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 to domestic economy : Small caps are more U.S.-oriented and have less exposure to international trade friction • Rising interest rates : Small caps have historically outperformed large caps in rising rate environments • Reasonable valuation : Small cap P/E multiple premium is reasonable relative to history while a large sales multiple discount implies opportunity

Price-to-Earnings Russell 2000 / Russell 1000

Earnings Per Share

0% 10% 20% 30% 40% 50% 60% 70% 80%

R2000 R1000

200

180

Small Caps Growing Faster

160

140

Median

120

EPS Indexed to 100

100

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2017

2018

2019

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

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