1. Financial Sector Jeff Voorhees Tyler Ragor

2. Agenda Overview Analysis Valuation Recommendation Overview AnalysisValuationRecommendation

3. Sector overview Global Index Classification Sector: Financials Industries: Overview AnalysisValuationRecommendation

4. Sector overview Global Breakdown Overview AnalysisValuationRecommendation

5. Sector overview Breakdown in detail Overview AnalysisValuationRecommendation

6. Sector overview Overview AnalysisValuationRecommendation

7. Recent performance 1 month3 month6 month12 month S&P 500 (July 5, 2013)0.7%5.6%12.5%23.2% Energy0.1% 3.8%8.3%22.6% Materials-2.1% 1.7%1.1%15.1% Industrials1.2% 6.2%12.0%27.8% Consumer Discrestionary3.9% 10.2%19.4%36.0% Consumer Staples0.1% 1.6%13.1%17.7% Health Care0.7% 4.4%18.9%30.8% Financials1.4% 10.5%17.1%41.0% Banks5.7% 15.6%21.0%30.7% Diversified Financials-0.2% 12.5%17.8%56.4% Insurance3.0% 11.9%21.8%42.0% Real Estate-2.8% -4.4%2.1%7.7% Information Technology-0.6% 6.5%6.7%12.2% Telecommunication Services 0.9% 0.0%8.2%12.7% Utilities-1.2% -5.8%5.3%4.7% Overview AnalysisValuationRecommendation

8. June 26, 2013 Market Weight vs. SIM Weight Overview AnalysisValuationRecommendation

9. Overview AnalysisValuationRecommendation Business cycle

10. Overview Analysis ValuationRecommendation Porter’s Five Forces Analysis Rivalry Intensity Buyer Power New Entrant Risk Supplier Power Substitution Risk

11. Overview Analysis ValuationRecommendation Porter’s Five Forces Analysis Bargaining power of suppliers Low – many large, established businesses, similar products and terms, capital suppliers have influence Bargaining power of buyers Low (for most) – majority of customers have little power to influence business terms, difficult/time consuming to change providers. Very large corporate/institutional investors may exert disproportionate influence. Threat of new entrants Low – Market demands are currently met, high cost of market entry (regulation, capital requirements), opportunity may exist in the smaller niche markets (e.g. credit unions). Threat of substitution Medium – Many similar products, switching is difficult and time consuming Intensity of rivalry High – Many providers of similar products, largely competing on margin

12. Economic analysis Financial sector continues to experience recovery Unemployment numbers steadily improving Housing market is improving (new home construction, new home prices, Case Shiller) Consumer confidence improving Interest rates artificially low (though increased recently) Europe continues to drag Overview Analysis ValuationRecommendation

13. Economic analysis – Financials and GDP Overview Analysis ValuationRecommendation

14. Financial analysis – Revenue Growth Overview Analysis ValuationRecommendation

15. Financial analysis – Financial Sector - EPS Overview Analysis ValuationRecommendation

16. Financial analysis – Insurance EPS Overview Analysis ValuationRecommendation

17. Financial analysis – Diversified Financials EPS Overview Analysis ValuationRecommendation

18. Financial analysis – Real Estate - EPS Overview Analysis ValuationRecommendation

19. Financial analysis – Regional Banks - EPS Overview Analysis ValuationRecommendation

20. Financial analysis – Industry Comparison - EPS Overview Analysis ValuationRecommendation

21. Valuation – Financial Sector OverviewAnalysis Valuation Recommendation

22. OverviewAnalysisValuationRecommendation Current Events Diversified Financials and New Capital Requirement Regulations Big banks to become more conservative? Smaller? Real Estate – rising interest and mortgage rates Insurance – ObamaCare Unknown effects, still in implementation phase

23. OverviewAnalysisValuationRecommendation Recommendations Long-term year-over-year growth should decrease Continued near-term “growth” (read: recovery) in financial industry Opportunity to increase underweight holdings in Financials

24. OverviewAnalysisValuationRecommendation

25. OverviewAnalysisValuationRecommendation Recommendations Long-term year-over-year growth should decrease Continued near-term “growth” (read: recovery) in financial industry Opportunity to increase underweight holdings in Financials Opportunity for investment in banks and diversified financials with real estate exposure Suggest specific incorporation of real estate industry as part of SIM course beginning Autumn 2013

26. Questions?