Capital Markets: Observations & Insights

Smaller Capitalization Stocks Poised to Outperform ​ Fundamentals

• Stronger fundamentals : Estimated small cap EPS growth for ‘18 & ‘19 is double that of large cap

• More levered domestic economy : Small caps are more U.S.-oriented, have less exposure to international trade, and have higher operating leverage • Rising interest rates : Small caps have historically outperformed large caps in rising rate environments

• Attractive valuation : Small cap sales multiple discount implies opportunity

Earnings Per Share

Enterprise Value/Sales Russell 2000 / Russell 1000

0%

R2000 R1000

180

Historically Large Discount

-10%

Small Caps Growing Faster

160

-20%

140

-30%

Average

120

EPS Indexed to 100

-40%

100

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2017

2018

2019

Source: FactSet as of March 2018. EPS for 2018-2019 are consensus estimates and actual earnings per share might be materially different than shown.

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