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S&P500 Sector Weighting

• Information Technology Largest Sector : 18.6%• Telecommunication Services Smallest Sector: 3.0%• Financials Second largest sector 15.1%

Source: S&P Source: Seeking AlphaSkinner, Sureka, Yan 2

Sector Weighting

Financials are underweighted by 610 BPsSkinner, Sureka, Yan 3

Various Industries in SectorBanksConsumer FinanceDiversified Financial ServicesInsurance-BrokersInsurance-Life/HealthInsurance-Multi–LineInsurance-Property/CasualtyMulti-sector HldgsReal Estate Investment Trusts

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

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

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Financial Sector Layout

Financial are in the mature phase. Cyclical in Nature

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Sector Performance

Financial Sector

Year to Date - 20.30% Quarter to Date - .93%

S&P 500

Year to Date – 19.52% Quarter to Date – 2.13

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Demand

GDP Interest Rates Business Profitability Investor Confidence Investible Assets

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Supply

Market Saturation Consolidation in industry since 1990s Government forced consolidation during

financial crisis Consumer and commercial credit losses Future Government regulations Strict lending standards

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Sector Attractiveness

High barriers to entry Well established brands Economies of scale Economies of scope Relationships Customer Loyalty

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Unattractiveness

Intense Rivalry Substitute products Government Regulations on capital

requirements and wages Lack of consumer confidence Highly cyclical

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Regression Analysis

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Absolute Basis High Low Median Current

P/Trailing E 136.5 10.5 14.6 136.5

P/Forward E 21.6 10.6 12.7 20.8

P/B 3.4 .5 2.1 1.1

P/S 3.7 .6 2.5 1.4

P/CF 47.1 7.2 10.3 24.8

EntValue/EBITDA n/a n/a n/a n/a

Relative to SP500 High Low Median Current

P/Trailing E 7.8 .51 .75 7.6

P/Forward E 1.4 .53 .75 1.3

P/B .9 .3 .7 .5

P/S 1.9 .9 1.6 1.2

P/CF 4.2 .6 .9 2.4

EntValue/EBITDA n/a n/a n/a n/a

Sector P/E

P/E close to High end Relatively expensive but may vary by

industry

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Ratios Across Sector Cheap: Regional Banks Expensive: Diversified financial services Insurance-life/health

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Market value lower than book value Regional banks drop the most Insurance is almost even

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P/S looks good so far Not the whole story

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Sector EBITDA

Worse than S&P 500 No sign for a break

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Industries reflect the Big picture

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Recommendation Increase SIM Holdings by 400BPs But, still keep it underweight relative to

S&P500 We are bullish for long run and bearish

for short run Real Estate-Avoid; Regional Banks-

trading at attractive multiples Regional Banks will benefit from long

term growth

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