2Q17 Earnings Primer

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IF IT’S CORBIN, IT’S ACTIONABLE

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2Q17 Earnings Primer Investor Sentiment Survey July 14, 2017 CORBINADVISORS.COM

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Inside The Buy-side® 2Q17 Earnings Primer

Issue Date: July 14, 2017

For over a decade, we have surveyed global investors and analysts on the equity markets, world economies and business climate. We share our research broadly with corporate executives, investor relations (IR) professionals and the financial community.

Survey scope: 71 investors and analysts globally, comprising 58% buy side; assets under management total $770 billion

Generalist Industrial Multi Tech

Cons. Stap.

3%

Other

N. America

9%

3.3%

8.4%

NASDAQ

3.9%

14.3%

S&P 500

2.6%

8.3%

Russell 2000

2.1%

4.3%

As of 7’7’17

By Style

62%

Europe

30%

30%

GARP

24%

Core Growth

19%

Hedge Fund

5% 3%

DJIA

Core Value

11%

Energy

YTD1

By Region 61%

8%

2Q17

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Survey timeframe: June 19 – July 7, 2017

By Sector

Market Performance

Asia Pacific

Latin America

7%

1%

CORBIN ADVISORS

Deep Value

16% 5%

Growth

3%

Other

3%

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Word Cloud: Frequency Of Occurrence

CORBIN ADVISORS

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Key Findings: Expectations For Earnings Growth Remain Strong; Economic Momentum Real And Driving Sentiment #1

Sentiment Reveals Elevated Management Tone and High Expectations For Earnings Growth; Europe Trends Upward Following Last Quarter’s Momentum As Investors Seemingly Blow Off Brexit



More than 60% expect EPS to improve this quarter, marking an all-time high (tracking this measure since 1Q12)



80% describe management tone as Cautiously Optimistic or Bullish, the most upbeat it’s been in nearly three years



Nearly 75% expect the European economy to improve over the next six months, while only 25% report being Concerned or Very Concerned about Brexit



Investors not blinking yet with those considering equities overvalued falling to 47% from 67% last quarter; net buyers consistent while those holding or rotating slightly increase

#2

Feedback Indicates a Sustained Growth Trajectory but Potential Black Swans Loom on the Horizon



55% report being Concerned or Very Concerned about political instability, with 51% of that group noting it is impacting their investment decisions; 94% expect geopolitical volatility to Stay the Same or Worsen over the next six months



All significant public policy reforms are viewed as less likely to pass in 2017 than they were in the prior quarter



86% expect the Fed to raise interest rates again in 2017, the impact of which will continue to slowly let air out of the balloon

#3

Technology Cannot Be Stopped As Its Exponential Impact on Society Continues to Amplify While Bearish Sentiment on REITs Ebbs After Four Consecutive Quarters of Increasing Negativity



Technology receives the most bullish sentiment (again), while Biotechnology continues to catalyze upbeat sentiment, which has more than doubled since Dec. 2016



Following persistent, negative generalist investor perception toward REITs, sentiment reveals more bulls and fewer bears than last quarter

#4

Hopes for a U.S. Corporate Tax Cut Have Begun to Fade Despite 92% Indicating Reducing Uncle Sam’s Take Would Be Positive for the Economy



Likelihood of passage has plunged to 59% this quarter from 87% last quarter



37% confirm that D.C. dysfunction is impacting their investment decisions CORBIN ADVISORS

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2Q Earnings Performance Expected To Improve Sequentially; Sell Side Expectations Are Catching Up Expectations Regarding 2Q17 Earnings Performance Relative To Consensus

“Stable” Growth

Jun '16 Macro Top-line Growth

Sep '16 Dec '16

44%

Mar '17 Jun '17

47%

31%

35%

36%

50%

40%

49% 39%

38%

Sector Specific: Energy and Retail 22%

21%

15%

Better Than

In Line

18%

15%

Worse Than

85%

63%

Expect In Line to Better Than consensus results

Expect sequential improvement

CORBIN ADVISORS

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Heightened Expectations For EPS And Cash Flow Momentum; Organic Growth Recedes Slightly From All-time High Last Survey Organic Growth

EPS Growth

62% 45%

57%59%

46%

46% 42%

31%

63%

45%

41%

33%

27%

23%

31%30% 28%

22% 15%

13%11%13%

Improving

Staying the Same

Worsening

Improving

Cash Flow 55%

50%

43%

7%

Worsening

Operating Margins

56% 37%

31%

37%

46%45% 38%

32%

31% 20%

Improving

Staying the Same

10%

Staying the Same

32%35%

50% 36%

32% 23%

14% 13% 12%

Improving

Worsening

Sep '16

Dec '16

Mar '17

CORBIN ADVISORS

Staying the Same

17%

15%

Worsening

Jun '17

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Commentary On Earnings Expectations Vs. Consensus

Better Than

In Line

Worse Than

“Stable to modest economic growth and capital expenditures, continued consumer spending and sustainable margins.” Buy

“Simultaneous economic growth on a global basis.” Buy Side, Generalist, N.A.

“I am an Energy analyst; commodities will continue to dominate my landscape.

Hedging will preserve the status quo in 2Q17 but we may get hints of softening toward 4Q17 if pricing does not improve.”

Side, Generalist, N.A.

“Slowing signals.” Buy Side, Generalist, N.A.

“Macro and bottom-up data points remain supportive.” Buy Side, Generalist, N.A.

“A lot is baked in already and there is some earnings pressure offsetting continuing expected gains.” Buy Side, Generalist, N.A.

“Top-line growth and consistent margins.

Energy sector is an easy comp.” Buy Side, Generalist, N.A.

“My stocks are largely Tech and Discretionary Retail – 2Q isn't a great quarter for either.” Buy Side, Generalist, N.A.

“GDP upward revision and oil price decline.”

Buy Side, Generalist, Europe

“Reinvestment risk.” Sell Side, REIT, N.A.

“Business slowed down at the end of 2016 and early 2017 waiting to see which new rules would be put in place to reduce regulatory and tax burdens. Now that nothing is clearly getting done, businesses have to make up for lost time.” Sell Side,

“A sense that overall business mood is muted.” Sell Side, Generalist, Europe

Industrials, N.A.

Europe

Sell Side, Energy, N.A.

“Interest rates, fiscal policy and trade policy.” Sell Side, Generalist, N.A. “Falling commodity prices.” Buy Side, Generalist, N.A.

“Economic data and sentiment appear to have taken a breather.” Sell Side, Financials, N.A.

“No major shocks to the system over the three reporting months other than FX fluctuations.” Sell Side, Consumer Staples,

“Earnings downside by sector not matched to earnings upside forecasts, particularly for resources. Retail looks particularly challenging for earnings growth.” Sell Side, Multi, Asia Pacific

“Momentum in the economy is still positive.”

Sell Side, Tech, Europe

“Improving consumer confidence.” Sell Side, Multi, Asia

CORBIN ADVISORS

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Perceived Executive Tone Registers Highest Positivity Level In Nearly Three Years‌The Real Deal

Investor Sentiment

17%

15%

Management Tone 55%

14%

15%

80%

Bullish 31%

40%

Neutral to Bullish Neutral

55% 65%

Neutral to Bearish 25%

21%

Bearish 23%

23% 4% Mar '17

21%

16% 7% 1% Mar '17

3% Jun '17

CORBIN ADVISORS

4% Jun '17

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Commentary On Sentiment Drivers Bullish

Neutral to Bullish

“Low interest rates, reasonable valuations, growing fundamentals and no signs of a macro reversal.” Buy Side,

“Overly optimistic expectations for pro-business governance changes offset by nowhere else to invest to get a return.” Buy

Generalist, N.A.

Side, Generalist, N.A.

“Earnings less regulations.” Buy Side, Generalist, N.A.

“Stronger revenues.” Buy Side, Generalist, N.A.

“Management guidance.” Buy Side, Generalist, N.A.

“Oil price declining in Energy sector.” Buy Side, Generalist, Europe

“Equities are still largely under-owned by institutions and individuals.” Buy Side, Generalist, N.A.

“Growth gaining momentum in Continental Europe.” Buy Side, Multi, Europe

“Global demand, media and peer negativity.” Buy Side,

“Global growth is improving; Macron may succeed in doing good reforms in France.” Sell Side, Generalist, N.A.

Generalist, Europe

“The end of war in North Africa and the end of populism against Europe.” Sell Side, Generalist, Europe “Strength of banking sector.” Sell Side, Multi, Asia

“Sustained economic growth in Europe.” Sell Side, Generalist, Europe

Neutral to Bearish

Neutral

“Valuations vs. low growth.” Sell Side, Generalist, N.A.

“While macro and bottom-up data points are supportive of improving fundamentals, I worry about potential air pockets in growth in 2H17, especially as commodities have pulled back and management teams await policy before making significant capital investment decisions.” Buy Side, Generalist, N.A.

“Caution regarding valuations and the economy potentially disappointing.” Sell Side, REIT, N.A.

Side, Generalist, N.A.

“Revenue growth subdued and margins weakening.” Sell Side,

“Trump's plans are stalling in Congress and the market is too bullish on its success.” Sell Side, Tech, Europe

“Rising rate regime and slowing economic signals.” Buy Side, Generalist, N.A.

Multi, Australia

“Not enough growth in the economy to sustain valuations.” Sell

CORBIN ADVISORS

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Europe Optimism Continues To Grow Amid Signs Of Continued Economic Strength Global Economic Expectations Over The Next Six Months

Eurozone

73%

23%

4%

+10 pts

-5 pts

India

52%

40%

8%

- 6 pts

0 pts

Southeast Asia

45%

45%

10%

-9 pts

-4 pts

U.S.

43%

40%

17%

-13 pts

Brazil

+8 pts

35%

34%

31%

-16 pts

China

+8 pts

33%

43%

24%

+1 pt

Mexico

-1 pt

32%

50%

18%

+14 pts

LatAm (ex-Brazil)

-39 pts

32%

44%

24%

-4 pts

Japan

+4 pts

31%

58%

-1 pt

11% +3 pts

Improving

Staying The Same CORBIN ADVISORS

Worsening 10

Fewer Classify Valuations As Overvalued Given Real Economic Momentum And Bets On Outsized EPS Beats QoQ Investment Trends

U.S. Equity Valuation Classification

Dec '16 10%

42% 36%

54%

37% 30% 26% 25%

Mar '17 3%

30%

32%

24%

23%

67% 11%

Jun '17 8%

29%

45%

7%

6%

47%

0%

Net Buyer Under

8%

Fairly

Over

40% Expect Valuations To Remain Flat In 2017

Net Seller Dec '16

Holding Mar '17

Rotating

0%

Liquidating

Jun '17

Investors Remain Committed To Equities; Net Buyers Consistent While Those Holding Or Rotating Slightly Increase

CORBIN ADVISORS

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Low Interest Rates Driving Sustained U.S. Bull Market But At Least One More 25 BPS Bump Likely In 2017

Believe The Fed Will Continue To Raise Interest Rates in 2017

Year-end Fed Funds Rate Predictions 53% “They will raise but at a slower rate. One more at most and less-than-expected in 2018.” Buy Side, Generalist, N.A.

29% 12%

1.25%

1.50%

1.75%

6% ≥ 2.0%

Current CORBIN ADVISORS

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Heightened Expectations For Strong Earnings Results, While Potential Black Swans Loom

Top Concerns Top Market Drivers

1 2 Low interest rates 3 Tax reform

Investor optimism, expectations for strong earnings/economic growth

CORBIN ADVISORS

1 Political dysfunction in D.C. 2 Geopolitical volatility 3 Valuations

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Commentary On Top Concerns

Out of N. America

Out of Europe

“1) Political uncertainty in U.S.; 2) Low productivity and lack of inflation; 3) Fiscal state of U.S. government and municipalities.” Buy

“1) Brexit; 2) China; 3) Gulf.” Buy Side, Generalist “1)

Side, Generalist

Rates; 2) Central banks; 3) Valuations of U.S. market.” Buy

Side, Multi

“1) Commodity prices (and impact on capex); 2) U.S. policy inaction; 3) Global political volatility.” Buy Side, Generalist “1) Geopolitical uncertainties; 2) Political issues in U.S.; 3) Central Bank policy errors.” Buy Side, Generalist “1) Government dysfunction; 2) Government deficit; 3) Taxes.” Buy

“1) U.S. corporate tax rate reduction; 2) Infrastructure expansion program; 3) U.S. personal tax rate reduction.” Sell Side, Generalist

“1) U.S. administration; 2) Geopolitical tensions; 3) Peaking consumer confidence and PMIs.” Sell Side, Industrials

Side, Generalist

“1) D.C. dysfunction prevents legislation; 2) Market infrastructure – ETFs/indexes, algorithmic trading, crowded hedge fund trades; 3) Terrorism, cybersecurity.” Buy Side, Generalist

“1) U.S. market realization that the country is becoming more isolated in world economy and not listened to; 2) Brexit; 3) Chinese becoming more self-sufficient in requirements hitting all those depending on it to drive growth.” Sell Side, Consumer Staples

“1) Aggressive recent run up in public U.S. equity valuations; 2) Oversupply of private equity capital driving up purchase price multiples; 3) Abundance of cheap domestic oil supply.” Buy Side, Multi

“1) It has been an extended cycle; 2) A lot of political instability; 3) Geopolitical concerns.” Sell Side, Generalist

“1) That the market has priced in too many positive policies out of D.C.; 2) Global unrest/terrorism; 3) The global economy.” Buy Side,

“1) Can the U.S. government pass anything?; 2) China slowdown and worldwide effects; 3) Brexit.” Sell Side, Tech

Tech

“1) Market valuations; 2) Market not discounting dysfunction in D.C.; 3) Geopolitical issues not being discounted.” Sell Side, Tech “1) Low oil prices; 2) Low natural gas prices; 3) Tightening liquidity.”

Sell Side, Energy

CORBIN ADVISORS

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Nearly 90% Expect U.S. GDP to Sustain or Trend Higher Following Solid Reported Growth; Sentiment on Global Trade Improves Significantly

Views on U.S. GDP and Global Trade U.S. GDP

Global Trade

89% 52%

78% 38%

42%

35%

Improving Staying The Same 36%

47%

21% 43%

Worsening 41%

12%

11%

Mar '17

Jun '17

22%

Mar '17

CORBIN ADVISORS

Jun '17

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Sector Optimism And Pessimism Trends Intact: Technology Continues Its Dominance While Energy Volatility And Derivative Exposure Have Spooked Investors

59% 63%

Technology 40%

Biotechnology

57% 49%

36% 30% Mar '17

36% 32% 32% 27% 26% 25%

Financials

35%

Energy

36%

Cons. Staples 50%

Industrials

50%

Cons. Disc.

29% 37%

Healthcare

37%

REIT

40% 39%

Building Products

26%

Energy

51%

Financials

45% 39%

Utilities

32%

Telecom

Jun '17

25% Mar '17

Technology Cannot Be Stopped While Biotech Bulls More Than Double From Two Quarters Ago Amid Deregulation Hopes

Jun '17

Bears Remain Generally Consistent Across the Board with Energy Seeing the Most Significant Uptick; REITs Starting to Break the Negative Perception Barrier?

CORBIN ADVISORS

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Interesting Trends and Inflections In Sector Sentiment Over Two Years

Biotechnology

Technology

Healthcare

80%

80%

80%

60%

60%

60%

40%

40%

40%

20%

20%

20%

0%

0%

0%

Industrial

Energy

REIT

80%

80%

80%

60%

60%

60%

40%

40%

40%

20%

20%

20%

0%

0%

0%

Bulls

Bears

CORBIN ADVISORS

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Trump Policy Reforms See Decreased Likelihood of Passage in 2017 While Healthcare Bill Is Defined By Largely Muted Sentiment

Impact of Reforms on U.S. Economy and Likelihood of Passage in 2017

U.S. Corporate Tax Cut

Likelihood of Passage in 2017

6% 2% 59%

92%

28 pts

-2 pts

Infrastructure Expansion Program

76%

5% 68%

19%

7 pts

+8 pts

U.S. Personal Tax Cut

74%

47%

16 pts

7%

63%

6 pts

10%

44%

24 pts

10%

58%

9 pts

13%

8 pts

25%

11 pts

17%

9%

-3 pts

Repatriation

71%

22%

-7 pts

Immediate Depreciation of Capex

55%

35%

-8 pts

Large Defense Spend Increase

47%

43%

+2 pts

Border Adjustment Tax

18%

29%

53%

+1 pt

Interest Non-deductibility

12%

37%

51%

-8 pts

Healthcare Bill *

12%

66%

Positive

Neutral

22%

44%

Negative

*New measure CORBIN ADVISORS

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Welcome To Wally World: D.C. Dysfunction Trumps Brexit

Level of Geopolitical Concern*

Brexit

Dysfunction in D.C.

37%

25% 55% Concerned

34%

Confirm D.C. dysfunction is impacting investment decisions

“Given the rise in valuations since the election, concerned regarding the realization of the thematic aspects that have driven investor sentiment.” Buy Side, Generalist, N.A. “Being more conservative; the market is not discounting this.” Sell Side, Tech, N.A.

Somewhat Not At All

“Moving to an increasingly cautious stance.” Sell Side, REIT, N.A.

26% 34% 15%

“Not yet; staying slightly hedged.” Buy Side, Generalist, N.A. “As long as I don't need to justify an investment based on positive policy out of D.C.” Sell Side, Tech, N.A.

* No opinion: Brexit (7%), Level of Dysfunction in D.C. (4%) CORBIN ADVISORS

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