Skinner, Sureka, Yan
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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 Alpha
Skinner, Sureka, Yan
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Sector Weighting
S&P 500 Weight
SIM Weight
Consumer Discretionary
Consumer Staples
Consumer Discretionary
Consumer Staples
Energy
Financials
Energy
Financials
Health Care
Industrials
Health Care
Industrials
Information Technology
Materials
Information Technology
Materials
Telecommunication Services
Utilities
Telecommunication Services
Utilities
3%
3% 4%
4% 3%
8%
9%
5%
12%
12%
19%
20%
12%
12%
10%
9%
13%
15%
13%
14%
Financials are underweighted by 610 BPs
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Various Industries in Sector









Banks
Consumer Finance
Diversified Financial Services
Insurance-Brokers
Insurance-Life/Health
Insurance-Multi–Line
Insurance-Property/Casualty
Multi-sector Hldgs
Real Estate Investment Trusts
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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.
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Cyclical in Nature
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Sector Performance
Financial Sector


S&P 500
Year to Date - 20.30%
Quarter to Date - .93%


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
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Sector P/E
P/E close to High end
 Relatively expensive but may vary by
industry

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Ratios Across Sector




Forward P/E
Cheap: Regional Banks
7
6
Expensive:
5
Diversified financial services4
3
Insurance-life/health
2
1
0
Banks
High
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Diverce Fianacial
Services
Median
Low
Insurance-Life/Health
Current
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


Market value lower than book value
1.2
Regional banks drop the most 1
0.8
Insurance is almost even
P/B
0.6
0.4
0.2
0
High
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Median
Low
Current
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P/S looks good so far
 Not the whole story

P/S
3.5
3
2.5
2
1.5
1
0.5
0
High
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Median
Low
Current
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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

EBITDA
4
3.5
3
2.5
2
1.5
1
0.5
0
Regional Banks
High
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Diverce Fianacial
Services
Median
Low
Insurance-Life/Health
Current
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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 Bankstrading at attractive multiples
 Regional Banks will benefit from long
term growth

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