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S&P 500 Financial Sector

S&P 500 Financial Sector

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S&P 500 Financial Sector

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  1. S&P 500 Financial Sector Skinner, Sureka, Yan

  2. 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

  3. Sector Weighting Financials are underweighted by 610 BPs Skinner, Sureka, Yan

  4. 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 Skinner, Sureka, Yan

  5. Largest Companies by Market Cap • American Express • Bank of America • Citigroup • Goldman Sachs • JP Morgan Chase • Metlife • Travelers • Wells Fargo Skinner, Sureka, Yan

  6. 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) Skinner, Sureka, Yan

  7. Financial Sector Layout Financial are in the mature phase. Cyclical in Nature Skinner, Sureka, Yan

  8. S&P 500 Sector Performance • Year to Date – 19.52% • Quarter to Date – 2.13 Financial Sector Year to Date - 20.30% Quarter to Date - .93% Skinner, Sureka, Yan

  9. Demand • GDP • Interest Rates • Business Profitability • Investor Confidence • Investible Assets Skinner, Sureka, Yan

  10. 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 Skinner, Sureka, Yan

  11. Sector Attractiveness • High barriers to entry • Well established brands • Economies of scale • Economies of scope • Relationships • Customer Loyalty Skinner, Sureka, Yan

  12. Unattractiveness • Intense Rivalry • Substitute products • Government Regulations on capital requirements and wages • Lack of consumer confidence • Highly cyclical Skinner, Sureka, Yan

  13. Regression Analysis Skinner, Sureka, Yan

  14. Skinner, Sureka, Yan

  15. Skinner, Sureka, Yan

  16. Skinner, Sureka, Yan

  17. Skinner, Sureka, Yan

  18. Sector P/E • P/E close to High end • Relatively expensive but may vary by industry Skinner, Sureka, Yan

  19. Ratios Across Sector • Cheap: Regional Banks • Expensive: • Diversified financial services • Insurance-life/health Skinner, Sureka, Yan

  20. Market value lower than book value • Regional banks drop the most • Insurance is almost even Skinner, Sureka, Yan

  21. P/S looks good so far • Not the whole story Skinner, Sureka, Yan

  22. Sector EBITDA • Worse than S&P 500 • No sign for a break Skinner, Sureka, Yan

  23. Industries reflect the • Big picture Skinner, Sureka, Yan

  24. 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 Banks-trading at attractive multiples • Regional Banks will benefit from long term growth Skinner, Sureka, Yan