Capital Markets: Winter 2019

Smaller Capitalization Stocks Poised to Outperform ​ Fundamentals

• Compelling valuation : Small cap P/E multiple premium is the lowest in a decade

• Stronger fundamentals : Estimated small cap EPS growth for ‘19 & ‘20 is double that of large cap

• More levered to domestic economy : U.S. small caps have less exposure to international economies

• Rising interest rates : Small caps have historically outperformed large caps in rising rate environments

Price-to-Earnings Russell 2000 / Russell 1000

Earnings Per Share

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

R2000 R1000

160

Small caps growing faster

140

120

Median

EPS Indexed to 100

100

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2018

2019

2020

Source: FactSet as of December 2018 . EPS for 2019-2020 are consensus estimates and actual earnings per share might be materially different than shown.

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