Capital Markets: Observations & Insights

Smaller Capitalization Stocks Poised to Outperform ​ Fundamentals

• Stronger fundamentals : Estimated small cap EPS growth for 2018 more than double large cap

• More levered to fiscal stimulus : Small caps are more U.S.-oriented and have higher operating leverage • Rising interest rates : Small caps have historically outperformed large caps in rising rate environments and vice versa in falling rate environments

• Attractive valuation : Small cap sales multiple discount implies opportunity

Earnings Per Share

Enterprise Value/Sales Russell 2000 / Russell 1000

0%

R2000

R1000

-5%

170

Historically Large Discount

-10%

160

Small Caps Growing Faster

-15%

150

-20%

140

-25%

130

-30%

120

-35%

110 EPS Indexed to 100

-40%

100

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2017

2018

2019

Source: FactSet as of December 2017. EPS for 2017-2019 are consensus estimates and actual earnings per share might be materially different than shown.

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