyst Phone Email GICS

Cooley May, CFA 212 231 2586 [email protected] Chemicals, Jails & Small Cap Strategy Angela Zhang 212 231 0655 [email protected] Chemicals, Jails & Small Cap Strategy Al Kabili 212 231 2473 [email protected] Containers & Packaging Bhavin Shah 212 231 2619 [email protected] Software Brad Zelnick 212 231 2618 [email protected] Software Dane Leone 212 231 6369 [email protected] Life Sciences Tools & Services Jon Groberg 212 231 2482 [email protected] Life Sciences Tools & Services Kevin McVeigh 303 952 2751 [email protected] Commercial Services & Supplies Roger Smith 212 231 8016 [email protected] Capital Markets Sameer Rathod, CFA 212 231 2474 [email protected] Construction, Engineering & Machinery Smitha Balasubramanian 212 231 2638 [email protected] Construction, Engineering & Machinery Tim Nollen 303 952 2753 [email protected] Media



1 October 2010 58

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 30 June 2010

AU/NZ Asia RSA USA CA EUR Outperform 50.55% 64.29% 54.41% 45.63% 65.08% 50.26% (for US coverage by MCUSA, 4.58% of stocks covered are investment banking clients)

Neutral 35.16% 17.15% 38.24% 47.91% 30.69% 35.16% (for US coverage by MCUSA, 5.56% of stocks covered are investment banking clients)

Underperform 14.29% 18.56% 7.35% 6.46% 4.23% 14.58% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)

Company Specific Disclosures: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Dime Community's equity securities. The analyst principally responsible for the preparation of this research report or a member of the analyst's immediate household holds a long position in the equity securities of Redwood Trust, Inc. On May 27, 2009, Macquarie Group managed or co-managed a public offering of securities on behalf of Redwood Trust. Within the last 12 months, Macquarie Group has received compensation for investment advisory services from Redwood Trust. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of WMS Industries' equity securities. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures.

Analyst Certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94 122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Securities Ltd and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie First South Securities (Pty) Limited; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Ltd and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. MGL has established and implemented a conflicts policy at group level (which may be revised and updated from time to time) (the "Conflicts Policy") pursuant to regulatory requirements (including the FSA Rules) which sets out how we must seek to identify and manage all material conflicts of interest. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. In preparing this research, we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this research, you need to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of your particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Clients should contact analysts at, and execute transactions through, a Macquarie Group entity in their home jurisdiction unless governing law permits otherwise. Country-Specific Disclaimers: Australia: In Australia, research is issued and distributed by Macquarie Securities (Australia) Ltd (AFSL No. 238947), a participating organisation of the Australian Securities Exchange. New Zealand: In New Zealand, research is issued and distributed by Macquarie Securities (NZ) Ltd, a NZX Firm. Canada: In Canada, research is prepared, approved and distributed by Macquarie Capital Markets Canada Ltd, a participating organisation of the Toronto Stock


1 October 2010 59

Exchange, TSX Venture Exchange & Montréal Exchange. Macquarie Capital Markets North America Ltd., which is a registered broker-dealer and member of FINRA, accepts responsibility for the contents of reports issued by Macquarie Capital Markets Canada Ltd in the United States and sent to US persons. Any person wishing to effect transactions in the securities described in the reports issued by Macquarie Capital Markets Canada Ltd should do so with Macquarie Capital Markets North America Ltd. The Research Distribution Policy of Macquarie Capital Markets Canada Ltd is to allow all clients that are entitled to have equal access to our research. United Kingdom: In the United Kingdom, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated by the Financial Services Authority (No. 193905). Germany: In Germany, research is issued and distributed by Macquarie Capital (Europe) Ltd, Niederlassung Deutschland, which is authorised and regulated in the United Kingdom by the Financial Services Authority (No. 193905). France: In France, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated in the United Kingdom by the Financial Services Authority (No. 193905). Hong Kong: In Hong Kong, research is issued and distributed by Macquarie Capital Securities Ltd, which is licensed and regulated by the Securities and Futures Commission. Japan: In Japan, research is issued and distributed by Macquarie Capital Securities (Japan) Limited, a member of the Tokyo Stock Exchange, Inc. and Osaka Securities Exchange Co. Ltd (Financial Instruments Firm, Kanto Financial Bureau (kin-sho) No. 231, a member of Japan Securities Dealers Association and Financial Futures Association of Japan). India: In India, research

is issued and distributed by Macquarie Capital Securities (India) Pvt Ltd, which is a SEBI registered Stock Broker having membership with National Stock Exchange of India Limited (INB231246738) and Bombay Stock Exchange Limited (INB011246734). Malaysia: In Malaysia, research is issued and distributed by Macquarie Capital Securities (Malaysia) Sdn. Bhd. (Company registration number: 463469-W) which is a Participating Organisation of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission. Taiwan: Information on securities/instruments that are traded in Taiwan is distributed by Macquarie Capital Securities Ltd, Taiwan Branch, which is licensed and regulated by the Financial Supervisory Commission. No portion of the report may be reproduced or quoted by the press or any other person without authorisation from Macquarie. Thailand: In Thailand, research is issued and distributed by Macquarie Securities (Thailand) Ltd, a licensed securities company that is authorized by the Ministry of Finance, regulated by the Securities and Exchange Commission of Thailand and is an exchange member no. 28 of the Stock Exchange of Thailand. The Thai Institute of Directors Association has disclosed the Corporate Governance Report of Thai Listed Companies made pursuant to the policy of the Securities and Exchange Commission of Thailand. Macquarie Securities (Thailand) Ltd does not endorse the result of the Corporate Governance Report of Thai Listed Companies but this Report can be accessed at: http://www.thai-iod.com/en/publications.asp?type=4. South Korea: In South Korea, unless otherwise stated, research is prepared, issued and distributed by Macquarie Securities Korea Limited, which is regulated by the Financial Supervisory Services. Information on analysts in MSKL is disclosed at http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03053&pageDiv=02. South Africa: In South Africa, research is issued and distributed by Macquarie First South Securities (Pty) Limited, a member of the JSE Limited. Singapore: In Singapore, research is issued and distributed by Macquarie Capital Securities (Singapore) Pte Ltd (Company Registration Number: 198702912C), a Capital Markets Services license holder under the Securities and Futures Act to deal in securities and provide custodial services in Singapore. Pursuant to the Financial Advisers (Amendment) Regulations 2005, Macquarie Capital Securities (Singapore) Pte Ltd is exempt from complying with sections 25, 27 and 36 of the Financial Advisers Act. All Singapore-based recipients of research produced by Macquarie Capital (Europe) Limited, Macquarie Capital Markets Canada Ltd, Macquarie First South Securities (Pty) Limited and Macquarie Capital (USA) Inc. represent and warrant that they are institutional investors as defined in the Securities and Futures Act. United States: In the United States, research is issued and distributed by Macquarie Capital (USA) Inc., which is a registered broker-dealer and member of FINRA. Macquarie Capital (USA) Inc, accepts responsibility for the content of each research report prepared by one of its non-US affiliates when the research report is distributed in the United States by Macquarie Capital (USA) Inc. Macquarie Capital (USA) Inc.‘s affiliate‘s analysts are not registered as research analysts with FINRA, may not be associated persons of Macquarie Capital (USA) Inc., and therefore may not be subject to FINRA rule restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Any persons receiving this report directly from Macquarie Capital (USA) Inc. and wishing to effect a transaction in any security described herein should do so with Macquarie Capital (USA) Inc. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures, or contact your registered representative at 1-888-MAC-STOCK, or write to the Supervisory Analysts, Research Department, Macquarie Securities, 125 W.55th Street, New York, NY 10019. © Macquarie Group

Auckland Tel: (649) 377 6433

Jakarta Tel: (62 21) 515 1818

Mumbai Tel: (91 22) 6653 3000

Singapore Tel: (65) 6231 1111

Bangkok Tel: (662) 694 7999

Johannesburg Tel: (2711) 583 2000

Munich Tel: (089) 2444 31800

Sydney Tel: (612) 8232 9555

Calgary Tel: (1 403) 218 6650

Kuala Lumpur Tel: (60 3) 2059 8833

New York Tel: (1 212) 231 2500

Taipei Tel: (886 2) 2734 7500

Denver Tel: (303) 952 2800

London Tel: (44 20) 3037 4400

Paris Tel: (33 1) 7842 3823

Tokyo Tel: (81 3) 3512 7900

Frankfurt Tel: (069) 509 578 000

Manila Tel: (63 2) 857 0888

Perth Tel: (618) 9224 0888

Toronto Tel: (1 416) 848 3500

Geneva Tel: (41) 22 818 7777

Melbourne Tel: (613) 9635 8139

Seoul Tel: (82 2) 3705 8500

Hong Kong Tel: (852) 2823 3588

Montreal Tel: (1 514) 925 2850

Shanghai Tel: (86 21) 6841 3355

Available to clients on the world wide web at www.macquarieresearch.com and through Thomson Financial, FactSet, Reuters, Bloomberg, CapitalIQ and TheMarkets.com.

http://www.thai-iod.com/en/publications.asp?type=4

http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03053&pageDiv=02

Research

Heads of Equity Research

John O’Connell (Global Co – Head) (612) 8232 7544 David Rickards (Global Co – Head) (44 20) 3037 4399 Mark Little (US) (1 212) 231 2577 Stephen Harris (Canada) (1 416) 848 3655

Consumer Discretionary & Healthcare

Life Sciences & Technology Jon Groberg (Head of US Discretionary & Healthcare) (1 212) 231 2612

Medical Devices Brian Kennedy (New York) (1 212) 231 8091

Gaming & Leisure Chad Beynon (New York) (1 212) 231 2634

Retailing David Pupo (Toronto) (1 416) 848 3505

Consumer Staples and Agriculture

David Pupo (Toronto) (1 416) 848 3505

Energy

International Integrated Jason Gammel (New York) (1 212) 231 2633

US Exploration & Production Joe Magner (Denver) (1 303) 952 2751

US Oilfield Services & Drilling Waqar Syed (Head of US Energy) (1 303) 952 2753 Ryan McCormick (Denver) (1 303) 952 2752

US Refining Chi Chow (Denver) (1 303) 952 2757

Canadian Oil Sands/Heavy Oil Producers Chris Feltin (Calgary) (1 403) 539 8544

Canadian Oilfield Services & Drilling Scott Treadwell (Calgary) (1 403) 539 8530

Canadian Independents Chris Feltin (Calgary) (1 403) 539 8544 Chris Theal (Calgary) (1 403) 539 4349

Canadian Integrateds Chris Feltin (Calgary) (1 403) 539 8544

International/Canadian Oil & Gas Producers Cristina Lopez (Calgary) (1 403) 539 8542 David Popowich (Calgary) (1 403) 539 8529 Leon Knight (Calgary) (1 403) 303 8655 Ray Kwan (Calgary) (1 403) 539 4355

Financials

Asset Managers/Financial Technology Roger Smith (New York) (1 212) 231 8016

Banks/Trust Banks Albert Savastano (New York) (1 212) 231 8046 Thomas Alonso (New York) (1 212) 231 8047 Jonathan Elmi (New York) (1 212) 231 8065 Bill Young (New York) (1 212) 231 8052 Sumit Malhotra (Toronto) (1 416) 848 3687 Stephen Scinicariello (New York) (1 212) 231 0663 John Moran (New York) (1 212) 231 0662

Life Insurance Mark Finkelstein (Chicago) (1 312) 660 9179 Paul Sarran (Chicago) (1 312) 660 9137 Sumit Malhotra (Toronto) (1 416) 848 3687

Market Structure Edward Ditmire (Head of Diversified Financials) (1 212) 231 8076 Chris Ross (New York) (1 212) 231 8033

Mortgage & Consumer Finance Bill Carcache (New York) (1 212) 231 8034 Matthew Howlett (New York) (1 212) 231 8063

Mortgage REITs Matthew Howlett (New York) (1 212) 231 8063

Property & Casualty Insurance William Yankus (Head of US Insurance) (West Hartford) (1 860) 380 2003 Adam Klauber (Chicago) (1 312) 660 9187 Amit Kumar (New York) (1 212) 231 8013 Caroline Steers (New York) (1 212) 231 8048

Industrials

Air Freight & Surface Transportation Scott Flower (New York) (1 212) 231 2537

Construction and Engineering/Machinery Sameer Rathod (New York) (1 212) 231 2474

Containers & Packaging Al Kabili (New York) (1 212) 231 2473

Infrastructure Services Avi Dalfen (Toronto) (1 416) 628 3934

Materials

Global Metals & Mining Curt Woodworth (New York) (1 212) 231 2482 Pierre Vaillancourt (Toronto) (1 416) 848 3647 Tony Lesiak (Toronto) (1 416) 848 3594 Duncan McKeen (Montréal) (1 514) 925 2856 Michael Gray (Vancouver) (1 604) 639 6372

Real Estate

Property Trusts & Developers Robert Stevenson (Head of US REITs) (1 212) 231 8068 Ki Bin Kim (New York) (1 212) 231 6386 Dave Wigginton (New York) (1 212) 231 6380 Michael Smith (Toronto) (1 416) 848 3696

TMET

Telecommunications Glenn Jamieson (Toronto) (416) 848 3658

Business Services Kevin McVeigh (New York) (1 212) 231 6191

Cable & Satellite Amy Yong (New York) (1 212) 231 2524

Media Andrew Kim (New York) (1 212) 231 2631

Semiconductors Shawn Webster (New York) (1 212) 231 2539

Software & IT Hardware Brad Zelnick (New York) (1 212) 231 2618

Solar & Clean Technology Kelly Dougherty (New York) (1 212) 231 2493

Technology Glenn Jamieson (Toronto) (416) 848 3658

Utilities & Alternative Energy

Angie Storozynski (Head of US Utilities & Alternative Energy) (1 212) 231 2569 Gavin Tam (New York) (1 212) 231 2579 Andrew Weisel (New York) (1 212) 231 1159 Matthew Akman (Toronto) (1 416) 848 3510 Stephen Harris (Toronto) (1 416) 848 3655

Commodities & Precious Metals

Metals & Mining Jim Lennon (London) (44 20) 3037 4271 Max Layton (London) (44 20) 3037 4273 Kona Haque (London) (44 20) 3037 4334

Oil & gas Jan Stuart (New York) (1 212) 231 2485

Economics and Strategy

Stephen Harris (Toronto) (1 416) 848 3655 Jan Stuart (Global Oil Economist) (1 212) 231 2485 Cooley May (Small Cap Strategist) (1 212) 231 2586 Rebecca Hiscock-Croft (US Economist)) (1 212) 231 6115

Find our research at

Macquarie: www.macquarie.com.au/research

Thomson: www.thomson.com/financial

Reuters: www.knowledge.reuters.com

Bloomberg: MAC GO

Factset: http://www.factset.com/home.aspx

CapitalIQ www.capitaliq.com

TheMarkets.com www.themarkets.com

Contact Gareth Warfield for access (612) 8232 3207

Email addresses

[email protected]

eg. [email protected]

Sales Equities Stevan Vrcelj (Head of Global Sales) (612) 8232 5999 Alex Rothwell (Toronto) (1 416) 848 3677

US Sales Greg Coleman (New York) (1 212) 231 2567

US Financial Specialist Sales Blair Smith (New York) (1 212) 231 8004

US Sales Trading Austin Graham (New York) (1 212) 231 2494

Canada Sales Craig Brenner (Toronto) (1 416) 848-3626 Chris Naprawa (Toronto) (1 416) 848-3634

Canada Trading Perry Catellier (Toronto) (1 416) 848 3619

Documents

Magnifier - October 2010