RBCCM Global Research

June 24, 2016 All values in USD unless otherwise noted.

Priced as of prior trading day’s market close, ET Brexit: macro and sector implications (unless otherwise stated).

In light of the victory for the Leave constituency in the UK’s EU referendum, RBC Capital For Required Non-U.S. Markets’ Global Research Department has analyzed the potential impacts of the Leave Analyst and Conflicts victory on the breadth of its coverage universe. In this report, you will find a compilation Disclosures, please see of these views, our global strategists and analysts’ examination of the consequences of page 120. the Brexit vote for equities, fixed income, commodities and the broader economy. We hope you find this report helpful, and as always, we encourage you to reach out to our Research team for further dialogue. For Required Fixed Income & Currency Strategy Disclosures, please see page 122.

Table of contents European macro and sector implications ...... 3 UK economics: Brexit update ...... 4 Brexit and the impact on the euro area: Beware the peripherals! ...... 5 European Banks ...... 7 UK/EU asset managers: ...... 8 EU/UK diversified financial ...... 9 EU/UK Insurance ...... 10 EU/UK Insurance ...... 12 Global A+D ...... 13 European Consumer Staples ...... 14 UK General Retail: ...... 15 Luxury sector / stocks ...... 17 European Energy: ...... 18 European Health Care: ...... 19 European miners ...... 23 European steels: ...... 24 European Support Services ...... 25 European Telcos ...... 26 UK Transport ...... 27 Euro Utilities ...... 28

Brexit: macro and sector implications

Table of contents (cont’d) North American macro implication ...... 29 US Investment Strategy ...... 30 US Technical Research ...... 35 Commodity Strategy ...... 44 Canadian Macro Musings ...... 46 Canadian Investment Strategy ...... 47 FIC Technical Strategy - Lines in the Sand ...... 52 RBC Economics ...... 66 Weekly Dashboard ...... 70 North American sector implications ...... 72 Airfreight & Surface Transportation ...... 73 Asset Managers ...... 73 Autos ...... 74 Biotechnology ...... 75 Business & Information Services ...... 75 Canadian Consumer Stocks ...... 77 Canadian Contracted IPPs and Chemicals ...... 78 Canadian Dealerships ...... 78 Canadian Engineering & Construction ...... 79 Canadian infrastructure ...... 79 Chemicals/Packaging ...... 79 Consumer Staples ...... 80 Global Gold ...... 81 Global Oilfield Services ...... 85 Hardlines/Broadlines ...... 86 Healthcare IT ...... 87 Healthcare Services ...... 87 Homebuilders & Building Products ...... 88 Infrastructure, data center and analytic software ...... 88 IT Hardware/Large Cap Semiconductor ...... 89 Internet ...... 90 Machinery ...... 90 Media ...... 91 Medtech ...... 92 Multi-Industry ...... 92 Networking Equipment and Small/Mid Cap Semiconductor ...... 93 Non-precious metals mining ...... 94 P&C Insurance sector ...... 95 Payments, Processors & IT Services ...... 96 Powersports ...... 96 Specialty Finance ...... 97 Specialty Retail & Department Stores ...... 98 Software ...... 98 Telecom Services / Specialized REITS / Internet ...... 99 U.S. Banking Sector ...... 99 U.S. E&Ps ...... 101 U.S. Food Retail ...... 101 U.S. Packaged Food ...... 101 U.S. Power & Utilities: ...... 102 US Refiners ...... 102 U.S. REITs ...... 104 U.S. Restaurants ...... 105 Companies mentioned ...... 106 Required Equity disclosures ...... 120 Required Fixed Income & Currency Strategy disclosures ...... 122 June 24, 2016 2 Brexit: macro and sector implications

European macro and sector implications

June 24, 2016 3 Brexit: macro and sector implications

UK economics: Brexit update RBC Europe Limited Sam Hill (Senior UK Economist) | +44 20 7029 0092; [email protected]

For Required Fixed Income & Currency Strategy Disclosures, please see page 122.

Following confirmation of a victory for Leave in the UK’s EU referendum there have been statements by both PM David Cameron, and Bank of England Governor, Mark Carney.

The main points are:

 David Cameron has resigned triggering a Conservative Party leadership election. He will stay as (de facto caretaker) Prime Minister until the new Conservative leader is elected to take over from him. The leadership election is expected to be completed by the first week of October, to coincide with the Conservative Party conference.  Contrary to his earlier protestations, Cameron said that the formal process to leave the EU (triggering Article 50 of the Lisbon Treaty guiding the European Union), won’t now happen immediately. It will be for the new Prime Minister to start that process, so it won’t be until at least October before it happens.  There will be a cabinet meeting on Monday. Although the formal Article 50 withdrawal process probably won’t start until October at the earliest, it is possible that the cabinet will agree on some informal negotiations being entered into with the EU before that time. If this were to be the case it seems likely that Michael Gove and Boris Johnson (the two main political leaders within the Conservative Party for the ‘Leave Campaign’) would take the lead on that front. Essentially though, an initial period of uncertainty about the nature of the UK’s future relationship with the EU looks inevitable.  When BoE Governor Carney spoke, he referred to a period of uncertainty. He stressed that the Bank “will not hesitate to take additional measures as required”.  Carney underlined the resilience of the financial system in the UK but also stressed the ability the Bank has to add extra liquidity if needed. He referred to a potential £250bn of additional funds that could be provided through existing facilities to support the functioning of markets if needed.  When talking about the economic assessment the timeframe used by Carney was “in the coming weeks”. As such, we infer that there isn’t a current intention to hold an emergency MPC meeting or ease monetary policy today. We infer that it looks like the Governor’s preference is to work towards the August Inflation Report as the time to make a judgement on monetary policy, by which time it is more likely that market levels on which the outlook is determined will have settled down.

In line with our assessment of the economics of Brexit, we retain the view that the initial period of uncertainty about the process for EU withdrawal will exert a cost on economic activity. We will attempt to refine our profile for UK GDP accordingly in due course. In order to do that, we will also have to assess how the likely economic reaction in the rest of the EU, particularly the euro area will pan out.

Also, we reiterate our view that this downside news for likely levels of output means that there is a bias for looser monetary policy. The initial indication is that such a move won’t come today. Again we will review our forecast imminently but market expectations of at least a 25bp cut before the end of 2016 look justified and have argued before (see here) that also further steps, such as additional QE, could become available if that was required.

June 24, 2016 4 Brexit: macro and sector implications

Brexit and the impact on the euro area: Beware the peripherals! Peter Schaffrik (Chief European Macro Strategist) +44 20 7029 7076; [email protected]

This report has been produced by the entity identified on this page immediately adjacent to the analyst’s name. This entity is a non-US broker-dealer that is not registered with FINRA. RBC Capital Markets is the marketing name used by Royal Bank of Canada subsidiaries, including the entity responsible for this report.

Brexit might have significant implications for peripheral European bond markets… The UK referendum on EU membership has gained global traction and has triggered significant market moves in all major markets.

In this note, however, we urge investors to think bigger: the UK’s decision will undoubtedly have far reaching ramifications for the UK itself, but will also have far reaching implications for the euro area. Today’s market moves, we think, have already given an indication what might be in store. Exhibit 1 shows the EUR/USD exchange rate which has dropped while other EUR crosses have seen equal moves. More importantly, however, Exhibit 2 shows the 10y German Bund and the 10y Italian BTP yields where Bund yield fell precipitously (around - 20bp on the day) while BTP yields rose – the spread was driven wider by approx. 25bp at the time of writing after opening around 50bp wider. As we had pointed out already over the previous weeks, this is a pattern reminiscent of the 2010/11 European debt crisis and, if sustained, has the potential to become a serious threat for Southern European economies and economic agents. Those movements are not confined to Italy but are impacting all European ‘peripheral’ markets and have also driven credit spreads for corporate and bank bonds significantly wider.

It is too early to judge whether these moves will be sustained, but we stress a few risks in this regard that investors should be aware:

First, we have shown (see here) that even before the recent events, investors were reluctant to buy riskier fixed income assets in the euro area and started selling EUR assets in exchange for mainly USD (and GBP) assets. This trend is now likely to accelerate even though we would expect mainly USD assets to benefit.

June 24, 2016 5 Brexit: macro and sector implications

Second, while we always argued during the 2010/11 debt crisis that the political support for the EUR was very strong, this support has faded over the last couple of years in both Northern and Southern Europe. At present there are many more voices in euro area countries that are calling or even campaigning on a eurosceptic ticket who might now be encouraged from the UK’s decision to leave the EU.

Third, over the last couple of years, many resources have been applied ranging from ECB policy tools (OMT, QE, TLTROs) to political/fiscal tools (bail-out through the EFSF/ESM). Particularly on the monetary policy side, we judge that the ECB has fewer options available now than was the case beforehand. For instance, we doubt that OMT could be used as successfully as was the case in 2012. This is because, apart from Greece, there are no live bail-out programmes undertaken at present. Yet those are a requirement for OMT to become enacted. True, the QE programme continues to be in place and will help stabilize markets, but we doubt that this can be upscaled significantly too, if required. Furthermore, if there were indeed louder voices for a similar referendum in some euro area countries, we suspect that the ECB would have to suspend the QE purchases until clarity has been reached.

Lastly, if Southern European sovereign yields were to start rising again, this would not only have negative implications for corporate and bank spreads in those countries, but could also threaten the economic recovery. With the ECB’s ability to respond significantly weakened, this might re-create a negative feed-back loop again. We think it is not a co-incidence that the Italian and Spanish stock markets are the ones with the largest losses this morning (see Exhibit 3).

Summary and Market Implication… In short: We think the UK’s decision to leave the EU will have large ramifications for other EU member states and markets, including the euro area. Within the euro area, it is particularly the Southern European periphery that will be under strain. We would advise, even at present levels, to reduce risk and not to fade the Bund rally. In fact, for Bunds, we reiterate that we not only expect safe haven flows to materialize, we also underline again that we consider the squeeze risk for Bunds significant given that the ECB buys a large size of Bunds on a monthly basis in an ever smaller part of the curve (see Exhibit 4).

June 24, 2016 6 Brexit: macro and sector implications

European Banks RBC Europe Limited Fiona Swaffield (Equity Analyst) +44 20 7029 0785; [email protected]

For Required Non-U.S. Analyst and Conflicts Disclosures, please see page 120. Post the leave referendum result We expect the UK referendum result to leave to have a negative impact on the European banks sector. The most impacted should be the UK banks (Lloyds, RBS, Barclays and CYBG) although we see second round impacts for the European banks too especially given the recent rally from the lows with Santander potentially the most impacted given its UK operation and concern regarding the Spanish election. Concern regarding the impact on UK GDP and property prices will be significant with implications for UK bank earnings. We see second round impacts for the European banks too given uncertainty regarding the impact on the EU and the implications for interest rates. We would prefer the Nordic banks as the most defensive names post Brexit - Danske, Swedbank and DnB.

Banks are expected to be hit hard on the Referendum result especially as the SX7P has rallied by 14% in the last week and UK banks by 13%. Within this Barclays has risen 17%. As a result we would argue very little was priced in for Brexit.

The implications for the UK banks are via their gearing to the UK economy. Uncertainty on what this means for GDP and in turn credit quality are key. Every 10bp of loan loss provisions impacts the UK banks pre-tax by 6-10% although it is sensitive to the forecast year used.

What this means for the UK property market and the potential for a fall in house prices is important. Lloyds is most impacted by the outlook for the property although in the past there has been little correlation between the share prices and house prices and loan to value ratios are low (level of around 50%). Lower property prices would lead to higher capital requirements but nothing dramatic - 10% decline could be a 20-50bp impact on CET1, in our view.

Sterling weakness is in fact a positive for some via a translation impact - eg for Barc as around 25% of revenues in USD.

Would expect second round impacts on Eurozone banks with fears on the implications for the EU and given they have bounced as much as UK banks in the last week. We would also expect to see some impact on interest rate expectations. Would expect Spanish and Italian banks to be most affected given their correlation with peripheral bond spreads. Also those European banks with UK operations (SHB, Santander, Sabadell). On Core Europe diversification of earnings should be of some benefit but the banks will not be immune from contagion.

The Swiss banks are sensitive to the level of CHF vs both the EUR and the USD. A leave result is likely to lead to CHF appreciation. Every 10% appreciation in CHF vs the EUR affects the p+l of UBS and CS negatively by around 5% and vs the USD by around 10%.

Investment banks – these tend to be the most sensitive to a risk-off event and there is also some implications to future deal flow from the uncertainty. Also where the banks need to grow capital (DBK, CS) the shares tend to react more negatively in a risk-off environment.

Nordic banks should be defensive as they have relatively low beta and their earnings should be more resilient. Our preferred bank is Danske Bank.

June 24, 2016 7 Brexit: macro and sector implications

UK/EU asset managers: RBC Europe Limited Peter Lenardos (Equity Analyst) +44 20 7029 0824; [email protected] Portia Patel (Equity Analyst) +44 20 7029 0823; [email protected]

Quantifying equity exposure post UK referendum Below we indicate the equity exposure of the asset managers that we follow. We also indicate the percentage exposure to multi-asset or solutions as we believe a portion of these assets are also invested in equities. Those with the highest exposure to equities – which are also high margin products – face the highest risk of derating in our opinion.

If we assume that half of solutions/multi-asset assets are invested in equities, Jupiter has the highest equity exposure, at 69%, followed by Schroders at 60%, Henderson at 56% and Aberdeen at 49%. Our opinion from this earlier today still stands: in the asset manager sector we expect large negative mark-to-markets and an impaired flow outlook to be only partially offset by a weaker sterling. We do not buy the argument that investors should buy asset managers because of a weaker sterling – it is our opinion that negative mark-to- markets, an impaired flow outlook and sector derating should significantly outweigh the benefits of a weaker sterling. Ashmore appears the most defensively positioned, followed by Man Group in our opinion.

June 24, 2016 8 Brexit: macro and sector implications

EU/UK diversified financial RBC Europe Limited Peter Lenardos (Equity Analyst) +44 20 7029 0824; [email protected] Portia Patel (Equity Analyst) +44 20 7029 0823; [email protected]

Brexit implications – largely negative across-the-sector Asset managers (Aberdeen, Ashmore, GAM, Henderson, Jupiter, Man, Schroders): expect large negative mark-to-markets and impaired flow outlook to be only partially offset by a weaker sterling as the asset managers that we follow have the majority of their costs denominated in sterling. We do not buy the argument that investors should buy asset managers because of a weaker sterling – it is our opinion that negative mark-to-markets, an impaired flow outlook and sector derating should significantly outweigh the benefits of a weaker sterling.

Wealth managers (Brewin Dolphin, Hargreaves Lansdown): expect large negative mark-to- markets and an impaired flow outlook with no currency offset.

Market structures (Euronext, BME; we remain restricted on LSEG and DB1): while exchange groups should benefit from market volatility, we believe the effects will be short term in nature. Further, Euronext and BME derive a material amount of their revenue from capital raising activity, which will likely be impaired given volatile markets and an uncertain outlook. Further, we note that the Spanish election on Sunday could cause ongoing uncertainty in Spain, which is negative for BME as it solely operates in Spain.

Specialty lenders/challenger banks (Aldermore, Close Brothers, Metro Bank, OneSavings Bank, Paragon, Provident Financial, Shawbrook): a cheap sector is about to get cheaper in our opinion. The potential for reduced growth, higher impairments and lower house prices could negatively impact growth, profitability, impairments and capital ratios.

Most insulated names in our opinion: those that benefit from volatility and market uncertainty (IG Group and CMC Markets). We believe that the volatile market backdrop, coupled with uncertainty around economic growth, should present ideal conditions for CMC and IG Group to grow. In our opinion, both names serve as a hedge against volatility. Further, International Personal Finance earns the entirety of its profits outside of the UK, with the majority of its operations based in Central and Eastern Europe and Mexico. The company has a policy of not hedging the rates at which it translates its local currency profits into Pounds Sterling (its reporting currency). Therefore, for the translation of profits back into GBP, IPF benefits from a weaker Pound against its local currencies. IPF continues to face well- documented regulatory and operational challenges. However, a significant devaluation of the Pound could materially increase IPF’s Pound-denominated profits.

June 24, 2016 9 Brexit: macro and sector implications

EU/UK Insurance RBC Europe Limited Gordon Aitken (Equity Analyst) +44 20 7002 2633; [email protected] Kamran Hossain (Equity Analyst) (+44) 0207-029-0847 [email protected] Paul De’Ath (Equity Analyst) (+44) 0207-029-0761 paul.de’[email protected]

Our views on the stock reactions so far We have divided the stocks in our coverage into two buckets – ones where we would have expected a relative outperformance in the event of a vote to leave, and conversely, ones where we would have expected a relative underperformance. Against this, we show the share price performance since last night’s close.

We have colour coded the stocks within the two buckets:

 Green: Negative reaction greater than our trading expectations today  Orange: In line with our trading expectations today  Red: Negative reaction less than our trading expectations today

We have intentionally divided the stocks reasonably equally between these three buckets.

June 24, 2016 10 Brexit: macro and sector implications

Exhibit 5: Current market movements show some unexpected reactions

Stock Latest price Change Comment Expect relative outperformance Admiral 2,011.0 1,968.0 (2.1%) Under-reaction given reliance on UK motor insurance earnings Gjensidige 142.0 138.5 (2.5%) Reaction lower than Nordic peers despite similar exposures RSA 483.6 469.1 (3.0%) Reaction not as severe as expected due to UK commercial lines exposure Novae 845.0 813.5 (3.7%) Reaction as expected, benefits from weaker GBP Topdanmark 163.2 156.5 (4.1%) Outperformance in line with expectations given low exposure outside of Nordics Hiscox 1,016.0 974.0 (4.1%) Reaction as expected, benefits from weaker GBP Tryg 122.1 117.0 (4.2%) Outperformance in line with expectations given low exposure outside of Nordics Jardine Lloyd Thompson 943.0 901.0 (4.5%) Reaction as expected Lancashire 584.0 557.5 (4.5%) Reaction as expected, benefits from weaker GBP Zurich Insurance 240.7 229.0 (4.9%) In-line with expectation given USD focus and Swiss base esure 273.7 259.9 (5.0%) Reaction as expected Old Mutual 196.0 186.0 (5.1%) Reaction unsurprising. Rand has weakened against other currencies and South African GDP is also expected to be lower. However makes IPO of the UK wealth business more difficult now. Direct Line 374.1 354.9 (5.1%) Reactions as expected. Given strong balance sheet and significant large retail non-life business. Vote to leave does not change the need for customers to have motor and home insurance. NN Group 27.2 25.4 (6.6%) Looks oversold. We see NN as a safe haven with a strong balance sheet which unusually improves when credit spreads widen.

Beazley 384.9 358.1 (7.0%) Overreaction compared to peers. Company should benefit from weaker sterling & falling bond yields in ST Hastings 186.0 172.8 (7.1%) Slight overreaction compared on peers Prudential 1,358.5 1,220.5 (10.2%) The positive from a high proportion of non-UK earnings more than offsetting high sensitivity to declining UK interest rates (17% points for a 1% move) and widening corporate bond spreads. Average (4.9%)

Expect relative underperformance Hannover Re 97.1 93.3 (3.9%) Reaction as expected Swiss Re 85.1 81.6 (4.1%) Seems like an under reaction given exposure to corporate bonds (31%) Storebrand 34.6 32.8 (5.1%) Macro sensitivity over dividend provides scope to fall further. Munich Re 161.1 151.4 (6.0%) Looks oversold - strong balance sheet and little sensitivity in German HGB earnings. Scor 28.7 26.9 (6.3%) Reaction as expected Allianz 141.5 129.7 (8.4%) Reaction as expected given credit risk offset by USD exposure at PIMCO and US Life AEGON 4.3 3.9 (10.8%) Reaction more benign than we expected - given low solvency ratio and high sensitivity to lower interest rates across US, UK and Netherlands. Additionally UK disposal proceeds have not been hedged. Delta Lloyd 4.1 3.7 (10.8%) Reaction more benign than we expected - given low solvency ratio and high sensitivity to lower interest rates. Axa 21.5 18.9 (12.4%) Oversold vs. continental peers given low exposure to UK and insensitivity to credit spreads under Solvency II

Generali 13.1 11.3 (14.1%) Underperformance vs. peers as expected due to exposure to Italy. St James's Place 924.0 793.0 (14.2%) Equity market sensitivity looks overdone given FTSE reaction. Currently pricing c15% drop in FTSE. Standard Life 343.3 290.5 (15.4%) Looks oversold - given strong solvency and largely unit-linked book. JRP Group 148.5 125.6 (15.4%) Reaction unsurprising- given high sensitivity to declining interest rates and widening corporate bond spreads. Greater likelihood that debt financing will need to be sooner than Dec 2017E. Legal & General 236.4 197.1 (16.6%) Reaction unsurprising - given high sensitivity to declining interest rates and widening corporate bond spreads. However the 2017E yield at 7.8% is highly attractive, in our view. Aviva 444.5 370.1 (16.7%) Looks oversold - given significant non-UK earnings and large retail non-life business. Average (10.7%) Price as at: 24/06/2016 10:33 Source: Bloomberg, RBC Capital Markets

June 24, 2016 11 Brexit: macro and sector implications

EU/UK Insurance RBC Europe Limited Gordon Aitken (Equity Analyst) +44 20 7002 2633; [email protected] Kamran Hossain (Equity Analyst) (+44) 0207-029-0847 [email protected] Paul De’Ath (Equity Analyst) (+44) 0207-029-0761 paul.de’[email protected]

Brexit implications – mainly negative The insurance sector has a relatively high degree of sensitivity to macro movements so ultimately the impact has to be considered to be negative for the space. If interest rates decline or are less likely to move up and credit spreads widen this will ultimately hurt earnings in the sector.

Bulk annuity writers (highly exposed)  Legal & General, JRP Group: Following the vote to leave the EU we see L&G and JRP as particularly exposed on the negative side.  Widening credit spreads: A vote to leave will likely widen credit spreads. Bulk annuity writers have significant credit portfolios which are all for the risk of the shareholder. While bonds are held typically until maturity the marked to market effect will reduce the solvency.  Lower interest rates: If long dated interest rates decline this would be negative for the balance sheet, the earnings and the solvency of the pension schemes.  A negative impact on sales: Uncertainty will continue for some time following the Brexit vote and we expect UK defined benefit pension schemes to slow the rate at which they transact with bulk annuity writers. L&G is the leading listed insurer in the standard bulk market, while JRP is the leading medically underwritten insurer.

Generali (highly exposed)  With 27% of fixed income assets in Italy, Generali is significantly exposed to any weakness in peripheral Europe. The relatively high life weighting, with legacy guarantees also leaves the business exposed to negative interest rate and credit spread movements, in our view.

Dutch life (exposed)  We see Delta Lloyd and Aegon as relatively exposed to the changing macro environment – both have relatively weak balance sheets. We see NN as a 'safe haven' in Dutch life due to its strong balance sheet.

Lloyd’s insurers (relatively insulated)  Relatively low exposure to UK revenues: We see the Lloyd’s insurers as relatively unaffected by the Leave vote. The majority of Lloyd’s premiums in the market come from US business leaving Lloyd’s exposure to UK as relatively low.  Short term earnings should benefit from market movements: In addition, we expect there to be a number of short term benefits to the Lloyd’s insurers earnings. Firstly due to the Lloyd’s market being very USD based, the weakness in sterling will actually benefit earnings, in our view. In addition, with large US treasury exposure, the decline in yields actually benefits earnings at the Lloyd’s insurers as the majority recognise unrealised gains on investments via earnings.

As highlighted in our Brexit note on 11 March 2016, there are a number of potential impacts further down the line, including a loss of sales, uncertainty to the solvency regime, a weakening of sterling, reversal of gender-neutral pricing, bulk annuity transactions could be delayed and pension purchases could be postponed.

June 24, 2016 12 Brexit: macro and sector implications

Global A+D RBC Europe Limited Robert Stallard (Equity Analyst) 212 905 2928; [email protected]

End of the UK world as we know it Now what? Although we have covered the potential risk of Brexit in both a Generally Speaking and recent A+D note, it is fair to say they we didn't place a high probability on the the referendum majority being a win for the Leave camp.It looks like we were wrong, along with the rest of the equity market, and now we need to address the changed landscape.

A+D – short term sell off, medium term opportunity We would expect equities broadly to sell off in response to Brexit, with UK and EU names hit the worst. In theory defensive Defense names should hold in better, but as they are generally outperformers this year we could see profit taking. In the carnage, we think there could be some opportunities:

 BAE Systems – With the UK set to leave the EU, the importance of relationships with other countries increases – particularly the US. The 'special relationship' will no doubt be strained by Brexit, and so we doubt if the UK will sabotage itself further by cutting defense spending any more. So as a result we think UK defense spending will be steady, barring the election of a socialist Government post Brexit. BAE's largest end market remains the US DoD, with Saudi Arabia as 3rd – and we don't see either being negatively impacted by Brexit.  US defense – If global equity markets, and US defense, sell off on Brexit then this presents an opportunity. We don't see the dominant US defense budget being cut, and potential European instability could embolden Russia – and reinforce the case for robust national security spending. In an uncertain market, we'd be looking to add to defensive defense names like the US defense primes, L-3 and Harris.  Airbus – the knock on impact of Brexit on the Euro is likely to be negative. This in turn presents a positive tailwind for Airbus' hedge book, though the European economy and airline demand could slow in response to the UK vote. Structurally lower euro/US$ rates could further enhance Airbus' market share gains versus Boeing, as it has more pricing flexibility. Down the line, Airbus may have a tough decision on whether to move its UK operations, but we doubt if that will happen soon.

And finally... It is generally thought that we don't get these unexpected macro developments very often. But you run the list for the last 20 years, and you get quite a few – Asian crisis, 9/11, SARS, Iraq war, US housing melt down, Greece, oil down 50%...and now Brexit. Chances are that the world does not end. And in the case of aerospace and defense, the world's population will still want to fly, and countries need to adequately defend their interests. It's not quite blood in the streets, but buying quality names in these macro dislocations has proved to be a sound approach in the past.

June 24, 2016 13 Brexit: macro and sector implications

European Consumer Staples RBC Europe Limited James Edwardes Jones (Equity Analyst) +44 20 7002 2101; [email protected]

Relatively unaffected by Leave vote The UK's Leave vote doesn’t really change anything for the consumer staples sector, at least in the short term. The UK tends to be a relatively small market for most of the consumer staples companies we follow – typically well under 10% of revenues.

In addition, they have very little transactional currency exposure. Costs are incurred where sales are made. So weak sterling will prompt upgrades for sterling denominated stocks, but the value of each pound of share price for sterling denominated stocks will be commensurately less.

The one exception we would highlight is Diageo, which on a relative basis should be a beneficiary. That’s because 24% of its sales are of Scotch, with production and storage costs incurred in the UK – so these costs should come down. But only 6% of sales are in the UK. So Diageo, and to a lesser extent Pernod Ricard, should see a meaningful transactional benefit.

At the other end of the scale is Britvic, where we estimate about two-thirds of sales are in the UK – so it will likely be significantly more affected than the rest of the staples sector.

Net net, though, we really don’t think this makes a lot of difference for consumer staples… which this morning feels like a good thing.

June 24, 2016 14 Brexit: macro and sector implications

UK General Retail: RBC Europe Limited Richard Chamberlain (Equity Analyst) +44 20 7429 8092; [email protected] Claire Huff (Equity Analyst) +44 20 7029 0783; [email protected]

Brexit vote negative for sector; Inditex/ASOS more insulated Following the unexpected Brexit vote this morning, we highlight our initial thoughts on the implications for the General Retail sector. We have divided the likely impact up into three main areas:

1) Higher dollar sourcing costs – the USD has already strengthened by 10% versus sterling and general dollar strength will impact those retailers with high USD sourcing from Asia. We think this would have a disproportionate impact on low margin discounters such as Sports Direct and B&M along with apparel chains that have relatively little overseas income - eg Next and Marks & Spencer. H&M would be vulnerable to a general strengthening of the dollar (and weaker EUR trend) given that it sources around 75% of product from Asia in USD, while Inditex’s high amount of proximity sourcing (over half) and diversified global revenue protects it from most of the impact from Brexit in our view. 2) The impact of imported inflation on customer demand – This could lead to price rises as from spring 2017 which may be difficult to pass on in what’s been a promotional deflationary environment recently. We see a risk that LFL volumes will reduce more, given spend on clothing has been underperforming other bigger ticket and leisure related parts of consumer spending. Assuming that retailers raise prices we see a risk of a more intense promotional environment, particularly as increased online competition, “Black Friday week” promotions and internet price transparency for consumers have all led to recent net price deflation in the sector. 3) Interest rate moves and other operational impacts from higher costs of doing business, tariffs etc – Historically the Retail sector has been quite interest rate sensitive. However we see the impact from potential tariffs as less relevant as most product sold by UK retailers such as Primark in the Eurozone is shipped directly there from Asia. There may be some additional labour costs however. Already retailers are faced with the challenge of managing the impact of the national living wage which is being introduced for workers aged over 25 in April and which is set to rise by a CAGR of 5.7% over the next 4 years. This might be compounded by labour shortages in some areas - eg in distribution and logistics if European workers find it harder to gain work in the UK.

Stocks most exposed to currency impact: 1) Sports Direct (Sector Perform; 425p PT) - Unhedged on GBP/USD below 1.60 and sources most of its own brand product in USD from Asia. We see 5-10% consensus EPS risk on currency and upwards cost pressure given rising labour costs. 2) B&M (Underperform; 280p PT) – Sources most of its non-food product directly from Asia in USD and operates at a low margin with a high proportion of staff on the living wage. We see c3-5% downside risk to consensus EPS. 3) Next (Sector Perform; 5,800p PT) – Sources c65% of product in USD from Asia and 95% of its sales are generated in the UK. Next would be vulnerable to currency downgrades and further pressure on UK clothing demand.

Stocks most insulated: 1) Inditex (Outperform; €35 PT) - most global and best set up for multi-channel growth. Gains more share in downturns, relatively low dollar sourcing exposure

June 24, 2016 15 Brexit: macro and sector implications

2) ASOS (Outperform; 4,500p PT) - structural online growth, 60% of revenue generated outside of the UK, relatively low USD sourcing (c1/3 of total)

Other more global stocks: 3) H&M (Sector Perform; SEK 275) – High margin, low price point and relatively defensive although lacking sales and EPS momentum right now. However H&M is also vulnerable to the weaker euro and sources the majority of product in USD from Asia 4) Steinhoff (Outperform; €6 PT) - little exposure to the UK and vertical integration cost advantage in Europe with relatively low Asia sourcing exposure. However vulnerable to pressure on the South African rand on an emerging markets selloff.

June 24, 2016 16 Brexit: macro and sector implications

Luxury sector / stocks RBC Europe Limited Rogerio Fujimori (Equity Analyst) +44 20 7429 8470; [email protected]

Brexit Implications For luxury stocks, we see Brexit as a negative for the sector overall and mixed for Burberry Group.

On the negative side, we see Brexit bringing materially negative wealth effects from declining stock markets in Europe / negative implications for global economic growth, which will inevitably hit luxury demand. This creates further downside risks to our current organic sales growth estimates for the sector (currently at +3–4% in 2016–17E).

On the positive side, the sector would benefit from a weaker EUR vs. USD/YEN (for Continental players), but the real beneficiary of a weakening GBP should be Burberry (GBP exposure: ~14% of revenues in GBP, ~15% of COGS and ~40% of Opex). An exception is the CHF, of which further strengthening would be an incremental negative for Swatch Group and Richemont.

Currency fluctuations tend to shift travel flows and luxury purchases around the globe: A weakening GBP may shift overseas tourist flows to the UK, which would benefit Burberry Group, although we would be mindful of recent changes in Chinese taxes / import duties and border controls – see our recent note ‘HAITAO & DAIGOU: The Game Has Changed’, published on 15 June.

June 24, 2016 17 Brexit: macro and sector implications

European Energy: RBC Europe Limited Biraj Borkhataria (Equity Analyst); +44 20 7029 7556; [email protected]

Big Oil – Brexit implications largely driven by FX In light of the upcoming EU referendum, we highlight the potential implications for Big Oil. With geographically diverse operations, largely operating in USD, we see the implication as limited, and largely driven by FX.

For Royal Dutch Shell (Outperform, TP 2000p), and BP (Sector Perform, TP 370p), we believe that the key impact would be on dividends, with both majors declaring dividends in USD and paying in GBP.

As an example, for Shell, the US$1.88 per share declared dividend would result in:

£1.18 per share annual dividend assuming 1.60 GBPUSD (c6.5% yield)

£1.34 per share annual dividend assuming 1.40 GBPUSD (c7.5% yield)

For Statoil (Underperform, TP NOK115), we could expect North European currencies (e.g., NOK) to strengthen on an exit vote (safe haven, etc.), which would impact Statoil who now reports in USD. We estimate around 30-40% of spending in Norway is NOK based, and c50% of total capex is in Norway.

For Eni (€13.54; Outperform, TP €16), the impact would largely be macro based, in our view, with an exit vote potentially leading to concerns about a knock-on effect across continental Europe. We would argue, however, that this has already been impacting Eni performance, with the FTSEMIB underperforming the SXXP significantly in recent months.

We highlight the above as a rough guide to the potential impacts of an 'exit' vote on June 23. Obviously the reverse would occur in a 'remain' vote, in our view.

June 24, 2016 18 Brexit: macro and sector implications

European Health Care: RBC Europe Limited Nick Keher (Equity Analyst); +44 20 7429 8474; [email protected]

Facts, figures and safe harbours It is hard to not see a negative reaction to risk assets but think some moves could be overdone and outline the key facts we would use to navigate in a period of uncertainty. We see safe harbours as Abcam, BTG, Clinigen and Dechra.

Who has been trading in line with the Polls pre-Brexit? In our space we note that Clinigen and Indivior have traded up to this event as if they were ‘Brexit’ stocks whilst Abcam and Consort have stayed firm. For us, we think the focus on both Clinigen and Indivior as likely losers in this event as misleading. Both are profitable, offer significant free cash flow yields and are leaders in their own respective end-markets.

Focus on USD earners: Given the devaluation to Sterling we would focus on those names that are already generating cash in the US. The top two companies in our space which are positively exposed to the USD are BTG & Indivior.

Focus on high margins and clean balance sheets: In this environment, with the key being that this period of uncertainty could continue, we would favour those with high margins and clean balance sheets. We think the market may look negatively on those with high levels of gearing (risk to equity) and those that are not yet profitable.

Avoid those in development mode: If companies have not yet begun or at an early stage of commercialisation and are still spending significant amounts on R&D then we fear they will react worst to today’s news. Raising cash in an environment of uncertainty will be difficult and there will certainly be a flight to quality and a risk off attitude which will impact sentiment considerably. Under our coverage we believe Circassia and Curetis are most vulnerable.

The UK healthcare ‘for sale’ sign just went up: For the past five years the tax inversion deal was the norm to provide US companies with the financial incentive to acquire UK assets. That loophole has now largely been closed but, if any negative stock reaction takes hold then we think those US names will come shopping. We note that many US Healthcare companies hold significant overseas deposits (cost of repatriation), so could move quickly. We would look to Abcam, BTG, Dechra, Horizon Discovery and perhaps Consort as the most likely acquisition candidates out of our coverage.

Safe harbours: We prefer Abcam, BTG, Dechra and Consort in this environment. We think Circassia and Curetis could underperform more than others in this environment. We would be buying Circassia below 85p whilst, for Curetis, the company is already trading below our low end valuation of €7, but has risk associated to its US trial that, if not successful, could see a call for cash.

June 24, 2016 19 Brexit: macro and sector implications

Valuation table Setting the scene – we have seen a meaningful sell off already into this event in our space given the ‘risk off ‘ attitude and so, whilst the reaction today will no doubt hit each name, we are on the look-out for those names which could be over-sold or not have been impacted enough.

Exhibit 6: Valuation table of listed companies

Note - all calendar years. Prices as at 24 June

Forecast Forecast Forecast Rec Upside PT Company Price Mcap EV EV / Sales growth EV / EBITDA growth PE growth Revenue EBITDA EPS CAGR CAGR CAGR - - 2016E 2017E 2018E (15-18) 2016E 2017E 2018E (15-18) 2016E 2017E 2018E (15-18) Abcam Sector Perform -6.9% 610p 655p £1328m £1272m 7.3x 6.5x 5.9x 12.2% 19.9x 17.1x 14.9x 14.2% 31.5x 27.9x 24.6x 10.4% BTG Outperform 35.9% 890p 655p £2543m £2403m 4.8x 4.3x 3.9x 11.5% 19.8x 16.4x 12.6x 20.7% 27.6x 23.6x 18.6x 19.8% Circassia Sector Perform -1.9% 105p 107p £305m £194m 8.7x 5.4x 3.9x 140.6% na na na na na na na na Clinigen Outperform 46.8% 800p 545p £639m £715m 1.9x 1.8x 1.7x 17.8% 11.5x 10.0x 8.9x 20.6% 14.8x 12.6x 10.9x 18.3% Consort Sector Perform 11.7% 1150p 1030p £506m £607m 2.2x 2.1x 2.0x 10.2% 11.8x 11.0x 10.7x 11.1% 18.6x 17.4x 16.4x 8.1% Curetis Outperform 82.1% €12.2 €6.7 €109m €159m 26.9x 10.6x 5.2x 126.1% na na na na na na na na Dechra Outperform 20.1% 1320p 1099p £988m £1095m 4.0x 3.4x 3.1x 16.4% 17.3x 14.3x 12.6x 19.2% 24.0x 19.2x 16.4x 18.6% Horizon Discovery* Outperform 40.0% 210p 150p £133m £116m 4.1x 3.0x 2.2x 38.4% na 25.3x 10.4x na na na 32.3x na Indivior Underperform -30.4% 160p 230p £1686m £1742m 2.7x 3.1x 3.3x -9.9% 10.3x 12.5x 13.9x -22.6% 16.9x 19.0x 20.5x -26.4% Vectura Outperform 28.1% 205p 160p £662m £574m 7.6x 5.8x 4.9x 25.4% 22.7x 12.7x 10.2x 42.2% 32.6x 17.3x 13.8x 48.8% Average 7.0 x 4.6 x 3.6 x 38.9% 16.2 x 14.9 x 11.7 x 15.1% 23.7 x 19.6 x 19.2 x 13.9%

Analyst: Nick Keher 02074298474 Note: Vectura numbers are before Skye merger * demontes where RBC are broker to the company Source: RBC Capital Markets estimates (detailed assumptions available upon request)

What are the key dynamics in a period of uncertainty? We would look to those names that are exposed to the USD, are net cash and have high margins as those that are better insulated to offset any period of uncertainty, however long it may be. Those with a high proportion of R&D spend and those that are unprofitable will no doubt be hit worst, given the implications of raising capital in this environment have no doubt worsened. We would also expect those with meaningful debt levels to de-rate given the implied increased risk to equity.

Exhibit 7: Quick view on fundamentals

FY1 Net debt Reproting Net debt / (reporting Proportion of R&D spend as a Company currency EBITDA currency) EBITDA margin revenue USD % of revenue Hedgeding v Euro Potential acquisition target in our view? Abcam £ -0.9x -55.9 36% 40% 6% Only debt Yes BTG £ -1.5x -184.7 24% 85% 18% Debt and infrastructure Yes Circassia £ Net cash -140.0 Not profitable 60% Over 100% Infrastructure Doubtful Clinigen £ 0.5x 76.1 16% 30% Minimal Only debt Doubtful Consort £ 1.9x 101.3 18% 0% Minimal Debt and infrastructure Yes Curetis € Net cash -33.2 Not profitable 0% Over 100% Based in Germany Only on US approval (2H-16) Dechra £ 1.1x 106.9 23% 34% 4% Debt and infrastructure Yes Horizon Discovery £ Net cash -16.7 Not profitable 75% 27% No Yes Indivior $ 0.3x 81.6 27% 80% 17% Debt and infrastructure Doubtful Vectura £ Net cash -113.0 34% 29% 43% Infrastructure Doubtful Source: RBC Capital Markets estimates

June 24, 2016 20 Brexit: macro and sector implications

EU/UK Industrials: RBC Europe Limited Andrew Carter (Equity Analyst) +44 20 7653 4510; [email protected]

Brexit – some early industrials thoughts UK engineers – likely relative outperformers on FX, but beware economic shock risks UK engineers will likely outperform wider UK benchmarks today as they are international businesses that simply report in GBP. The much weaker GBP will boost earnings today. The risk of course is that engineers are economically sensitive and the market may go on to have very real fears that with China and NA already weak, global economic activity will slow. We'll need to see policy responses to see whether slowdown is a bigger issue. Thinking back to the financial crisis, the UK engineers initially rallied on GBP weakness before selling off hard some days later as it became clear that activity was slumping.

Smiths Group (Outperform) should do better than most with >50% of profits generated in the US. It is also not enormously economically sensitive, courtesy of detection and healthcare. Some may be concerned that Morpho Detection will now be more expensive (in GBP terms at least), but remember that Morpho's earnings are in USD so it doesn't matter so much. If bond yields fall this could impact the pension, but Smiths only just completed its triennial review.

Spirax Sarco (Sector Perform) typically performs in difficult economic environments and it does benefit from GBP weakness through both translation and transaction. A place to shelter perhaps relatively, despite being somewhat IP sensitive.

Weir (Underperform) should follow UK engineer peers but we would keep a close eye on the oil price which we'd guess will be off today on USD strength. We still consider the shares are expensive, but perhaps slightly less than they were given GBP weakness against USD. Thinking further ahead, Weir's covenant compliance could now be more challenging as net debt will rise (courtesy of the USD denominated portion), although this will be offset by higher earnings on translation (covenants measure both net debt and EBITA on 12-month average exchange rate basis).

GKN (Outperform) will likely follow other UK engineers initially but this is one to be wary of as things develop, in our view. If there is a real economic shock auto production could be hit hard (as it was in 2008/09). Bodycote (Sector Perform) is another we’d highlight as more vulnerable to an economic shock, particularly if this were Europe/UK focussed.

Whilst our Underperforms IMI and Rotork will also likely outperform relative on the translation effect of the weaker GBP; they both rely on customer capex decisions (eg. power gen, heavy truck etc) which may see push-outs. As such, we see reason for them outperform the likes of Smiths.

Melrose (Outperform) shares could also outperform relative as investors may think that the current environment will throw up more acquisition opportunities.

Europe – remain defensively positioned In Europe, we're pretty happy with our more defensive positioning (Outperforms on Assa Abloy, Geberit and Philips). All three are less economically sensitive than most through construction exposure (Healthcare in the case of Philips). Geberit should benefit from being Swiss listed ('safe haven') although reported SFR results will likely be reduced upon translation and they may need to cut sales prices in Switzerland as they did a year or so ago. June 24, 2016 21 Brexit: macro and sector implications

Alstom (Underperform) may see an outsized impact on earnings from GBP weakness. We estimate that the UK contributed up to 40% of FY15 group income from operations.

We see no reason for Siemens (Sector Perform) shares to do anything different than the Dax.

ABB (Sector Perform) may outperform Siemens - at least in non-Swiss terms as like Geberit it should benefit from haven buying.

Atlas Copco, Sandvik, SKF - might benefit a little if the SEK weakens against the euro. However all three are pretty economically sensitive and short-cycle. Both Atlas (Sector Perform) and Sandvik are mining capex plays and weakness in mining stocks does not suggest mining capex largesse any time soon. We have Sandvik at Underperform.

June 24, 2016 22 Brexit: macro and sector implications

European miners RBC Europe Limited Tyler Broda (Equity Analyst) +44 20 7653 4866; [email protected]

Brexit impact The miners are insulated from direct Brexit implications with no UK based revenue and with cost exposure to EM and commodity currencies and should outperform on an isolated basis. However, the exposure to slowing global economic conditions is high and the high beta nature of the miners is likely to see the sector take part in wider deleveraging. The stronger USD is likely to put further pressure on commodity prices as well impacting revenues. Sector debt levels remain elevated compounding equity impact. Correlations between the SXPP and the Chinese Renminbi (inverse) have been elevated this year and as such a global slowdown impacting the key Chinese market, could compound downside. For the initial moves most exposed would be higher operationally and financially leveraged names like AAL (beta 1.7) and GLEN (1.7), less exposed would be RIO (1.1) and BHP (1.4).

Comps pre-open (2016 calendar)

Source: RBC Capital Markets estimates

Gold stocks, and a general negative beta to the markets should provide significant outperformance for the sector. With gold prices up 5-7% and sector beta at 2+, combined with GBP readthrough and the general lack of liquidity in European equities, the moves to the upside are likely to be very sharp. RRS, FRES provide the most liquidity HOC and ACA and POLY provide the most gearing in the space to higher precious metals prices. The weakness in the ZAR (down 7%) will be assisting SA names - SBL SJ, ANG SJ and GFI SJ relative. For the London gold names the P/NPV sensitivities (pre-open) are below. Randgold $1400/oz: NAV 4,482p, P/NPV 1.44x $1350/oz: NAV 4,207p, P/NPV 1.53x Acacia $1400/oz: 469p, 0.73x $1350/oz: 435p, 0.79x Hochschild $1400/oz: 109p, 1.45x $1350/oz: 098p, 1.61x Fresnillo $1400/oz: 651p, 1.90x $1350/oz: 612p, 2.03x Polymetal $1400/oz: 870p, 1.01x $1350/oz: 791p, 1.11x June 24, 2016 23 Brexit: macro and sector implications

European steels: RBC Europe Limited Ioannis Masvoulas (Equity Analyst) +44 20 7653 4647; [email protected]

Brexit implications The UK's EU membership referendum has seen a likely 'leave' vote. Please refer to our notes, Bremain Bouncers - Screening for outperformance on a remain vote, 25th May, 2016, and Brexit…or do you mean Smexit? - Economic and financial market implications, 11th March, 2016.

Implications from Brexit: The European steel companies have limited revenue exposure to the UK (eg ArcelorMittal’s UK revenues account for just ~2% of group revenues, other companies don’t report UK revenues on a standalone basis). Hence the direct impact from Brexit may not be as significant. In terms of trade flows, the UK has a relatively small production footprint (11mt out of 166mt in the EU), hence the competitive advantage from the weaker pound may not have huge implications within the European continent. In addition, the UK has been one of the strongest advocates against trade protectionism towards China, and as a result the UK exit could actually increase the likelihood of higher trade tariffs in the upcoming European trade cases (HRC and heavy plate). However, the broader risk-off sentiment given the implications for global economic activity should weigh heavily on the stocks today. We would expect the more liquid and/or higher beta names such as MT, SZG, SSAB to come under heavier pressure, while VOE will likely be the most defensive name in the space due to its greater focus on contract volumes and lower operating leverage vs its peers.

June 24, 2016 24 Brexit: macro and sector implications

European Support Services RBC Europe Limited Andrew Brooke (Equity Analyst) +44 20 7002 2262; [email protected]

Brexit Implications There are many implications for the sector given the Brexit vote. The key impacts can be summarised as follows:

UK exposed names - companies with a high exposure to UK GDP, confidence levels and/or corporate OR Government decision making - Travis Perkins, Capita, Carillion, MITIE,

Staffers with high UK exposure - we would expect staffing to suffer given uncertainty, especially in the perm sector - Michael Page Hays and SThree will all be impacted although they do have significant overseas exposure. We would also note that Adecco and Randstad have c10pc UK exposure.

Safe Havens - the stocks in the most defensive end markets with the highest international exposure - Rentokil, Compass, Berendsen and Bunzl.

Other internationally focused names – Aggreko, G4S, Wolseley, Intertek, Regus - all have c.75pc non GDP revenues.

What to do – we would continue to focus on defensive names - our key buys of the liquid names would be Rentokil, Compass and Wolseley.

June 24, 2016 25 Brexit: macro and sector implications

European Telcos RBC Europe Limited Jonathan Dann (Equity Analyst) +44 20 7429 8462; [email protected]

Brexit first thoughts Sector wide Less impacted than cyclicals, SXKP could benefit relatively, from 'safe haven' defensive characteristics.

Exposed  Vodafone – Two translation effects: 1) Reported earnings: VOD has c. 40% of revenues in EUR. Vodafone recently moved to report earnings in EUR, so a lower GBP/EUR does not affect its reported earnings from its European (ex UK) business; however, a lower GBP / EUR means the UK business (c.15% of revenues) has lower earnings in EUR terms. 2) Since the earnings are in euros, in EPS in pence there is also a (larger) positive translation effect from weaker GBP.  Liberty Global c. 75% of revenues in EUR (translated to USD), at risk if EUR/USD starts spiral downwards  DT: two way pull: loses on 12% stake in BT worth (€6bn or 9% of BT market cap), but 65% stake in TMUS worth €20bn (30% of market cap)  ETF impacts - TEF  HEDJ (the massive $11bn ETF from Wisdomtree): largest single position is TEF, with 5.8% of its fund in TEF (ie. c.$650m long TEF)  May see some withdrawals from US investors (who are most of HEDJ investors) pulling back  EZU (another $11bn ETF) only has 1.2% in TEF

Insulated  Dollar earners all outside Europe/very limited EUR  Telenor  Inmarsat

June 24, 2016 26 Brexit: macro and sector implications

UK Transport RBC Europe Limited Damian Brewer (Equity Analyst) +44 20 7653 4900; [email protected]

EU referendum implications; airlines worst hit The UK’s EU membership referendum has seen a likely ‘leave’ vote. Please refer to our notes, Bremain Bouncers – Screening for outperformance on a remain vote, 25 May, 2016, and Brexit…or do you mean Smexit? - Economic and financial market implications, 11 March, 2016. Overall, our view is that investors will react first, then think through the detail later and we now see airlines, and IAG (due to sizable stranded capital risk), as potentially the most adversely affected shares, so: 1. Airlines - IAG worst, we think: Economic weakness is worst for those companies with the risk of stranded assets (supply) they are unable to move out of the UK (or Ireland). We see IAG most immediately and long-term exposed. By ASKs produced, BA and Aer Lingus represent 67% of IAG, and with its Heathrow focus, BA has nowhere else to go outside its 'one-trick' focus on the London market (thus risking stranded capital). Having cut costs already, there may be limited room to react to economic weakness. In addition, longer-term IAG faces a need to refresh its long haul business class offering - which while high density (for IAG's shareholders) risks becoming increasingly uncompetitive at IAG's BA if GDP weakness sees excess supply chasing demand. With nowhere to turn (and high UK exposure) in an operating leveraged business we see IAG likely to see the worst reaction. A 2009-like 18% RASK fall would see a super bear case 2017E EPS at ~24c, leaving significant scope for further share price downside. easyjet's ~49% revenue (and ~60% of fleet) UK exposure, and limited (scale) in non UK bases also leaves it exposed to risk of stranded underperforming UK capital. There might be an opportunistic entry point for Ryanair - as by contrast it has ~24% UK revenue exposure (and ~10% Irish exposure), but 84 European bases over which to redeploy aircraft (capital) if it did not want to capture share in a UK market likely to see recession-led trading down behaviour from consumers, where we see demand for travel, albeit likely reduced if GDP weakens. 2. Bus and rail shares: A weaker consumer and higher USD fuel costs will likely squeeze margins (further) down. A potentially unstable UK political outlook is also unhelpful to this highly stakeholder influenced segment. Aggressive rail contract bids (especially those without GDP dead bands) will now likely struggle to meet planned revenues and profit targets, while a UK government facing a recession and lower tax receipts sees a risk of extended austerity and question marks over payments (like BSOG) to the industry. This implies profit forecast downside risk greatest in the most UK centric companies (Go-Ahead), also affecting FirstGroup (the CEO was recently (14/6/16) unable to detail any contingency plans to their fully GDP exposed TPE and FGW rail contracts) and Stagecoach. Its diverse business and geography leaves National Express the least UK-centric and thus likely to be least affected. 3. Mail and Logistics: Closed book contract demand risk exposure (on 31% of Contract Logistics revenues) at Wincanton creates margin downside risk from potential adverse GDP pressures. For Royal Mail economic downside likely sees Parcel revenue outlook depressed, while low interest rates could exacerbate pension challenges. DP DHL will likely also see profit pressures due to its UK Express and Logistics exposure. 4. Transport Infrastructure and concessions: In the short term, a deep UK recession and a sharp move in sterling would not be helpful for Eurotunnel shares as ex UK cargo and leisure demand likely falls. For Aena, potentially poorer UK travellers with a weak home currency and potentially recession consumer backdrop will likely stymie demand for holidays. We see limited effect on Heathrow (and Ferrovial) due to excess demand for Heathrow slots, prior (early 1990s) data and currency hedges put in place. June 24, 2016 27 Brexit: macro and sector implications

Euro Utilities RBC Europe Limited John Musk (Equity Analyst) +44 20 7029 0856; [email protected] Martin Young (Equity Analyst) +44 20 7653 4481; [email protected] Maurice Choy (Equity Analyst) +44 20 7653 4198; [email protected]

Brexit – the early reaction Usually we categorise the sector into two broad buckets, regulateds & non-regulateds. With the significant currrency ramifications of the Brexit vote, we should also look at this on a currency business mix basis.

Currency impacts There are many stocks that are single currency, or largely single currency, these being PNN, UU, SVT, REE, TRN, SNAM, ENAG, Drax, SSE, and ELE. These should be unaffected by currency movements (other than the interplay of currency into underlying commodities).

The others, EDF, ENGI, SEV, VE, EDP, EDPR, GAS, IBE, RWE, EON, ENEL, CNA, and NG all have material business interests outside their country of listing, but it is those with £ exposure that matter. There will be short term hedging in place and longer term hedging via borrowing in local currencies, but in simplistic terms the exposure is as follows.

 • Exposed to £ weakness - IBE, EDF, VIE, SEV, RWE, E.ON  • Exposed to £ strength - NG, CNA

Interest rate/yield impacts From an interest rate perspective/flight to quality, the regulateds should do well, a positive for NG, and the UK waters which should outperform the UK benchmark.

The European regulateds also have their merits, but these being in Spain/Italy, there could be concern about periphery risk. The greatest exposure in this respect would appear to be EDP, and by implication EDPR, albeit that the latter has relatively low exposure to Portugal. SSE could suffer from Scottish uncertainty, while Sunday's Spanish election also adds to uncertainty if another Scottish referendum vote comes back on the agenda.

Commodities As for power prices, the impact on the continent is from $/€, so the moves may not be too marked. In the UK, Drax may benefit if the UK now moves to change carbon taxes and if EU approval is no longer needed on the FiD enabling CfD.

Conclusion There is likely to be a flight to safety in the market overall and that should be a relative benefit to the utility sector versus the broader market. Within the sector we would also expect regulateds to outperform the unregulated names.

June 24, 2016 28 Brexit: macro and sector implications

North American macro implication

June 24, 2016 29 Brexit: macro and sector implications

US Investment Strategy RBC Capital Markets, LLC Jonathan Golub, CFA (Chief Equity Strategist) | (212) 618-7634 |[email protected]

Unhappy but Not Unruly Monitoring Market Stress Post-Brexit Given today’s news out of the U.K., investors are attempting to quantify its impact on capital markets. We believe it is critical to have a dispassionate framework for contextualizing the fallout from this — or any other — macro shock. Several months ago, we introduced a series of risk dashboards specifically for this purpose. Please see exhibits 1-4.

A review of the data indicates that markets might be unhappy but are not unruly. While U.S. Treasury yields are down meaningfully (along with global bank stocks) the impact on U.S. equities at this point appears to be contained with the S&P 500 down 2.9% today (just 1.6% over the past 2 days).

Volatility has risen on this event, however, the VIX at 22.3 is meaningfully below its February level and that experienced during previous periods of market stress. Similarly, credit spreads are modestly wider but well below stressed levels, such as around the U.S. debt downgrade. Bank CDS and implied volatility for non-U.K. asset classes appear well within normal ranges. Only the British Pound and select U.K. / European Banks are showing signs of stress.

Stock Leadership Going Forward We believe that the outperformance of low-P/E stocks that characterized the market in the first half of 2016 is now behind us, and that Stable Growers will re-assert their leadership. Exhibits 6-7 on pages 5-6 contain a list of 50 such companies that we believe will outperform based on this theme.

In the past, we have made the case for extending portfolio risk during periods of heightened volatility. See exhibit 5 on page 4 for details. While there will be opportunities to re-allocate portfolios as the result of current turmoil, we believe that investing on this dip will result in only modest upside given the limited pullback that has occurred thus far.

Exhibit 8: VIX

90  Financial Crisis Brexit 75 European Debt U.S. Debt Global 60 Crisis Downgrade Growth  Concerns Bear  45 Stearns China Concerns   30

15

0 07 09 11 13 15

Source: CBOE, Haver, and RBC Capital Markets

June 24, 2016 30 Brexit: macro and sector implications

Bank CDS Exhibit 9: Sovereign Risk (CDS)

Stressed Periods Normal Periods Financial European U.S. Debt Summer Fall Fall Current 1 Day Ago 3 Mo. Ago Crisis Debt Crisis Downgrade 2014 2006 2003 U.S. 1.6 1.6 1.6 n.a. 3.2 4.2 1.2 n.a. n.a. Core Europe 2.5 2.3 2.4 2.8 3.5 4.8 2.2 1.5 1.6 France 2.5 2.3 2.3 2.4 3.1 5.0 2.3 1.6 1.7 Germany 2.4 2.2 2.3 2.7 3.2 4.8 2.3 1.6 1.7 U.K. 2.2 2.0 2.1 2.9 3.7 3.5 1.4 n.a. n.a. Peripheral Europe 2.7 2.6 2.5 2.1 3.1 5.0 2.2 1.7 1.7 Italy 2.7 2.6 2.5 2.3 3.3 4.9 2.2 1.6 1.6 Portugal 2.8 2.7 2.6 2.0 2.8 5.0 2.3 1.7 1.8 Spain 2.5 2.3 2.3 2.1 3.4 4.6 2.1 1.6 n.a. Emerging Markets 3.3 3.2 3.7 4.3 2.2 2.4 2.2 1.5 4.6 Brazil 3.2 3.2 3.7 3.2 1.9 2.1 2.0 1.9 5.0 China 3.7 3.5 3.7 4.4 2.8 3.5 2.6 1.3 1.4 Russia 2.9 2.7 3.1 4.6 2.4 2.5 2.4 1.5 2.8

Legend: Least Stressed Most Stressed

Source: Source: Bloomberg and RBC Capital Markets Note: Z-Score of 30-day CDS movement scaled 0-5; 0 least stressed / 5 most stressed

Exhibit 10: Bank Risk (CDS)

Stressed Periods Normal Periods Financial European U.S. Debt Summer Fall Fall Current 1 Day Ago 3 Mo. Ago Crisis Debt Crisis Downgrade 2014 2006 2003 U.S. Money Center Banks 2.4 2.2 2.4 3.9 3.2 4.0 2.0 1.4 1.6 Bank of America 2.4 2.3 2.5 2.8 3.1 4.8 2.1 1.4 1.6 Citi 2.3 2.3 2.4 3.1 3.1 3.4 2.1 1.6 1.7 Goldman Sachs 2.3 2.0 2.5 4.7 3.2 3.8 2.0 1.4 1.6 JP Morgan 2.7 2.4 2.7 3.8 3.5 4.0 2.2 1.1 1.6 Morgan Stanley 2.4 2.2 2.3 4.5 3.2 3.7 1.9 1.6 1.7 Eur. Money Center Banks 3.2 2.9 3.3 2.9 3.7 4.6 2.3 1.3 1.4 Barclays 2.7 2.7 3.2 3.1 3.8 5.0 2.2 1.3 1.4 BNP Paribas 2.6 2.4 2.7 2.3 3.2 4.8 2.5 1.5 1.6 Deutsche Bank 4.5 4.0 4.5 2.4 4.1 4.4 2.4 1.3 1.4 HSBC 3.8 3.1 3.6 3.2 3.6 4.0 2.2 1.2 1.4 UBS 2.5 2.5 2.5 3.4 3.8 4.3 2.1 1.4 1.5

Legend: Least Stressed Most Stressed

Source: Bloomberg and RBC Capital Markets Note: Z-Score of 30-day CDS movement scaled 0-5; 0 least stressed / 5 most stressed

June 24, 2016 31 Brexit: macro and sector implications

Implied Volatility Exhibit 11: Asset Class Volatility

Stressed Periods Normal Periods Financial European U.S. Debt Summer Fall Fall Current 1 Day Ago 3 Mo. Ago Crisis Debt Crisis Downgrade 2014 2006 2003 Equities S&P 500 (VIX) 1.9 1.6 1.4 4.1 2.4 2.8 1.2 1.3 1.9 EuroStoxx (V2X) 2.3 2.1 1.7 3.4 2.3 2.9 1.2 1.3 2.2 Fixed Income US 10 Year 1.6 1.6 1.4 2.9 2.1 2.0 1.2 1.2 2.5 Commodities WTI 1.9 1.8 2.0 3.4 1.9 2.1 1.0 n.a. n.a. Gold 1.8 1.7 1.5 3.8 1.7 2.6 1.2 2.0 1.8 Currencies Euro/Dollar 2.2 1.8 1.5 3.9 2.7 2.7 0.8 1.1 2.0 Dollar/Yen 2.5 1.9 1.5 3.8 2.2 1.7 0.9 1.1 2.0 Pound/Dollar 3.9 3.2 1.9 4.5 2.8 2.3 1.0 1.3 1.9

Legend: Least Stressed Most Stressed

Source: CBOE, Bloomberg and RBC Capital Markets Note: Z-Score of 30-day at the money implied volatility scaled 0-5; 0 least stressed / 5 most stressed

June 24, 2016 32 Brexit: macro and sector implications

VIX/Volatility Exhibit 12: Stock Performance at VIX Levels (%)

S&P 500 Russell 2000 When VIX > 25 Return Annualized Return Annualized Stocks tend to perform best Subsequent 2 months 3.2 20.7 3.5 23.2 when volatility declines from Subsequent 3 months 4.3 18.4 5.4 23.5 elevated levels When VIX > 20 Subsequent 2 months 1.7 10.6 2.4 15.2 Subsequent 3 months 2.3 9.6 3.4 14.5 When VIX > 15 Subsequent 2 months 1.3 8.2 1.7 10.8 Subsequent 3 months 1.9 7.8 2.5 10.3 Source: CBOE, S&P, Russell, Haver, and RBC Capital Markets Note: Since 1/1/91

Stable Growers Exhibit 13: Stable Growth Basket (1 of 2)

Forward Earnings Earnings Earnings 1-Year Price

Ticker Company Stability (%) Visibility (%) Growth (%) Volatility (%)

S&P 500 6.4 13.0 6.8 1.4 Stable Growth Portfolio 2.7 5.7 7.2 0.9 Staples CHD Church & Dwight 1.9 2.7 6.0 0.9 CL Colgate-Palmolive 0.5 5.5 3.9 0.9 CVS CVS Caremark 1.2 3.8 12.8 1.0 K Kellogg 2.7 4.4 6.0 1.0 MO Altria 2.7 1.9 9.0 0.9 The methodology behind PEP PepsiCo 5.7 5.0 5.4 0.8 our Stable Growth Portfolio PG Procter & Gamble 5.2 7.0 7.5 0.8 is laid out in our April note PM Philip Morris 7.6 5.4 4.5 0.9 entitled Stable Growers - Health Care Positioned for Success BCR C. R. Bard 3.6 14.1 11.1 0.9 BDX Becton, Dickinson 4.7 5.7 13.1 0.9 DGX Quest Diagnostics 0.9 4.3 6.5 0.8 DVA DaVita HealthCare 4.0 9.8 6.7 0.9

HSIC Henry Schein 2.2 2.8 11.0 1.0 JNJ Johnson & Johnson 2.1 4.1 6.3 0.5 LH Laboratory of America 1.7 4.5 10.7 0.9 MDT Medtronic 1.1 5.1 7.8 0.9 MRK Merck 4.3 9.1 2.4 0.9 SYK Stryker 2.1 5.7 11.7 0.8 TMO Thermo Fisher 2.0 3.4 10.3 0.9 UNH UnitedHealth 1.9 5.8 18.1 0.9 ZBH Zimmer Biomet 3.5 6.5 12.9 0.8 Financials AFL Aflac 4.8 8.0 6.0 0.8 AON Aon 3.0 10.3 8.4 0.9 MMC Marsh & McLennan 2.8 5.3 11.2 0.7 TMK Torchmark 1.6 3.4 6.1 0.9 Note: Stable Growth Basket ex-REITs & Utilities; Stability, Visibility, and Volatility are median, Dividend Yield, P/E, and Earnings Growth are actual Source: S&P, Thomson Financial, Compustat, FactSet, and RBC Capital Markets Note: As of 5/31/16

June 24, 2016 33 Brexit: macro and sector implications

Stable Growers Exhibit 14: Stable Growth Basket (2 of 2)

Forward Earnings Earnings Earnings 1-Year Price Ticker Company Stability (%) Visibility (%) Growth (%) Volatility (%) S&P 500 6.4 13.0 6.8 1.4 Stable Growth Portfolio 2.7 5.7 7.2 0.9 Industrials CTAS Cintas 4.6 8.5 7.3 0.9 DHR Danaher 2.5 14.6 11.6 0.8 HON Honeywell 1.8 4.3 9.1 0.8 ITW Illinois Tool Works 2.0 2.7 8.4 0.8 LMT Lockheed Martin 3.7 7.1 12.5 0.8 MMM 3M 3.1 5.6 8.7 0.7 NLSN Nielsen 2.1 6.2 10.0 0.9 RSG Republic Services 2.1 5.0 6.4 1.0 RTN Raytheon Company 2.7 4.7 8.2 0.8 UPS UPS 5.8 5.0 7.1 0.7 UTX United Technologies 5.0 5.7 5.3 0.8 VRSK Verisk Analytics 9.3 9.8 4.6 0.8 WM Waste Management 5.5 7.0 7.7 0.8 XYL Xylem 1.3 7.6 10.8 0.9 Discretionary CMCSA Comcast 3.3 9.1 9.7 0.9 MCD McDonald's 5.9 9.0 11.5 0.8 OMC Omnicom Group 2.6 3.9 8.3 0.7 Technology ADP Auto Data Process 3.2 5.0 13.6 0.9 APH Amphenol 3.1 5.8 8.8 0.8 EMC EMC 3.4 30.1 2.0 0.8 MA MasterCard 4.9 8.7 9.0 0.8 Telecom T AT&T 5.5 8.6 5.7 0.8 VZ Verizon 1.7 10.6 0.4 1.0

Materials ECL Ecolab 1.0 7.0 6.5 0.9 PX Praxair 0.6 7.1 1.4 1.0 Note: Stable Growth Basket ex-REITs & Utilities; Stability, Visibility, and Volatility are median, Dividend Yield, P/E, and Earnings Growth are actual Source: S&P, Thomson Financial, Compustat, FactSet, and RBC Capital Markets

June 24, 2016 34 Brexit: macro and sector implications

US Technical Research RBC Capital Markets, LLC Robert Sluymer, CFA (Equity Analyst) | (212) 858-7066 | [email protected]

Market Update Post Brexit – Holding key levels – Long-term Cycle Intact Post Brexit equity markets support-resistance cheat table  Major European and US equity markets have sold-off, but held important technical levels AND have subsequently rebounded relatively strongly from key technical levels.  We had noted that Brexit/Bremain were unforecastable events, BUT the overall technical backdrop for equities remains positive from our perspective.

NOW WHAT? There are 2 main technical points we believe investors should keep in focus during any pending volatility:

1. Don’t lose perspective of the long-term cycle – Our long-term cycle indicators suggest a new upside market cycle began in February with potential to last well into 2017. This should remain a positive trend supporting markets through pending volatility.

2. Intermediate-term indicators, tracking 1-2 quarter shifts, were already becoming oversold/bottoming after peaking in April. While an ‘11th hour’ pullback cannot be ruled out in the coming week (such as today’s current decline), we expect any post Brexit weakness will be short -lived. In our opinion, the risk remains to the upside for equities beyond any short-term noise.

KEY TECHNICAL LEVELS FOR MAJOR EQUITY MARKETS  The table on page 2 provides key levels to monitor for the major European and US indexes over the coming weeks.  Current trading levels are highlighted in blue, while green highlights indicate key support and red next key resistance.  While it’s premature make any conclusive technical statements regarding the next immediate direction of markets, so far most US indexes are holding key levels above first support at 23.6% retracement levels of the Feb-June rally.  Lastly, it often pays to respect the ‘three-day’ rule letting markets digest major negative impacts for at least three days. Think back to last August when the S&P broke 2040 and it wasn’t until the following Tuesday morning before the rebound gained traction.

BOTTOM LINE  We do not believe our longer-term bullish market thesis has been damaged.  In fact, this recent weakness is likely the late stages of an intermediate-term pause/correction that began in April, rather than early stages of an entirely new market decline.

June 24, 2016 35 Brexit: macro and sector implications

Key technical levels post Brexit for major European and US equity indexes STOXX EUROPE 600 (SXXP) FTSE 100 (UKX) GERMAN STOCK INDEX (DAX) This table is a 1-page ‘cheat sheet’ for Description Value % Away Description Value % Away Description Value % Away European and US equity indexes post All-time High 415.18 28.51% All-time High 7122.74 15.60% All-time High 12390.75 29.56% Brexit. July 2015 High 408.73 26.51% July 2015 High 6813.41 10.58% July 2015 High 11802.37 23.41% April High 351.51 8.80% April High 6427.32 4.31% April High 10474.38 9.53% Major equity markets remain locked in 200-dma 348.18 7.77% June High 6380.58 3.55% June High 10340.84 8.13% narrow ranges between April-June June High 348.16 7.77% 23.6% Fib 6208.36 0.76% 200-dma 10079.99 5.40% highs and May-June lows. 50-dma 339.76 5.17% 50-dma 6207.82 0.75% 23.6% Fib 10064.27 5.24% 23.6% Fib 337.41 4.44% Current 6161.69 0.00% 50-dma 10052.34 5.11% Resistance: The April-June highs remain 100-dma 336.01 4.00% 200-dma 6148.45 -0.21% 100-dma 9824.64 2.73% key resistance for most indexes. 38.2% Fib 330.75 2.38% 100-dma 6125.63 -0.59% 38.2% Fib 9803.42 2.51% Support: The 50-61.8% retracement 50% Fib 325.37 0.71% 38.2% Fib 6072.90 -1.44% 50% Fib 9592.60 0.31% level in Europe and the May lows for Current 323.07 0.00% 50% Fib 5963.41 -3.22% Current 9563.39 0.00% the US. 61.8% Fib 320.00 -0.95% 61.8% Fib 5853.93 -4.99% 61.8% Fib 9381.78 -1.90% June Lows 315.36 -2.39% June Lows 5788.74 -6.05% June Lows 9226.15 -3.53% 2016 Lows 302.59 -6.34% 2016 Lows 5499.51 -10.75% 2016 Lows 8699.29 -9.04%

S&P 500 Dow Industrials NASDAQ RUSSELL 2000 Description Value % Away Description Value % Away Description Value % Away Description Value % Away All-time High 2134.72 3.79% All-time High 18351.36 4.55% All-time High 5231.94 9.98% All-time High 1296.00 14.04% July 2015 High 2132.82 3.70% April High 18167.63 3.51% December High 5176.77 8.82% July 2015 High 1275.90 12.27% June High 2120.55 3.10% July 2015 High 18137.12 3.33% June High 4980.14 4.69% June High 1190.17 4.73% April High 2111.05 2.64% June High 18016.00 2.64% April High 4969.32 4.46% April High 1156.07 1.73% 50-dma 2080.77 1.16% 50-dma 17802.96 1.43% 50-dma 4851.73 1.99% 50-dma 1139.36 0.26% Current 2056.82 0.00% Current 17552.27 0.00% 200-dma 4819.75 1.32% Current 1136.46 0.00% 23.6% Fib 2047.28 -0.46% 23.6% Fib 17526.40 -0.15% 23.6% Fib 4798.33 0.87% 23.6% Fib 1131.86 -0.40% 100-dma 2031.97 -1.21% 100-dma 17394.98 -0.90% 100-dma 4757.52 0.01% 200-dma 1114.91 -1.90% May Lows 2025.91 -1.50% May Lows 17331.07 -1.26% Current 4757.10 0.00% 100-dma 1097.89 -3.39% 200-dma 2020.33 -1.77% 200-dma 17229.68 -1.84% 38.2% Fib 4685.85 -1.50% 38.2% Fib 1095.79 -3.58% 38.2% Fib 2001.96 -2.67% 38.2% Fib 17129.71 -2.41% May Lows 4678.38 -1.65% May Lows 1085.94 -4.44% 50% Fib 1965.33 -4.45% 50% Fib 16809.10 -4.23% 50% Fib 4594.95 -3.41% 50% Fib 1066.63 -6.14% 61.8% Fib 1928.69 -6.23% 61.8% Fib 16488.48 -6.06% 61.8% Fib 4504.04 -5.32% 61.8% Fib 1037.48 -8.71% 2016 Lows 1810.10 -12.00% 2016 Lows 15450.56 -11.97% 2016 Lows 4209.76 -11.51% 2016 Lows 943.10 -17.01% Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 36 Brexit: macro and sector implications

Stoxx Europe 600 – Resistance: May ‘16, 12/29/15 highs (351, 370) – Support: 318/315

415.18 408.73 Bouncing from next support near a 61.8% retracement of the Feb-June rally

387.43

369.68

200-dma 348.18 351.51

327.08

318.49 315.36

302.48 302.59

Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 37 Brexit: macro and sector implications

FTSE 100 – Resistance: Oct-April highs (6427-6487) – Support: ~5900

7122.74 7069.73

6873.43

6764.82

Rebound is now well above key support at the May lows

6487.89 6447.34 6427.32 6380.58 6430.36

6050.21

5877.08 5871.88 5845.55

5768.22 5788.74

5639.88

5536.97

Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 38 Brexit: macro and sector implications

DAX – Resistance: April 2016, 12/29/15 highs (10474, 10860) – Support: 9485, 9125

12390.75

11920.31 Testing (and bouncing from) lower end 11802.37 of initial support near a 50% 11669.86 retracement levels 11430.87

10860.14

10474.38 10365.24 10340.84

9737

9484.75

9325.05 9226.15

9125.19

8699.29

8354.97

Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 39 Brexit: macro and sector implications

S&P 500 – Resistance: June ’16 & May ‘15 highs (2120, 2135) – Support: 2025, 2000/1990

2134.72 2132.82 2120.55 2116.48 2111.05

2050.37 2020.86 2025.91 2019.39

1993.26 1969.25 First key support 1947.20 band ~2025

Second key support ~1990-2000 1867.01 1871.91

1820.66 1812

Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 40 Brexit: macro and sector implications

Dow – Resistance: April ‘16, May ‘15 highs (18167, 18351) – Support: 17500,17000

18351.36 18181.67 18167.63 18137.12 18016 12977.85

17471.29 17331.07 16639.43

17116.73

16511 First key support band ~17500

Second key support ~17000

15855.12

15503.01

15370.33 15450.56

Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 41 Brexit: macro and sector implications

Nasdaq – Resistance: June ‘16, 12/29/15 highs (4980, 5117) – Support: 4680, 4600

5231.94 4980 then ~5117 next key levels 5176.77

5116.99

4969.32 4980.14

4678.38

4607.99

4487.86 4425.72

4292.14

4209.76 First key support band ~4680 4116.60

Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 42 Brexit: macro and sector implications

Russell 2000 – Resistance: June ‘16, Dec ‘15 highs (1190-1205) – Support: 1085/1090, 1066

1296 1278.63 1275.99

March-July 2014 First key support band ~1133 trading range then 1090 highs =1214 1205.08 1194 1190.17

1156.07

1133.10 1108.76 v 1107.31 1102.58 1085.95 1078.63

1040.47

943.10

Source: RBC Capital Markets Trend & Cycle, Bloomberg

June 24, 2016 43 Brexit: macro and sector implications

Commodity Strategy RBC Capital Markets, LLC Helima Croft (Head of Commodity Strategy) | (212) 618-7798 | [email protected] Michael Tran (Commodity Strategist) | (212) 266-4020 | [email protected] Christopher Louney (Commodity Strategist) | (212) 437-1925 | [email protected]

For Required Fixed Income & Currency Strategy Disclosures, please see page 122. Post-Brexit – Keep Calm and Carry On Despite the broader macro risk-off/safe-haven trade in the wake of the Brexit vote, we retain our conviction that crude will trend higher in the balance of the 2016 because of improving fundamentals. We believe that the selloff will be limited in duration and that the floor remains quite firm with US production down significantly, unplanned outages on the rise (as fragile sovereign producers reach their breaking points), and the demand picture will remain constructive. Fears about a strong dollar weighing on crude prices could reach a fever pitch in the coming days, but ultimately we believe that supply and demand fundamentals will still drive the oil bus. On the other hand, we believe that there remains limited price upside for gold from current levels after today’s safe-haven driven jump higher. Once the Brexit headlines and media commentary has been fully digested, gold will have to contend with a strong dollar and will likely refocus on global monetary policy (namely the Fed) for the remainder of 2016. Overall, as the commodities complex chews through the news headlines, we are of the view that the market will calm and that the existing drivers across energy and metals will carry on.

Exhibit 15: Oil: Keep Calm and Carry Up

52 Intraday Brent prices ($/bbl) Sentiment in energy as an asset class remains fragile and the oil market was clearly not spared from the carnage overnight 51 as correlations habitually tighten whenever there is fear in the market. While we remain steadfast in our view that WTI will 50 average $55.50/bbl in the second half of this year, near term 49 oil prices will remain choppy as improving physical fundamentals clash with macro-based fear stemming from the 48 paper trade. The financialization of the oil market has continued to attract participation from non-commodity 47 traders, who can, at times, crowd trades, alter sentiment and increase volatility, particularly as energy as an asset class 46 becomes roped into a broader based macro trade. Physical oil 45 fundamentals will retake the narrative once the short-term 06/21/2016 06/22/2016 06/23/2016 06/24/2016 macro-driven volatility is absorbed by the market. We expect 20:00 12:23 6:39 0:55 dips to be buying opportunities as we head into the back half of the year based on fundamentals rather than fear.

Note: Prices as approximately 9:30am Eastern Standard Time. Source (all): Bloomberg, RBC Capital Markets

June 24, 2016 44 Brexit: macro and sector implications

Exhibit 16: Gold: Keep Calm and Carry Down

1380 As mentioned yesterday, a remain scenario was partially Intraday Gold prices ($/oz) priced into gold thus presenting sizable upside risk in a Brexit scenario. We said that in such a scenario, gold would test at 1340 least YTD highs, and with prices now substantially above $1300/oz, the upside from here looks limited. Brexit was the biggest near-term unknown and with this uncertainty gone, 1300 the legs to carry gold ever higher are simply not there. Gold has served its purpose as a risk hedge, but now that we are 1260 on the other side of the vote and once the media headlines have been fully digested, gold will at least temporarily forget about the political risk that abounds and will refocus on 1220 global monetary policy (namely the Fed) for the balance of 2016. With a strong dollar hurdle and an eventual turn in 1180 monetary policy, we would sell into this rally as the potential 06/21/2016 06/22/2016 06/23/2016 06/24/2016 for an additional leg higher looks limited absent another 17:00 11:29 6:20 0:49 unexpected risk-off event.

Note: Prices as approximately 9:30am Eastern Standard Time. Source (all): Bloomberg, RBC Capital Markets

June 24, 2016 45 Brexit: macro and sector implications

Canadian Macro Musings RBC Dominion Securities Inc. Mark Chandler (Head of Canadian FIC Strategy) | (416) 842-6388 | [email protected] Simon Deeley (Fixed Income Strategist)| (416) 842-6362 | [email protected] RBC Paul Ferley (Assistant Chief Economist) | (416) 974-7231 | [email protected] Nathan Janzen (Senior Economist) (416) 974-0579 | [email protected]

Britain bids “cheerio” The U.K. decision to leave the European Union dominated any domestic considerations this week - and maybe this year for that matter – and the focus for the next several weeks will be on the implications for Canada. The implications will be addressed in the BoC’s revised forecasts when the MPR is released on July 13th. It is worth noting that the Bank’s decision comes one day before the next scheduled rate decision by the BoE. RBC Economics has released an initial assessment of the impact on the Canadian economy, stressing the somewhat limited direct effects through trade and financial investment channels, while our European colleagues warned that the potential negative impact on peripheral European bond markets may be under-appreciated. In the near-term, risks to Canada are tied to the expected impact on financial conditions and financial stability while, in the medium-term, the impact on consumer confidence/business capital spending is more significant.

With the Bank of Canada already slated to be on hold for an extended period – our base-case favoured the first hike to come around mid-2017 – odds are shifting in favour of a later start date for any prospective tightening cycle. Further out the yield curve, the prospect of more political uncertainty in the Euro-area, weaker “animal spirits” in that region and elsewhere and possibly weaker commodity prices places downside risk to our current forecasts for longer-term yields. One thing to watch will be to what degree these factors – and a potentially stronger, trade-weighted USD – weighs on U.S. industrial production and, by extension, Canadian non-energy exports (see chart below).

Political events can work in a similar, indirect fashion. Although a Liberal majority is ensconced in Ottawa for the next four years and things are relatively quiet on the provincial front, narrowly defined “political uncertainty” is still an issue. The chart below shows a newspaper-based measure – which doesn’t distinguish between domestic and international elements – still at elevated levels even before this week’s events.1 If the BoC is vexed at the lack of capital spending outside of the energy sector, this could be one reason. Capital spending and hiring intentions in the July 4th Business Outlook Survey might have proven an important signpost ahead of the MPR but – with survey responses coming pre-Brexit – the impact may now be somewhat limited.

Exhibit 17: International influences comes home to roost

CDN Political-Related Uncertainty Index U.S ind. prod & CA exports 450 20 400 15 % Y/Y growth 350 10 300 5 0 250 -5 200 -10 Non-Energy Goods 150 -15 Exports 100 -20 U.S. Industrial 50 -25 Corr = 0.86 production 0 -30 06 07 08 09 10 11 12 13 14 15 16 Sources: Statisics Canada, Baker, Bloom & Davis, Bloomberg, RBC Capital Markets See “Measuring Economic Policy Uncertainty” by Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com.

June 24, 2016 46 Brexit: macro and sector implications

Canadian Investment Strategy RBC Dominion Securities Inc. Matthew Barasch, CFA (Canadian Equity Strategist) | (416) 842- 7857 | [email protected]

For Required Non-U.S. Analyst and Conflicts Disclosures, please see page 120. The U.K. opts for Brexit What’s the near-term impact on the TSX and its major sectors and sub-sectors? Key Points  With Brexit now appearing to be a reality, we take a brief look at the major sectors and sub-sectors in the S&P/TSX and gauge the potential near-term impact of last night’s surprising vote.  While we don’t think there are many recent historic parallels that fit the events of last night, we believe that the U.S. debt downgrade by S&P in 2011 might offer some guidance as to the impact on stocks.  We believe that although direct exposure to the U.K. and Europe is not significant for the Canadian banks and Lifecos, the potential sharp decline in global bond yields and fears over financial contagion are likely to weigh on shares.  Energy and Materials stocks (ex-gold) are likely to get hit hard as most commodities react negatively to U.S. dollar strength and concerns over global growth. Add to this the high beta nature of many of the names and we would not be surprised to see significant near-term weakness.  Defensive sectors such as Utilities, Telecom, REITs and Consumer Staples could see positive fund flows as investors look for places to hide.  Gold and gold stocks should also be beneficiaries as concerns over Brexit-contagion take hold.  We re-run our list of 50 Canadian companies broken down by sector that generated at least 10% of their revenues in fiscal 2015 from the U.K. and Europe.

Brexit appears to be a reality Yesterday, we published a brief snapshot of those companies in Canada that generated more than 10% of their revenue from the U.K. and Europe.

In the wake of the surprising vote by the U.K. to leave the Eurozone, we thought we would re-run this table and offer some brief thoughts on the potential impact to some of the larger sub-sectors of the S&P/TSX.

Before we get into this, we would recommend reading RBC Capital Markets’ in-depth piece on the potential impact of Brexit. Some of the key points are:

 A potential rate cut from the U.K. towards zero;  A potential contraction of U.K. GDP on the order of 2-4% over the next three years;  A potential drop of 10-15% in the Sterling (the pound hit 30-year lows overnight against the U.S. dollar)  Significant equity market weakness caused by: 1) Sterling weakness; 2) loss of single market access; and 3) an economic downturn.

Impact on the S&P/TSX In general, we expect the TSX to trade lower on the Brexit news along with other global markets. On a relative basis, we expect the TSX to underperform the S&P 500 largely because of the significant commodity exposure of the TSX. The challenge from our lens in making a

June 24, 2016 47 Brexit: macro and sector implications

call on how deep the impact could be is the lack of historic parallels for this sort of thing. While we have had several "near-misses" over the past 7 years, this situation is clearly "a hit" and thus extrapolating from Grexit or the other issues that have come at the market since the Financial Crisis would not necessarily be instructive in our view.

The U.S. debt downgrade by S&P in August of 2011 may offer the best historic parallel as that was not a near miss (although in the long run it appears not to have had a lasting impact). In that instance, the TSX traded down about 13% over a short period of time and lost about 10% for the year.

We would caution that while the U.S. debt downgrade may offer the best recent historic parallel it is hardly an apples-to-apples comparison and we would not be surprised if Brexit differed significantly in its ultimate impact on the market. That said, we find it somewhat instructive to trace how the TSX and some of its sectors and sub-sectors performed in the lead up to and in the wake of the U.S. debt downgrade.

Exhibit 18: The U.S. debt downgrade hit markets hard in 2011

Rebased to 100 (in local currency terms) 110

105

100

95

90

85

80 12/2010 03/2011 06/2011 09/2011

S&P/TSX S&P 500

Source: Bloomberg Sector thoughts

In general, we expect fund flows to shift toward defensive areas of the market, while beta plays are likely to face near-term outflows. Making this potentially more acute is the sharp rally over the past few months in some of the higher beta areas of the market.

Likely to be negatively impacted The Banks: The Canadian banks have limited direct exposure to the U.K and Europe; however, they are likely to be negatively impacted in two ways:

1. Interest rates are likely to fall in the wake of Brexit, compressing net interest margins;

2. Fears over financial contagion and potentially further exits from the Eurozone could take hold for a time.

Lifecos: Direct exposure across the group is generally low save for Great West Life (GWO). However, lower interest rates would be negative for the Lifecos and thus we would expect some weakness outside of the normal market noise.

June 24, 2016 48 Brexit: macro and sector implications

Exhibit 19: During 2011, the Canadian banks and Lifecos fell sharply peak to trough

Rebased to 100

120

110

100

90 Peak to trough decline 80 Banks: 21% Lifecos: 37% 70

60 12/2010 03/2011 06/2011 09/2011 Banks Lifecos

Source: Bloomberg

Energy producers: Direct exposure to the U.K. and Europe is low; however, the combination of a stronger U.S. dollar and potential concerns over global growth are likely to weigh on commodities at least in the near term. We would add that E&Ps have been strong performers in recent months, which could contribute to losses in the near term.

Materials (ex-gold): Similar to energy, the negative correlation of most commodity prices to the U.S. dollar coupled with the higher beta nature of the group could potentially lead to a sharp pullback in shares.

Exhibit 20: E&Ps and Base Metals fell sharply in 2011

Rebased to 100

120 Peak to trough decline 110 E&P's: 36% Base Metals: 40% 100

90

80

70

60 12/2010 03/2011 06/2011 09/2011 E&Ps Base Metals

Source: Bloomberg

Auto Parts: In addition to their economic sensitivity, we would note that both Magna (MG) and Linamar (LNR) have significant direct exposure to Europe and the U.K. (see Exhibit 5).

June 24, 2016 49 Brexit: macro and sector implications

Rails: To the extent that global economic activity is negatively impacted by Brexit, rail shares could come under pressure. RBC Capital Markets believes that growth in the U.K. could be 2- 4% lower over the next 3 years as a result of Brexit. While this would take some time to play out and the direct exposure of the rails to Europe or the U.K. is minimal, negative sentiment toward the global economy could be transmitted through share values in the near term.

Potential for positive fund flows Utilities/REITs/Telecom/Consumer Staples: Investors are likely to seek places to hide in the near-term and these sectors are likely to see some benefit. Lower rates should help flows into the more rate-sensitive sectors, while Consumer Staples have become the go-to defensive group for Canadian portfolios over the past few years.

Exhibit 21: “Defense” reigned supreme in 2011

Rebased to 100

120

115

110

105

100

95

90 12/2010 03/2011 06/2011 09/2011 Staples Utilities Telecom REITs

Source: Bloomberg

Gold: Gold was up sharply in the overnight and we would not be surprised to see further strength in the near-term as contagion fears take hold. Gold briefly crossed over $1,300 per ounce on June 15th when Brexit fears were greatest, before trading sharply lower over the ensuing week when fears subsided. With Brexit now apparently a reality, it would not be surprising to see gold challenge its recent highs or even exceed them.

On the next page, we provide a list of 50 companies in RBC Capital Market’s coverage universe broken down by sector that had at least 10% of combined revenues from the U.K. and Europe in fiscal 2015.

June 24, 2016 50 Brexit: macro and sector implications

Exhibit 22: Exposure of RBC CM’s Canadian coverage universe to the U.K. and Europe

% of Revenue from % of Revenue Company Sector Notes U.K. from Europe Brookfield Property Partners LP Financials 23% N/A Taken as % of net equity - hedges would lower to ~10% Brookfield Asset Management Inc Financials 15% N/A Currency hedges may lower exposure. Granite Real Estate Investment Trust Financials 0% 45% Onex Corp Financials <5% 10% Based on Net Asset Value (NAV) of select investments Great West Lifeco Financials 20% 23% Power Corp. and Power Financial Financials N/A N/A Great West represents ~70% of Power Financial's NAV and ~60% of Power Corp.'s NAV Aimia Inc Financials 20% 5% Points International Ltd Financials 5% 10% Colliers International Group Inc Financials 10% 10% Northland Power Inc Utilities 0% 60% Brookfield Infrastructure Partners LP Utilities 20% 10% Indicated amounts are % of pre-tax FFO. Boralex Inc Utilities 0% 45% Just Energy Group Inc Utilities 10% 0% BRP Inc. Consumer Discretionary N/A 19% Linamar Corp Consumer Discretionary N/A 23% Magna International Inc Consumer Discretionary 1% 33% Martinrea International Inc Consumer Discretionary N/A 18% Hudson's Bay Co Consumer Discretionary 0% 33% Dorel Industries Inc Consumer Discretionary 7% 14% Spin Master Corp Consumer Discretionary 5% 14% Performance Sports Group Ltd Consumer Discretionary 2% 15% Thomson Reuters Corp Consumer Discretionary 15% 10% Alimentation Couche-Tard Inc Consumer Staples 1% 25% Concordia Health Care Health Care 40% 10% ATS Automation Tooling Systems Inc Industrials N/A 38% CAE Inc Industrials 11% 20% Lumenpulse Inc Industrials 15% 20% WSP Global Inc Industrials 15% 9% Stantec Inc Industrials 10% 5% Finning International Inc Industrials 15% 2% Air Canada Industrials 6% 6% Approximations based on % of TransAtlantic revenue Bombardier Inc Industrials 10% 30% Avigilon Corp Technology 5% 21% EXFO Inc Technology 4% 22% MacDonald Dettwiler & Associates Ltd Technology N/A 23% Sandvine Corp Technology N/A 36% Enghouse Systems Ltd Technology 18% 43% CGI Group Inc Technology 13% 40% Open Text Corp Technology 10% 24% Mitel Networks Corp Technology 10% 38% BlackBerry Ltd Technology 9% N/A Descartes Systems Group Inc/The Technology N/A 37% Constellation Software Inc/Canada Technology N/A 29% Sierra Wireless Inc Technology N/A 19% Inter Pipeline Ltd Energy 6% 7% ShawCor Ltd Energy N/A 36% Includes EMAR - Europe, Middle East, Africa and Russia Mercer International Inc Materials <5% 75% Norbord Inc Materials 17% 27% Tembec Inc Materials <10% 30% WestRock Co Materials <8% 15% Source: RBC Capital Markets, Company Reports. Note: N/A indicates a lack of information available to differentiate European geographic breakdown.

June 24, 2016 51 Brexit: macro and sector implications

FIC Technical Strategy - Lines in the Sand RBC Dominion Securities Inc. George Davis, CMT (Chief Technical Analyst) (416) 842-6633 [email protected]

Facing “Breality” Background  On June 21, we published a report entitled Brexit or Bremain? Gauging Direct and Indirect Risks.  As the title infers, our goal was to assess the potential impact of Brexit or Bremain scenarios for key financial instruments from a technical perspective.  Now that the outcome has been decided, we take the opportunity to update our work.  We believe that markets will remain cautious, as uncertainty over exit negotiations (there is a 2-year timeframe that can be extended with a unanimous agreement) causes risk averse sentiment to linger.  This should be bearish for EUR and GBP, but bullish for Gilts and Bunds.  Peripheral spreads are expected to remain under pressure.  The risk off backdrop is also bullish for JPY, CHF and US Treasuries, while it should weigh on CAD.

EU Referendum: Markets caught off-side  Heading into the referendum, we viewed the risks of the outcome as being asymmetric.  This was amplified by improved poll metrics for the “Remain” camp in the week leading up to the referendum.  The bookmaker odds of Brexit never moved above the 50% threshold – until the night of the referendum itself.  Hence, the final result caught the market off-side.  Gold is expected to continue to benefit from unfolding uncertainty.

June 24, 2016 52 Brexit: macro and sector implications

Asymmetric risks materialize as market expectations were caught off-side

Source: Oddschecker, Bloomberg, RBC Capital Markets

 We viewed the risks of the final outcome of the referendum as being asymmetric in nature.  This suggested to us that there would be a more pronounced market response to a Brexit result relative to the status quo of Bremain.  The reduction in the bookmarkers probability of a leave outcome in the week leading up to the vote (see the chart to the left) amplified these risks.  Hence, the market was caught off-side in terms of the final result.

June 24, 2016 53 Brexit: macro and sector implications

FTSE and Euro Stoxx 50 indices hit hard on Brexit outcome

Source: Bloomberg, RBC Capital Markets

 The FTSE (red line) and Euro Stoxx 50 (blue line) equity indices tend to track each other quite well historically.  This relationship is expected to continue as the implications for Brexit are digested and re-priced by the market.  The key thing to remember is that Brexit is not just a UK issue – it is a European issue with global ramifications.  Lingering uncertainty with respect to pending exit negotiations would be expected to have a bearish impact on these two markets.  Bottom line: markets do not like uncertainty and will react accordingly.

June 24, 2016 54 Brexit: macro and sector implications

Gold to benefit from the increase in uncertainty: targets at 1345 and 1392

Key Support & Resistance Levels: Support: 1308 1251 1217 Resistance: 1345 1392 1434

Source: Bloomberg, RBC Capital Markets

 Gold has pierced a triple top at 1308 in response to the Brexit vote fallout.  A daily close above 1308 would confirm a bullish breakout and argue for additional gains in the metal.  This would argue for a re-test of the July 2014 high at 1345, followed by the high for that year at 1392.  We retain a bullish view for gold – with pullbacks to support at 1277 and 1251 expected to attract buying interest.  A close below 1217 would be required to negate the current uptrend.

June 24, 2016 55 Brexit: macro and sector implications

FX & fixed income markets: Direct risks to watch  We classified the risks around the EU referendum as being direct or indirect in nature.  Direct risks are those that have an immediate impact on the financial instruments of the countries involved.  From a FX perspective, this largely revolves around GBP and EUR considerations.  In fixed income, this dynamic certainly involves Gilt and Bund yields, but we also see implications for peripheral spreads.  Given the huge magnitude of the outcome, we examine some key long-term price levels that we believe will be tested as the ramifications of Brexit germinate.

Look for GBP/USD to test the 1.3000 area

Key Support & Resistance Levels: Support: 1.3503 1.3045 1.2515 Resistance: 1.3836 1.4390 1.4865 Source: Bloomberg, RBC Capital Markets

 GBP/USD has rejected the top of a descending channel pattern amidst today’s volatility.  A weekly close below the prior low for the year at 1.3836 would corroborate the bearish backdrop and favour another excursion to the downside.  We expect that a convergence of support comprised of the 2009 low and the channel base near 1.3500 will be tested again in this regard.  A close below 1.3503 would shift the focus down to the overnight low at 1.3229, followed by the September 1985 low at 1.3045.  We note that the latter level is flush with 76.4% retracement of the 1985-2007 advance at 1.3031.  Additional long-term support comes in at 1.2515.  Corrections to resistance at 1.3836 and 1.4390 are expected to attract selling interest based on the broader downtrend that is in place.  A close above the channel top at 1.4865 (far away now but we were there just hours ago) is required to nullify the current downtrend.

June 24, 2016 56 Brexit: macro and sector implications

EU uncertainty expected to push EUR/USD toward the 1.0500 region

Key Support & Resistance Levels: Support: 1.10 1.32 1.52 Resistance: 1.01 0.87 0.75

Source: Bloomberg, RBC Capital Markets

 The UK referendum result also has bearish implications for EUR/USD as uncertainty clouds the outlook for the EU.  We expect prices to close below nearby support at 1.1098 and set the stage for a test of a more important double bottom at 1.0822.  A break below there would leave little in the way of support until the double bottom that formed near 1.0458 in 2015/2016 – and we think that this area will be tested eventually.  Resistance between 1.1416 and a strong area of congestion at 1.1640 is expected to attract selling interest.  A weekly close above 1.1640 would be required to nullify the downside risks that are present.

June 24, 2016 57 Brexit: macro and sector implications

Brexit outcome argues for EUR/GBP to extend gains toward 0.8400 initially

Key Support & Resistance Levels: Support: 0.8117 0.7947 0.7661 Resistance: 0.8177 0.8400 0.8585 Source: Bloomberg, RBC Capital Markets

 While a Brexit scenario had bearish implications for both GBP and EUR, we believed that the impact on GBP would be more pronounced.  This has been reflected in the performance of the EUR/GBP cross, which is about to close above strong congestive resistance at 0.8117 and challenge a long-term resistance trendline at 0.8177.  The resulting bullish breakout above 0.8117 would resolve an inverted head and shoulders reversal pattern to the topside – which we believe will provide enough impetus to allow prices to close above the trendline at 0.8177 as well.  As such, we target additional gains to 0.8400 (the March 2014 high), followed by 0.8585 (the November 2013 high).  Support at 0.7947 and 0.7661 is expected to attract buying interest based on the topside risks that are in place.  A return below the old double top at 0.7483 will be required to nullify the topside risks.

June 24, 2016 58 Brexit: macro and sector implications

Downside risks prevail for Gilt yields after Brexit – look for another run at 1.00

Source: Bloomberg, RBC Capital Markets

 Shifting our gaze over to fixed income markets, the direct implications that the referendum has for GBP presents direct risks for Gilts as well, by association.  We note that Gilt yields are set to close below resistance at 1.10 to end the week.  The resulting breakout would add to bullish momentum, favouring a re-test of today’s low at 1.01.  A close below here would then open up the 0.87/0.90 region on the downside.  Support between 1.23 and 1.32 is expected to attract buying interest now.  Although a return above 1.32 would neutralize the bullish backdrop to a degree, we stress that the trendline at 1.52 will have to be exceeded in order to trigger a full-blown bearish trend reversal.

June 24, 2016 59 Brexit: macro and sector implications

Downside risks also prevail for Bund yields: watch channel base at -0.05 next week

Key Support & Resistance Levels: Support: 0.05 0.11 0.21 Resistance: - 0.05 - 0.17 - 0.25 Source: Bloomberg, RBC Capital Markets

 Bund yields managed to hold above a key descending channel base at -0.05 on a closing basis through today’s carnage.  However, the broader trend remains to the downside - and we expect this level to give way for a re-test of today’s low at -0.17.  Additional resistance levels will be difficult to identify below this secular low, with so- called “round numbers” such as -0.25 and -0.30 serving as anchors for the market.  The bullish backdrop suggests that corrections to support at 0.05 and 0.11 will attract buying interest.  A close above 0.21 will be required in order to neutralize the bullish backdrop.

June 24, 2016 60 Brexit: macro and sector implications

Expect peripheral spreads to stay under pressure: BTP-Bund resistance at 1.62

Key Support & Resistance Levels: Support: 1.53 1.38 1.26 Resistance: 1.62 1.76 1.91 Source: Bloomberg, RBC Capital Markets

 The flight to safety resulting from the Brexit vote has placed peripheral spreads under pressure – and this is expected to continue as question marks hang over the EU.  Using the 10-year BTP-Bund spread as an example of this dynamic, we will be watching resistance at 1.62 very closely next week.  If our view is correct, this level should eventually give way and set the stage for an extension to the October 2014 high at 1.76 as widening momentum increases.  Additional resistance is located above here at 1.91, followed by the 2014 high at 2.26.  Support at 1.53 and 1.38 is expected to attract widening interest.  We stress that the support trendline at 1.26 will have to give way in order to trigger a bearish trend reversal and nullify the widening trend that is currently in place.

June 24, 2016 61 Brexit: macro and sector implications

FX & fixed income markets: Indirect risks to assess  Indirect risks also had an immediate market impact as the results of the referendum became known.  However, we classify such risks as those that impact the financial instruments of countries other than the UK and Eurozone.  One commonality that the indirect risks possess is that they are derived from a deterioration in risk sentiment.  In the FX world, we revisit JPY, CHF and CAD from this perspective.  In fixed income, we take a look at US Treasury yields.

USD/JPY: Look for a re-test of the 100 threshold after this week’s bearish breakout

Key Support & Resistance Levels: Support: 100.76 99.02 96.57 Resistance: 103.81 105.55 107.90 Source: Bloomberg, RBC Capital Markets

 As mentioned in the introduction to this section, risk sentiment is a key driver of the indirect risks that we identify.  In the case of USD/JPY, we note that JPY normally strengthens during periods of risk aversion and vice versa.  Hence, it is not surprising to see the pair trade with an offered tone in response to the Brexit vote.  We note that today’s weekly close below a long-term support trendline at 103.81 favours a re-test of the strong congestive support area bounded by 100.76.  Although today’s low at 99.02 will come into focus below here, we note that there is little in terms of strong support below this level until the October 2013 low at 96.57.  The bearish backdrop resulting from the formation of a topping pattern in February suggests that corrections to resistance at 105.55 and 107.90 will attract selling interest.  A daily close above 109.71 will be required to trigger a bullish trend reversal and nullify the downside risks that are present.

June 24, 2016 62 Brexit: macro and sector implications

Risk off response should cause CHF to firm up

Key Support & Resistance Levels: Support: 0.9476 0.9259 0.9072 Resistance: 0.9956 1.0184 1.0328

Source: Bloomberg, RBC Capital Markets

 We expected that a risk off response to the UK referendum would result in bullish implications for CHF.  However, the downside in USD/CHF has been limited due to SNB intervention.  Regardless, we think that prices will eventually challenge a key double bottom at 0.9476 – with a break below here targeting 0.9259.  Additional support is located at 0.9072.  Moves to resistance at 0.9956 and 1.0184 are expected to attract selling interest based on our bearish view.  A close above 1.0184 would cause us to reassess our view.

June 24, 2016 63 Brexit: macro and sector implications

USD/CAD expected to test resistance at 1.3188 as risk off sentiment dominates

Key Support & Resistance Levels: Support: 1.2747 1.2628 1.2461 Resistance: 1.3047 1.3188 1.3457 Source: Bloomberg, RBC Capital Markets

 The results of the UK referendum have implications for CAD as well in the context of risk sentiment.  Notably, CAD tends to be a pro-cyclical currency that depreciates during periods of risk aversion and vice-versa.  Hence, the risk off response to the Brexit vote argues for USD/CAD to trade higher and test resistance levels at 1.3047 and 1.3188 in the process.  A break above the latter level will be required in order to trigger a bullish breakout and end the current consolidation phase (would open up the 200-dma at 1.3329 and 1.3457 next).  Given the risk off backdrop, pullbacks to support at 1.2747 and 1.2628 are expected to attract buying interest.  A close below the 2016 low at 1.2461 is required to cause us to reassess our bullish stance.

June 24, 2016 64 Brexit: macro and sector implications

Secular low at 1.38 back in view for US 10-year yields

Key Support & Resistance Levels: Support: 1.68 1.82 2.00 Resistance: 1.53 1.38 1.22 Source: Bloomberg, RBC Capital Markets

 Last but not least, US 10-year yields will be impacted by the referendum results as well.  The Brexit outcome has bullish implications for core market bonds in general as it fosters a flight to quality amidst a risk off market response.  This has brought the triple bottom near 1.53 under attack once again.  We anticipate that this level will be taken out on a daily/weekly closing basis, extending the rally to the secular low at 1.38 thereafter.  Additional resistance is located between 1.22/1.25.  Moves to support at 1.68 and 1.82 are expected to attract buying interest in bonds based on the overall downtrend that is in place.  A close above 2.00 will be required to cause us to reassess our view.

June 24, 2016 65 Brexit: macro and sector implications

RBC Economics RBC Craig Wright (Chief Economist) | (416) 974-7457 | [email protected] Dawn Desjardins (Deputy Chief Economist) | (416) 974-6919 | [email protected] Josh Nye (Economist) | (416) 974-3979 | [email protected]

Will Brexit send waves across the Atlantic? Looking at the impact on Canada’s economy of the UK’s vote to “leave” The UK voted for “Brexit” and will likely begin official negotiations to leave the European Union in October.

Highlights  Uncertainty about Single Market access is expected to result in a slow-down in the UK economy, sterling depreciation, and monetary policy stimulus from the Bank of England.  The UK is one of Canada’s top trading and investment partners, however the small relative size of these relationships points to a muted direct effect on Canada’s economy. Knock on effects could weaken the euro area and remaining EU economies with which Canada also has important trade and investment relationships.  A return to risk aversion in financial markets is expected to put downward pressure on oil prices, government bond yields, and the Canadian dollar (relative to USD). In a more severe reaction, upward pressure on periph-eral spreads in the euro area risks replaying the volatility seen during the European debt crisis.  Financial market effects have the potential to exacerbate regional diver-gences within Canada’s economy. A pickup in uncertainty about the global economy also presents a downside risk to the outlook for the Cana-dian economy.  Ratification of CETA, Canada’s free trade agreement with the EU, will likely be delayed amid Brexit negotiations.

Exhibit 23: Sterling vs. USD and CAD

Source: Bloomberg, RBC Economics Research

The UK votes to leave the EU. Yesterday, 23 June 2016, voters in the UK were asked in a referendum: “Should the United Kingdom remain a member of the European Union or leave the European Union?” Preliminary results indicate the UK electorate voted to “leave” by a margin of 52% to 48%. Im-portantly, the “leave” vote will not immediately result in the UK exiting the European Union (so called “Brexit”), as the UK has up to two years or even longer under unanimous agreement to negotiate a withdrawal agreement during which EU rules

June 24, 2016 66 Brexit: macro and sector implications

will continue to apply. Although the formal Article 50 withdrawal process is not expected to begin until October, it is possible that the cabinet will agree on some informal negotiations being entered into with the EU before that time.

Uncertainty will have a sizeable impact on the UK economy. During the negotiation period there will be considerable uncertainty as to what form the UK-EU relationship will take. The most significant item will be whether the UK will continue to have full access to the EU’s Single Market that allows UK businesses to benefit from the free movement of goods, services, persons and capital throughout the EU. It is likely that uncertainty regarding future access to the Single Market will result in a cyclical downturn in the UK economy. The likely channel would be through postponed investment decisions amid this uncertainty, with knock-on consequences for employment and confidence. That scenario assumes that markets, at least temporarily, discount a scenario in which the UK is a long way from full Single Market access. In the case that the main details of a new framework for UK-EU relations are fleshed out fair-ly quickly, or if it appears the UK will retain significant access to the Single Market, the impact of uncertainty will be more limited.

Knock on effects could be significant for the euro area. The UK is the euro area’s largest export market, accounting for 15% of goods exports that amount to roughly 3% of aggregate euro area GDP. During withdrawal negotiations, while the UK remains an EU member, spillover through the trade channel should be limited to any moderation in demand due to the UK’s economic slow-down. Brexit could have a more disruptive effect on trade flows in the longer run, although the extent of that impact will ultimately depend on the UK’s relationship with the Single Market. More immediately, financial markets could be the most significant source of Brexit spillover. Safe haven flows within Europe are expected to put downward pressure on German government bond yields, but spreads in riskier peripheral economies are likely to widen in a risk off move. A significant tightening in financial conditions in these economies could jeopardize the euro area’s fragile economic recovery. In a more extreme case, if Brexit stokes existential fears about the future of the EU or Eurozone currency union, a replay of the more intense periods of volatility seen during the Euro-pean debt crisis would be a concern.

Sterling depreciation and lower yields are likely in the near term. A broad 10-15% decline in sterling is anticipated over a peri-od of weeks amid expectations for lower growth and easier monetary policy. This currency depreciation is expected to result in a temporary spike higher in inflation as import prices rise. However, over the medium term, inflation is more likely to undershoot the Bank of England’s target as the weak economic performance results in an increase in spare capacity. With monetary policy focusing on the medium term, the BoE is expected to lower the Bank Rate (currently 0.50%) and a new round of quantitative easing under the Asset Purchase Programme (current holdings amount to £375 billion) is possible. These policies are expected to keep downward pressure on government bond yields. Expectations of lower medium term inflation are likely to more than offset upward pressure on yields due to rising risk premia associated with cyclically deteriorating public finances.

Market volatility is likely to spill over into Canada. We expect the Brexit vote will have significant financial market effects in the near term, in addition to sterling depreciation and lower UK rates. The stock market declines that occurred during the week of 13 June, when the “leave” vote began to surge in the polls and bookmakers’ Brexit odds rose, prefaced the flight from risky assets that is likely to occur following the UK’s vote to “leave”. Safe haven flows are likely to put downward pressure on US Treasury yields and upward pressure on the US dollar. Given the Fed’s sensitivity to global economic and financial market developments, rate hikes could be further delayed, putting additional downward pressure on Treasury yields. A risk off move in financial markets and expec-tations of reduced demand for commodities (with the UK economy weakening and greater uncertainty about global growth) June 24, 2016 67 Brexit: macro and sector implications

will likely weigh on commodity prices. Commodities traded in US dollars (for example, WTI crude oil) will also be under downward pressure from USD appreciation. For Canada itself, demand for less risky assets is likely to push Canadian government bond yields lower. While CAD is likely to appreciate against GBP, safe haven flows and lower commodity prices will likely result in the Cana-dian dollar depreciating relative to the US dollar.

The UK is a major trading partner, but makes up a small share of Canada’s exports. Outside of financial market develop-ments, the effects of Brexit on Canada’s economy will be felt through trade and investment channels. The United Kingdom is Cana-da’s fourth largest trading partner in terms of bilateral trade, and third largest export market behind the US and China. However, a closer look reveals that a slowdown in the UK economy is unlikely to make significant waves for Canadian exporters. Canada ex-ported over C$22 billion in goods and services to the UK in 2015, but that represents just 3.5% of total Canadian exports as the US remains by far Canada’s most significant trading partner. A slowdown in the UK economy would be expected to result in reduced UK demand for Canada’s exports, which will be further exacerbated by higher prices for Canadian goods and services in the UK as the Canadian dollar appreciates relative to sterling. While this impact is likely to be felt by Canadian businesses with close ties to the UK market, the overall macroeconomic effect is likely to be negligible given the relatively small share of Canadian exports des-tined for the UK market.

Ontario and Newfoundland & Labrador have the greatest relative trade exposure to the UK. Both provinces sent more than 5% of their total goods exports to the UK in 2015. In the case of Newfoundland & Labrador, crude oil and iron ore made up ¾ of UK exports. While lower prices for these commodities will likely hurt the province’s terms of trade, export volumes should be less significantly impacted. Even if slower growth in the UK economy reduces demand for those goods, other export markets should be readily available for such globally traded commodities. Trade is even more highly concentrated in the case of Ontario, with gold making up ¾ of exports to the UK. In fact, that relationship accounted for over half of all Canadian goods exports to the UK in 2015. It is likely that the majority of Canada’s C$9.4 billion in gold sent to the UK last year was related to the London Bullion Mar-ket, a significant global market for over-the-counter trading in precious metals. These exports are less likely to reflect macroeco-nomic conditions in the UK itself and a flight to safety that boosts demand and prices for gold could have a positive impact on gold exports. In that case, the apparent trading relationship between the UK and Ontario (and even the UK and Canada) likely overstates the potential impact of weaker UK demand. For other provinces, exports to the UK account for roughly 2% or less of total goods exports.

Investment in the UK is small on a relative basis. The UK is the second-most significant destination for foreign direct investment (FDI) by Canadian businesses and investors, although the US continues to receive by far the greatest share of Canada’s outward FDI. As of 2015, Canadian FDI in the UK amounted to C$93 billion, which makes up a non-trivial 9% of total Canadian FDI abroad. The UK is also second only to the US as a destination for portfolio investment by Canadians. The C$103 billion in portfolio investment in the UK (as of 2014, of which C$77 billion is in equity and investment fund shares while C$26 billion is in debt securities) repre-sents 7.5% of total portfolio investment abroad. However, that amounts to less than 1% of total Canadian financial asset holdings, domestic and abroad, of debt and equities. While both FDI and portfolio investment levels are non-trivial at close to $100 billion each, that amounts to just 0.5% of national balance sheet assets.

Lower oil prices and weaker CAD represent more of the same. Falling oil prices and Canadian dollar depreciation would repre-sent a re-emergence of trends seen during the recent oil price shock, which has had a significant impact on Canada’s economy over the last two years. Lower investment spending and layoffs in the oil and gas sector, and the second- June 24, 2016 68 Brexit: macro and sector implications

round effects of those cuts, have resulted in deteriorating economic and labour market conditions in energy-producing provinces. Meanwhile, the accompanying Ca-nadian dollar depreciation (also driven in part by easier monetary policy) provided some offset by boosting the competitiveness of Canada’s non-energy exports to the benefit of provinces like Ontario and British Columbia. At the margin, Brexit-related declines in oil prices and the Canadian dollar could further exacerbate this regional divergence, negatively impacting energy- producing provinc-es but potentially having a net positive effect on non-energy provinces and sectors as long as US demand holds up. However, we expect the magnitude of these price adjustments will be much less significant than during the recent oil price shock, and may not be enough to fully reverse the recent rally in oil prices and CAD.

Brexit-related uncertainty could weigh on Canada’s economy more broadly. Non-energy business investment has been disap-pointingly weak amid concerns about domestic and global economic conditions. A slowdown in the UK economy and potential spillover to EU economies will generate renewed uncertainty about the global outlook and could further discourage investment at a time when there are finally indications that non-energy exporters are gearing up to spend. It is unlikely that second round effects on employment and confidence will result in the type of cyclical downturn expected in the UK; however, to the extent that Brexit uncer-tainty further complicates the already “uneven” rotation in Canada’s economy, the Bank of Canada is likely to keep monetary policy accommodative and maintain a cautious tone in communications. Just as the Fed may be expected to proceed even more gradually in raising interest rates, there is a risk that the Bank of Canada holds the overnight rate steady for longer than previously assumed.

Brexit throws CETA ratification into question. Legal review of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union has been completed and the ratification process is ready to begin. The UK has been a champion of CETA, so the country’s exit from the EU removes an important supporter of the agreement at this crucial juncture. Furthermore, it is possible that remaining EU countries will seek changes to some of some of the terms of the agreement that the UK argued for during negotiations reopening the agreement and returning to the negotiating table would result in significant delays to implementation. The ratification process is also likely to be delayed with EU lawmakers now focusing on Brexit negotiations and putting CETA on the backburner. Overall, Brexit represents a blow to the federal government’s hopes that CETA will come into force in 2017, and creates uncertainty as to whether the agreement will ever be implemented as it currently stands.

June 24, 2016 69 Brexit: macro and sector implications

Weekly Dashboard RBC Capital Markets, LLC Tom Porcelli (Chief US Economist) | (212) 618-7788 |[email protected] Jacob Oubina (Senior US Economist) | (212) 618-7795 | [email protected] Michael Cloherty (Head of US Rates Strategy) | (212) 437-2480 | [email protected]

For Required Fixed Income & Currency Strategy Disclosures, please see page 122. Brexit derails Fed hiking cycle As we flagged leading into the Brexit vote there is no doubt in our mind this outcome derails the Fed hiking cycle. The question now is for how long. In that regard, one of the questions investors need to ask themselves is whether there is enough momentum in the US economic backdrop that will enable inflation to accelerate significantly from here–thus compelling the Fed to raise rates even in the face of the uncertainty taking place across the pond. It seems at present the answer to that is no. Thus on the heels on Brexit, it is low lying fruit to say the Fed is unlikely to hike this year.

We think the extent of the knock-ons from this development to the rest of Europe (i.e. the calls for similar referendums etc.) is going to be a significant factor impacting Fed policy beyond 2016. And the reality is there is no way to know how drawn-out that will be in the coming quarters. We will face a series of elections in Europe that will keep fear about additional countries exiting in the news. Spain will vote this weekend, with the party that supports a referendum on Catalonian independence expected to be in a coalition that forms the main opposition. Italy will have a constitutional referendum by October. Surveys are reporting a significant majority of French would prefer to exit (and the presidential election there is scheduled to occur in April/May 2017). And polls in the Netherlands are neck and neck.

Ultimately, Brexit has introduced the very real possibility that this morphs into a domino effect across the region. So it will be a very long time before all of the potential volatility in Europe is behind us, which means we are likely to be well into 2017 before the Fed has a clear path to continue tightening even if the economy remains solid. In fact, we have officially changed our Fed call and are now looking for the next hike to come in the middle of 2017 at the earliest. While our UST interest rate forecast profile is currently under review, on page 2 we offer our thoughts on some of the more interesting opportunities following the recent price action.

It would seem that the Fed’s “every meeting is live” mantra has been decimated. The market has priced out a hike pretty well indefinitely thus moving the Fed’s forecasted policy path even further away from “reality.” So from here, they will either have to try to force market odds higher (regain the optionality and all of that business) or succumb to a much shallower path. After the debacle in talking up June/July odds, we think the latter is a more likely scenario. Again, they can rely on global “uncertainty” and a strong dollar (feeding back into lower US goods inflation) as lynchpins to their argument for lower for longer.

The one factor (maybe the only factor) we can see spooking the Fed into hiking rates at this point is an inflation scare. Though the extent to which inflation would need to rise to create such a scenario seems like a low probability event at present. Note that even with domestic- sensitive inflation running north of 3% y/y (see ex energy services CPI), the Fed has shown little concern in this regard. And if the dollar strengthens materially from here, the rhetoric out of this Fed will undoubtedly be one that reiterates disinflationary risks.

June 24, 2016 70 Brexit: macro and sector implications

As it relates to the US economic backdrop, any negative spillover from Brexit is unlikely to come via direct economic linkages in the near-term. Instead, the bigger risk is via the financial market channels and any negative feedback into both consumer and business confidence. The US consumer has proven to be extremely resistant to global financial shocks in recent quarters—with real consumption largely uninterrupted even with the early 2016 and mid-2015 equity market downdrafts. So unless we see any shock to the fundamental underpinnings (i.e. jobs and aggregate wages), the likelihood consumer spending slows is low in our view.

The business sector is a different story. Business spending has been muddling along over recent quarters and the latest data on durable goods was yet another reminder of just how vulnerable that sector remains. People are always asking us for the weak link in the US backdrop and we routinely flag this space. Insofar as the prospects for this sector weaken further from here, it would certainly place some pressure on our H2 GDP call, which at present stands around 2.7%.

June 24, 2016 71 Brexit: macro and sector implications

North American sector implications

For Required Non-U.S. Analyst and Conflicts Disclosures, please see page 120.

June 24, 2016 72 Brexit: macro and sector implications

Airfreight & Surface Transportation RBC Capital Markets, LLC John Barnes (Equity Analyst) | (804) 782-4020 | [email protected]

Thoughts on Brexit The Brexit decision and related EU difficulties create an uncertain environment for a handful of carriers in the Airfreight & Surface Transportation sector. However, given that the vast majority of our coverage universe is domestic U.S. oriented, we believe the fallout will be limited to a few select names. Further, with reports circulating (e.g., CNBC) suggesting that the UK may be offered an Associate Partnership with the EU, we believe there will be little disruption in trade flows between the UK and the remainder of the EU. As such, we believe any financial impact will be negligible.

The list below provides a snapshot of the companies in our coverage universe with large European exposure. They include:

 UPS: Generates approximately 20% of its parcel revenue and 25% of its operating income from its international operations and approximately half of each are derived from Europe. Possesses strong market positions in a number of EU countries.  FDX: Historically has enjoyed smaller exposure to Europe than UPS. However, with the acquisition of TNT, this exposure becomes larger and Europe is now viewed as an area of growth for the company. Management recently highlighted that the European road network is the jewel of the acquisition and that likely doesn’t change as long as the remaining members of the EU continue to more broadly integrate trade, border crossings, etc. However, the integration of TNT is likely to be complicated and the uncertainty created by Brexit, coupled with FDX’s management not providing color on the earnings impact of TNT, likely heightens the concern around the name.  EXPD: Generates approximately 14% of net revenue and 8% of operating income from Europe. Europe has historically been a smaller contributor for EXPD than Asia and North America. However, the company’s recently announced strategic plan called for a more aggressive push into Europe. The Brexit decision may complicate this effort in the UK but we believe EXPD will continue with its plans into the remainder of the EU.  GWR: With its recent acquisition of Freightliner, GWR now generates approximately 25% of its revenue and approximately 9% of its operating income from Europe. As with the other carriers, as long as there is little disruption to trade flows between the UK and the remaining EU countries, we believe there is negligible risk in the near term.

Asset Managers RBC Capital Markets, LLC Eric N. Berg (Equity Analyst) | (212) 618-7593 | [email protected] Kenneth S. Lee (Equity Analyst) | (212) 905-5995 | [email protected]

Initial thoughts on Brexit implications With the U.K. voting in a referendum to leave the EU, we have some initial thoughts on implications of Brexit for our coverage. We think Brexit will have broad impact across all of our covered asset managers. First order effects would include a reduction of management fee revenues on US and UK assets should US and UK equity markets decline and remain at lower levels. Second order effect would include a negative impact on earnings due to FX translation due to movement in the GBP.

June 24, 2016 73 Brexit: macro and sector implications

Our asset managers with the most exposure to Brexit include: BlackRock (BLK) (clients domiciled in EMEA region form 30% of AUM); Invesco (13% of AUM for clients domiciled in UK); Franklin (BEN) (16% of AUM for clients domiciled in EMEA); Legg Mason (LM) (37% of AUM for clients domiciled outside the US).

More domestically-oriented asset managers, and thus less exposed to Brexit include: Waddell & Reed (WDR), OM Asset Management (OMAM) (~80% of AUM for US/Americans domiciled clients) and Artisan Partners (APAM).

We note several of our covered US life insurers also have meaningful asset management businesses, including Ameriprise (AMP), Principal (PFG) and Prudential (PRU). We would expect these companies to feel any negative impact from Brexit as well.

We note that while some management teams had said previously the asset managers hedged their exposure to GBP, any such hedging would not mitigate the impact of first order effects.

Finally, for US life insurers, investor flight to safe haven assets, such as US 10Y Treasuries, could drive long-term yields lower and thus negatively impact life insurer earnings. Within our coverage, life insurers perceived by investors as having above-industry-average interest rate exposures include: Lincoln (LNC), MetLife (MET), Voya (VOYA). Autos RBC Capital Markets, LLC Joseph Spak (Equity Analyst) | (212) 428-2364 | [email protected]

Brexit a negative for the sector The Brexit decision and related EU uncertainty is negative for the auto sector. Beyond market risk-off, this decision creates another overhang on the group. We believe European sales and production forecasts will be revised materially lower.

According to the Society of Motor Manufacturers and Traders (SMMT), 77.3% of UK built cars in 2015 were exported with the EU as the top destination (57.5%). Exports from Britain to the EU had been free of tariffs and duties but that may now rise to as much as 10%. While if the GBP weakens labor costs are lower, many parts are imported parts from EU members and could now also be subject to tariffs. Meanwhile, only ~13% of cars sold in the UK are made in the UK. The US is the second largest vehicle market in the (former) EU and imports into the UK may now also be subject to higher tariffs. Further, Brexit uncertainty can stall investment as decisions in the auto industry have long lead times and require long planning periods. Automakers have already called for tariff-free trade to be maintained between Britain and the EU.

 On the OEM side, we believe this is negative for both F and GM.  For the suppliers, we highlight those with higher levels of European exposure (on 2015 revenue): HAR (46%), BWA (38%), LEA (36%), MGA (35%), DLPH (35%), TEN (31%), and ALV (31%), MBLY (32% Europe, though ~12% to Sweden. 13% is to UK). o Further, we believe that UK OE manufacturers such as Jaguar-Land Rover could be more impacted by the decision. Among suppliers who have JLR as a more important customer are LEA (7%) and TEN (4%)  Suppliers who should be relatively better positioned given lower levels of European exposure are AXL (~3% of sales) and MPG (~12%).

June 24, 2016 74 Brexit: macro and sector implications

Biotechnology RBC Capital Markets, LLC Michael J. Yee (Equity Analyst) (415) 633-8522; [email protected]

Brexit/EU uncertainty; noting the sales/currency "exposure" As equity markets are expected to engage in a swift "risk-off" environment based on EU economic uncertainty, we believe it would be helpful to at least understand what if any theoretical (or real) risk there is to estimates and outlook based on the amount of EU exposure the large cap biotechnology companies have and exposure to the UK Pound and Euro currency. However, we expect biotechs to be generally somewhat insulated from EU economic uncertainty and do not believe there should be any material risk or shift in our investment thesis in large cap biotech because: (1) biotechs are providing important life- saving drugs to patients and generally not discretionary products, thus orders and business from EU should broadly continue uninterrupted, (2) biotech has generally little exposure to UK which is a region that has already had lower reimbursement for drugs than the EU or did not reimburse for many drugs, (3) the sector is generally more defensive in nature given less economic sensitivity and elasticity.

Our top large cap idea to buy in a market "sell-off" would be CELG with our view that stock would bounce back on a market recovery. We appreciate that the more "defensive" lower-PE names in a "risk-off" environment would be AMGN (lowest EU sales) and GILD (lowest PE name at 7x and very significant buybacks to support stock).

Where there could be theoretical risk to consider would be: (1) if there would be order disruption in UK but we don't think that's likely or is not a material part of guidance, (2) UK currency weakness (but biotechs have very little UK sales) although Euro exposure should be noted as the majority of OUS sales below have some hedging programs..., (3) ongoing UK pricing and reimbursement discussions (VRTX is in the middle of negotiations right now and it is not clear whether these negotiations will be impacted in any way).

Based on our 2016 estimates, we believe the EU revenue exposure is generally as follows:

 AMGN (~22% OUS sales)  BIIB (25-30% OUS sales)  CELG (~38-40% of sales OUS but likely small UK)  GILD (~35% OUS sales)  VRTX (~25% of sales OUS in 2015-16 and growing to 30% by 2017; 10-15%+ of that portion could be Nordic/UK region and pending Orkambi UK reimbursement is a part of current 2017 analyst consensus estimates; although key potential catalyst is pipeline data in next 6-12mos and triple data mid-year and H1-17 is a major value driver regardless and is what the market is likely to trade the stock on in time in our view).

Business & Information Services RBC Capital Markets, LLC Gary Bisbee (Equity Analyst) | (212) 299-9842 | [email protected]

Quick thoughts on Brexit impact (FX exposure, most vs. least exposed) With investor focus on the fallout and turmoil resulting from the UK vote to exit the EU, we wanted provide quick thoughts on our coverage universe revenue/FX exposure to both the

June 24, 2016 75 Brexit: macro and sector implications

UK and European markets. Exhibit 1 shows our estimates (generally guided by company geographic disclosures) for the revenue exposure of all covered companies:

Exhibit 24: Business & Information Services geographic revenue/FX exposure

Total US Canada UK Euro/Other EU LatAm APAC MEA UK & Europe Markit MRKT 72% 1% 24% 3% - 1% - 26% Bright Horizons Family Solutions BFAM 81% - 16% 3% - - - 19% CEB, Inc. CEB 62% 4% 11% 9% 2% 12% - 20% IHS IHS 61% 3% 11% 9% 4% 10% 3% 20% ManpowerGroup MAN 16% 3% 10% 53% 5% 13% 1% 63% West Corporation WSTC 79% 1% 9% 5% - 6% - 14% Gartner Inc. IT 55% 4% 9% 20% 5% 7% 1% 29% Stericycle Inc. SRCL 73% 5% 8% 7% 7% 2% - 15% Equifax Inc. EFX 71% 5% 8% 2% 7% 9% - 9% Ecolab ECL 52% 5% 7% 13% 8% 12% 3% 20% Aramark ARMK 74% 6% 4% 8% 5% 3% - 12% Robert Half International RHI 80% 3% 4% 10% - 3% - 14% Automatic Data Processing ADP 83% 3% 3% 7% 2% 2% - 10% Cintas CTAS 94% 6% ------Nord Anglia NORD 26% - - 25% 1% 38% 10% 25% On Assignment ASGN 98% - - 2% - - - 2% Paychex PAYX 99% - - 1% - - - 1% ServiceMaster SERV 99% 1% ------TransUnion TRU 82% 4% - - 2% 5% 7% -

Source: RBCCM estimates and company disclosures

From this data, several thoughts jump out:

 The most revenue/FX exposed companies in our coverage to the UK include: MRKT, BFAM, CEB, IHS, and MAN, all with double digit % exposure. WSTC, IT, SRCL, EFX, and ECL also have meaningful exposure.  When combining UK and other European exposure, MAN is by far the most exposed at ~63%, with MRKT, NORD, CEB, IHS, ECL, and BFAM also 20%-30% exposure.  The least exposed companies include CTAS, SERV, and TRU with no UK/European exposure, and also PAYX and ASGN with 2% or less.  The highest US mix within our coverage is at SERV, PAYX, and ASGN at 98-99%, followed by CTAS at ~94%.

In terms of our coverage sub-sectors, the cyclical staffing industry seems most at risk of short-term fundamental disruptions from heightened uncertainty leading businesses to slow/reduce investment, especially in their permanent placement businesses. MAN is most exposed, followed by RHI and to a lesser extent (due to its US focus) is ASGN.

The least likely to see fundamental disruption include the most recurring revenue models across subscription/information, HR outsourcing, and commercial/industrial services.

Our best ideas remain ARMK, SERV, and EFX in mid-large cap, and NORD and ASGN in small cap. Among these, SERV stands out as particularly well positioned to weather “Brexit” volatility given its near 100% US exposure and history of growing revenue and profits during recessions. June 24, 2016 76 Brexit: macro and sector implications

Canadian Consumer Stocks RBC Dominion Securities Inc. Sabahat Khan (Equity Analyst) | (416) 842-7880 | [email protected]

Thoughts on Brexit Our view: Following the Brexit vote, we see the F/X fluctuations as the primary near-term risk to our coverage universe, with the consumer product companies being more exposed vs. the retailers. We see the stronger US$ resulting in a negative impact on PSG, DII.B, and HLF, and to a lesser extent on GIL. Impact on HBC would be mixed, while do we not expect a material impact on TOY (impact of weaker EUR and GBP partially offset by weaker C$). We view NWC as the best positioned given the translation benefit from converting its US$-denominated international segment earnings to C$ for reporting, and given its positioning as a "safe- harbor" investment during volatile market environments. Details by company below:

 PSG, DII.B, HLF – These companies source a majority of their products in US$, have a sizable portion of their sales outside the U.S. (PSG: ~40%; DII.B: ~45%; HLF: ~30%), and translate earnings from outside the U.S. to US$ for reporting purposes. The purchasing costs can be hedged based on each company's hedging policy, albeit not perfectly, but the translation of earnings from foreign jurisdictions to US$ is exposed to variations in F/X rates. This will likely result in a negative impact given the strength in the US$.  GIL – Generates ~13% of its sales outside the U.S. (~5% in Canada and ~8% in ROW) and reports in US$, thus we expect a modest negative translation impact given the stronger US$.  HBC – HBC should realize a positive translation benefit from the stronger US$ vs. C$ (reports in C$), which could be partially offset by lower tourism related sales in the U.S. (higher US$ would limit tourists to the U.S., as we have seen over the recent quarters). The economic uncertainty and its impact on consumer confidence in Europe and the US could potentially have an impact over the longer term, in our view.  TOY – The F/X impact would be mixed for TOY as well. The weaker EUR and GBP are headwinds; however, the weaker C$ benefits the company (TOY is short C$), which should partially offset the impact. Overall, we do not expect a material impact on results.  NWC – NWC stands to benefit from the positive translation of its US$-denominated International segment earnings into C$ for reporting purposes (~35% of full-year EBITDA).  LIQ – Modest positive translation benefit of converting is US$-segment earnings to C$ for reporting (~15% of stores in the U.S.).  CAO – We do not expect any material near-term impact from the vote or the resulting F/X fluctuations. However, continued strength of the US$ vs. C$ over the long run could drive food inflation (most suppliers typically change prices once a year)

June 24, 2016 77 Brexit: macro and sector implications

Canadian Contracted IPPs and Chemicals RBC Dominion Securities Inc. Nelson Ng (Equity Analyst) | (604) 257-7617 | [email protected]

Thoughts on Brexit  The Canadian contracted IPPs generally have limited exposure to the U.K., although some have material exposure to Europe. The IPPs with European exposure generally have long-term contracted power prices, so the impact would mainly be due to FX exposure. That being said, some companies have also entered into long-term FX hedges to mitigate the exposure.  The stocks we cover with material U.K. and European businesses include: o Boralex - No U.K. exposure, but generated approximately 57% of EBITDA from France in 2015. Some FX hedges are in place. o Just Energy - Generated 11% of revenues from the U.K., and have no material operations in the rest of Europe. o Northland Power - No U.K. exposure, but we estimate that approximately 60% of the company's run-rate Adjusted EBITDA will come from Europe, after the two European offshore wind facilities (The Netherlands and Germany) are completed in 2017. We should note that the company has hedged the FX exposure on the majority of the anticipated cash distributions from the offshore wind facilities.

RBCCM acted as dealer manager and financial advisor to Atlantic Power Corporation on a transaction that was announced on June 16, 2016. For more details, please refer to the company’s disclosures link below. Canadian Dealerships RBC Dominion Securities Inc. Sara O'Brien (Equity Analyst)| (514) 878-7256 | [email protected]

Brexit exposure  Among our Canadian dealers we note the following with UK, Europe exposure: o FTT (UK ~15%, Europe 2%)- we note FTT UK revenue is lower margin than rest of FTT business, mitigating some potential negative currency translation impact. o RBA (Europe <10%) -we note volatility in market activity, commodities can stimulate auction revenue for RBA • We view TIH with least exposure to FX and commodities among our Canadian dealership space

June 24, 2016 78 Brexit: macro and sector implications

Canadian Engineering & Construction RBC Dominion Securities Inc. Sara O'Brien (Equity Analyst)| (514) 878-7256 | [email protected]

Brexit exposure  Our most exposed Canadian E&C coverage names to Brexit impact : o WSP (15% UK exposure and 9% Europe) o STN (10% UK exposure and <5% Europe) We view these names exposed to currency translation risk and to political uncertainty impacting activity levels in UK, Europe.

 We view SNC and ARE as least exposed to foreign currency impacts with larger Canadian focus

Canadian infrastructure RBC Dominion Securities Inc. Robert Kwan (Equity Analyst)| (604) 257-7611 | [email protected]

Brexit impact mixed based on sub-sector  Overall, Canadian infrastructure businesses are generally not likely to be directly impacted, mostly due to the lack of operations in Europe. In general, movements in share prices are likely to be driven by sentiment (e.g., risk on versus risk off) and foreign exchange exposure, particularly due to a strengthening U.S. Dollar, rather than direct business impacts.  Stocks that we cover with material U.K. and European businesses include: (1) Brookfield Infrastructure (estimated 20% of pre-corporate FFO in the U.K. plus roughly 10% of estimated FFO in Europe (mostly France)); and (2) Inter Pipeline with an estimated 6% of pre-corporate operating margin coming from the U.K. and 7% from Europe (Germany, Denmark and Sweden). Outside of foreign exchange rate exposure, we do not expect these businesses to be materially impacted by Brexit.  Potential beneficiaries from a shift in sentiment would be the regulated utility stocks as they are generally viewed as defensive "safe havens" during times of market uncertainty. In particular, we think Emera and Fortis could outperform due to their higher degree of U.S. operations (positive FX translation).

Chemicals/Packaging RBC Capital Markets, LLC Arun Viswanathan (Equity Analyst) | (212) 301-1611 | [email protected]

Names most/least exposed to Brexit With the Brexit vote now concluded and the Euro down to $1.11 from $1.14 yesterday, we highlight our names under coverage most exposed to Europe.

In Chemicals, CE, DOW, and LYB have the greatest exposure to Europe with over 30% of sales. EMN and DD have less in the low 20s. On a combined basis, we estimate DOW and DD together will have just over 25% of sales in Europe, but a lower level of profits. Similarly, while Europe accounts for about a third of LYB's sales, it is a slightly less portion of profits.

June 24, 2016 79 Brexit: macro and sector implications

WLK has the least exposure (under 5%) while AXLL and OLN have minor exposure at less than 10%.

In our coatings and packaging coverage, AXTA has the largest exposure to Europe at over 35% of sales, with PPG and SEE also highly exposed at 33% and 32%, respectively. AXTA and PPG are exposed heavily in the Autos market and also in General Industrial. Furthermore, the UK does represent one of PPG's largest architectural coatings markets.

SHW has the least exposure at about 5% and even after its combination with VAL, we estimate Europe will still account for only about 10% of sales. BMS also has only minor exposure at 6%.

3% 100% 4% 3% 5% 7% 6% 8% 8% 7% 5% 9% 12% 1% 13% 14% 15% 2% 5% 10% 8% 20% Latin 17% 2% 15% 30% 28% 25% 23% America 80% 18% 5% 16% 4% 18% 23% 6% 11% 33% 18% 60% 33% 17% Asia 34% 21% 32% 23% 39% 38% 97% 92% 92% 40% 79% 77% 70% 70% Europe 55% 53% 59% 45% 43% 20% 36% 41% 40% 29% 30%

0% North America LYB DOW CE EMN WLK AXLL OLN DD PPG VAL SHW AXTA RPM BMS BERY SEE Chemicals Coatings Packaging Avg

% of 2015 sales Source: Company reports, RBC Capital Markets

Consumer Staples RBC Capital Markets, LLC Nik Modi (Equity Analyst) | (212) 905-5993 | [email protected]

Quick Thoughts Post Brexit Vote Despite a final vote in favor of the UK leaving the European Union, we expect minimal impact across our coverage. We expect the multinational names in our space such as CL (3% exposure to the British Pound), PG (5%), KMB (4%), KO (2%), and PEP (2%) to be impacted initially (mainly due to FX exposure), but expect any underperformance to be short-lived. As was the case in late 2015/early 2016, we anticipate a rotation into staples as a safe haven amid severe volatility in other sectors.

As a reminder our focus names (in order of preference) are NWL (3%), STZ (0%), ENR (4%), MNST (5%), EL (10%), EPC (3%).

June 24, 2016 80 Brexit: macro and sector implications

Global Gold RBC Dominion Securities Inc. Stephen D. Walker (Head of Global Mining Research) (416) 842-4120; [email protected] Dan Rollins (Analyst) (416) 842-9893; [email protected] Sam Crittenden (Analyst) (416) 842-7886; [email protected]

Sensitivity of Gold Equity Returns with Increasing Uncertainty & Systemic Risk Rising systemic risk benefits gold. The Brexit vote clearly increases the level of uncertainty and systemic risk in Europe as well as global financial markets. As observed in previous periods of financial uncertainty, such as the sub-prime crisis (mid-2007) and Eurozone debt crises (2011 & 2012) gold can become a safe haven asset along with the US dollar. In addition, the macro backdrop for gold improves with the prospect of real rates remaining lower for longer (Exhibit 21), given the likelihood of both the UK and Eurozone central bankers increasing financial liquidity. In addition, a slowing European economy, or any negative impact on the global economy, would make it increasingly unlikely for the US Fed to raise rates later in 2016, or potentially in early 2017.

ETF flows remain a key demand component. From a fundamental perspective there have been significant flows into the global gold ETFs, and year-to-date the size of the world's physical gold ETF holdings have grown 30% from 47.0M oz to 60.9M oz (Exhibit 22). Also, there were inflows throughout the recent pullback in May to $1,205/oz and throughout the run-up to the Brexit referendum (Exhibit 23). As we discussed in previous research, we believe we could see a trend of 'higher lows', similar to the 2005 to 2007 period ahead of the sub-prime crisis, as investors accumulated gold on price pullbacks.

Given the potential for significantly greater gold price volatility we have run our target price sensitivity analysis for our North American Tier I, II and III gold producer universe at a flat $1,400/oz and $1,500/oz gold (Exhibit 2), in addition to our current $1,250 in 2016/$1,300 LT assumption. Also, we have not changed any of our target price multiples, which are at a valuation discount to the 2006 to 2011 trading range (Exhibit 24 & 25). Should the North American gold stocks become a focus for global investors, as occurred in 2007 to 2012, we could potentially see a further 40% to 50% multiple expansion upside. This would be driven in large part by the relatively illiquid nature of the global gold equity universe, which has grown from a collective market cap of $110 billion at the beginning of 2016 to circa $215 billion this morning.

The gold equities that we think offer investors the greatest fundamental target price returns at higher gold prices include: KGC, NEM,BTO, DGC, NMI, KDX, ASR, and CDE (Exhibit 20). Gold equities with the highest year-to-date betas to gold price moves include IAG, KGC, BTO, AUY and AGI (see below). The royalty and streaming companies have both lower target price leverage and betas to the gold price.

June 24, 2016 81 Brexit: macro and sector implications

Exhibit 25: YTD trading betas of North American gold equities

Source: Bloomberg

Exhibit 26: Valuation sensitivity of RBC North American precious metals coverage universe to $1,400/oz and $1,500/oz gold price scenarios and our current $1,250 in 2016/$1,300 LT assumption

Closing RBC Prices $1,400/oz Au and $19/oz Ag $1,500/oz Au and $20/oz Ag CFPS (2016-17) Price Valuation Implied Return Valuation Implied Return Valuation Implied Return Tier I Producers Barrick Gold ABX $19.35 $18.00 (7%) $21.00 9% $25.00 29% Goldcorp GG $17.60 $17.00 (3%) $24.00 36% $28.00 59% Kinross Gold KGC $4.90 $6.00 22% $8.00 63% $9.00 84% Newmont NEM $35.39 $40.00 13% $50.00 41% $59.00 67% Tier II Producers Agnico-Eagle AEM $49.80 $46.00 (8%) $56.00 12% $64.00 29% Alamos Gold AGI $7.54 $7.00 (7%) $9.00 19% $10.00 33% B2Gold BTO C$2.78 C$3.50 26% C$4.50 62% C$5.00 80% Detour Gold DGC C$29.40 C$35.00 19% C$43.00 46% C$50.00 70% Eldorado Gold EGO $4.20 $5.25 25% $5.75 37% $6.50 55% IAMGOLD IAG $4.01 $3.25 (19%) $4.75 18% $6.00 50% New Gold NGD $4.11 $4.50 9% $5.00 22% $5.75 40% Tahoe Resources THO C$16.91 $17.00 1% C$21.00 24% C$24.00 42% Yamana Gold AUY C$4.85 $4.50 (7%) C$5.50 13% C$6.75 39% Tier III Producers Alacer Gold ASR C$2.89 C$3.25 12% C$4.50 56% C$5.25 82% Argonaut Gold AR C$3.39 C$3.00 (12%) C$4.00 18% C$4.00 18% Asanko Gold AKG C$5.26 C$5.25 (0%) C$6.75 28% C$7.50 43% Guyana Goldfields GUY C$9.57 C$8.00 (16%) C$9.00 (6%) C$10.00 4% Klondex Mines KDX C$4.33 C$5.50 27% C$7.00 62% C$8.00 85% Newmarket Gold NMI C$3.54 C$5.50 55% C$6.25 77% C$7.75 119% Roxgold ROG C$1.41 C$1.75 24% C$2.00 42% C$2.30 63% SEMAFO SMF C$5.86 C$5.50 (6%) C$6.50 11% C$7.50 28% Silver Standard SSRI $11.45 $9.00 (21%) $12.00 5% $14.50 27% Torex Gold TXG C$2.16 C$2.60 20% C$3.40 57% C$3.80 76% Royalty/Streaming Franco-Nevada FNV C$86.89 C$98.00 13% C$106.00 22% C$113.00 30% Osisko Gold Royalties OR C$16.20 C$18.00 11% C$19.00 17% C$20.00 23% Royal Gold RGLD $66.85 $66.00 (1%) $72.00 8% $79.00 18% Sandstorm Gold SSL C$5.69 C$5.50 (3%) C$5.75 1% C$6.25 10% Silver Wheaton SLW $20.83 $21.00 1% $25.00 20% $27.00 30% Silver Producers Coeur Mining CDE $9.48 $9.00 (5%) $13.00 37% $16.00 69% Hecla Mining HL $4.66 $4.00 (14%) $4.50 (3%) $5.50 18% Pan American Silver PAAS $15.21 $15.00 (1%) $20.00 31% $23.00 51%

Source: ThomsonONE, RBC Capital Markets estimates

June 24, 2016 82 Brexit: macro and sector implications

Exhibit 27: Gold has a exhibited a strong negative correlation with real interest rates

$2,000 -2.0%

$1,800 -1.0%

$1,600 10 10 Year TIPS Yield(%) $1,400 0.0% $1,200

$1,000 1.0%

$800 Gold Price ($US/oz) Price Gold 2.0% $600

$400 3.0% $200

$0 4.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gold Price 10-Year TIPS Yield (%)

Source: Bloomberg, RBC Capital Markets estimates

Exhibit 28: ETF flows have turned positive as concerns over systemic risk increase

$2,000 120

$1,800 110 100 $1,600 90 $1,400 GoldOunces (MMoz) 80 $1,200 70 60.9 MMoz $1,000 60

$800 50

Gold Price (US$/oz) Price Gold 29.8 MMoz 40 $600 30 $400 20 $200 10 $0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Global ETF Holdings Comex Net Speculative Position Gold Price Note: Comex Net Speculative Position as of Tuesday, June 14th, 2016 Source: Bloomberg, RBC Capital Markets estimates

June 24, 2016 83 Brexit: macro and sector implications

Exhibit 29: Daily ETF buying has been steady since February 2016 and in the May 2016 pullback

$1,800 0.8

0.6 $1,700 0.4

$1,600 Holdings ETF Change (MMoz) 0.2 $1,500 0

$1,400 -0.2

-0.4 $1,300 Gold Price ($/oz) Price Gold 1st rate hike expected 1st Fed -0.6 $1,200 rate hike -0.8 $1,100 Tapering Tapering announced -1 Expected $1,000 -1.2 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

Change in gold ETF Total Known Holdings (Moz) Daily Gold Price (US$/oz)

Source: Bloomberg, RBC Capital Markets estimates

Exhibit 30: P/NAV valuations have moved higher driven by flows of funds in 2016

2.0 1.8 1.6 1.4 2006-2012: 1.30x

1.2 2006+: 1.19x Tier I & II & I Tier - 1.0 2013+: 0.97x 0.8

P/NAV (x) (x) P/NAV 0.6 0.4 0.2

0.0

Jul-14 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-15

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Source: Bloomberg, RBC Capital Markets estimates at a discount rate of 7%

June 24, 2016 84 Brexit: macro and sector implications

Exhibit 31: Potential for further P/CF valuation upside to levels seen from 2006-2012

25x

20x

Tier I & II & I Tier - 15x 2006-2012: 13.6x 2006+: 11.8x 10x 2013+:7.9x

5x Consensus fwd P/CF (x) (x) P/CF fwd Consensus

0x

Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-06 Source: Bloomberg, RBC Capital Markets estimates

Global Oilfield Services RBC Capital Markets, LLC Kurt Hallead (Equity Analyst) | (512) 708-6356 | [email protected]

Brexit Implications The USD is negatively correlated with oil prices and the strength of the USD post vote is negative for the oil prices. Beyond the impact to the broader market and crude oil, the immediate implications from Brexit for the OFS group is related to potential foreign exchange exposure to the GBP.

On a direct basis, we think the OFS group is relatively well insulated from Brexit implications, as OFS activity in the UK is generally limited to the North Sea, where 9 rigs are currently active out of 252 total active offshore rigs worldwide. In countries where OFS companies are paid in the local currency they typically have a natural hedge as much of the operating cost is also incurred and paid in that same currency.

We think there is likely limited intermediate term impact to our fundamental oil supply/demand thoughts. As a result, we would be buyers on any prolonged selloff in any of our Outperform rated names. Our favorite OFS ideas remain SLB, HAL, NBR, and FMSA.

June 24, 2016 85 Brexit: macro and sector implications

Hardlines/Broadlines RBC Capital Markets, LLC Scot Ciccarelli (Equity Analyst) | (212) 428-6402 | [email protected]

Brexit impact Direct exposure relatively limited – Most of our Hardlines/Broadlines names (fortunately) have little in the way of direct exposure to the UK and/or Europe.

Largest direct exposure is Walmart, but still limited at ~5% of enterprise sales – Walmart’s ASDA unit is the biggest segment of Walmart International, which has already been struggling from intensified competition from both legacy competitors and deep discounters like Aldi and Lidl. An incremental pullback in consumer spending would be an obvious negative, but since ASDA is primarily a grocery operation, we suspect the damage shouldn’t be too severe. At Walmart International, the top four markets make up ~80% of sales. Since ASDA is the biggest international segment, we estimate the UK is likely over ~20% of total international sales, which would be roughly 5%+ of total Walmart sales. Further, and perhaps more impactful, assuming the US dollar significantly strengthens, FX headwinds will increase after what was expected to be pending relief.

Second largest exposure is Costco at ~3%-4% of enterprise sales – We estimate the UK is just over 10% of Costco’s total international business (27 of its 706 clubs are in the UK). Total UK revenues are likely in the 3%-4% range for Costco at the enterprise level. While a reduction in consumer spending would be an obvious negative, Costco’s heavy food/grocery exposure (~55%) and extremely low-price business model will likely limit the negative impact on the business as a whole. However, like WMT, FX will likely become an incremental headwind after looking like we were going to get relief in coming quarters.

Likely rotation towards “defensive” names like dollar stores and auto parts – We will likely see a rotation towards defensive names like dollar stores and auto parts. Dollar stores were a major safe haven for both consumers and investors during the Great Recession (DLTR was one of the top performing stocks in the entire market in 2008) as consumers were pushed into the channel to extend their buying power. Similarly, auto parts were relative standouts in 2008 as consumers reduced new vehicle purchases and sought to extend the lifecycle of many assets, including their vehicles. While short-term factors like weather are relative negatives, this Brexit won’t impact the long-term demand for brake pads and rotors in the US.

Home improvement tougher to call – We suspect the impact of Brexit on HD and LOW shares will be more mixed. Negatives include: (1) The potential for consumers to get spooked by negative media reports, potential damage to capital markets, etc., which could cause a pullback in demand for big-ticket, financed purchases such as housing (less comfort in making long-term financial commitments) and, subsequently, for home improvement. Further (2), HD and LOW are big, liquid stocks that people may need to sell to make up for margin calls elsewhere, in a market starved for liquidity. On the flip side, potential positives include: (1) No direct UK/European exposure, which has significant scarcity value for market caps that are as large as HD (~$160 billion) and LOW (~$70 billion); (2) no reasonable path for upward interest rate pressures any time in the near future, which should help stimulate relative demand for big-ticket, financed purchases like housing; and (3) potential increased exposure to housing if consumers believe housing can retain value better than stocks and bonds.

June 24, 2016 86 Brexit: macro and sector implications

Healthcare IT RBC Capital Markets, LLC David Francis (Equity Analyst) | (615) 372-1337 | [email protected]

Health Care IT is a safe haven from Brexit vote turmoil With all eyes on the fallout and turmoil emanating from last night’s “Brexit” vote in the UK, we note that the Health Care IT segment of the market represents a relative safe haven given the minimal exposure to UK/European revenues and general economic disruption that the Brexit fallout could create.

Specifically, the HCIT companies that make up our current coverage universe all have very little (if any) exposure to UK/EU markets. Furthermore, the health systems and health insurers that our covered companies sell to are also largely insulated from geographic or direct economic risk to the Brexit vote.

Of our group, only Cerner and Allscripts have any tangible business across Europe, representing well under 10% of total revenues for each. For each of these companies, the unpredictability of new sales in Europe cause us to forecast virtually no new business activity overseas for these companies, creating minimal risk to our estimates.

Should the group experience any relative underperformance in the expected trading turmoil, we would view it as an opportunity to buy our OP rated stocks (CERN (TP); MDRX; WBMD; TDOC; COTV). Healthcare Services RBC Capital Markets, LLC Frank Morgan (Equity Analyst) | (615) 372-1331 | [email protected]

Initial thoughts on Brexit exposure With this morning's news that the UK has voted to exit the European Union, we thought it would be worth reminding investors of the exposure across our coverage universe. In general, most of our healthcare services providers have no international exposure whatsoever, however there exceptions, most notably:

 Acadia Healthcare (NASDAQ: ACHC; O) - approximately 41% of revenue, proforma for the Priory acquisition (or ~21% ex-Priory), comes from the UK. The 10-K filing notes that a hypothetical 10% change in the GBP to USD exchange rate would impact net income by $5.6MM; the addition of Priory to ACHC's results would clearly increase this impact.  HCA Holdings (NYSE: HCA; O) - approximately 3% of revenue comes from the company's 6 hospitals with 864 beds located in England.  Tenet Healthcare (NYSE: THC; SP) - we estimate less than 5% of THC's consolidated revenue comes from the UK (Ambulatory Care segment was 8.5% of consolidated revenue in 1Q16, which includes its ASCs, Surgical Hospitals, and the Aspen operations in the UK).  Universal Health Services (NYSE: UHS; O) - approximately 2% of UHS' consolidated revenue (and ~5% of its Behavioral Health segment revenue) comes from the UK.  Fresenius Medical Care (NYSE: FMS; SP) - less than 1% of revenue comes from the UK (the vast majority of FMS' EMEA business is in Germany).  UnitedHealth Group (NYSE: UNH; O) - we estimate less than 1% of revenue comes from the UK (UHC Global serves more than 125 countries and represents 3.5% of consolidated revenue, but is dominated by its Amil unit in Brazil).

We recommend buying UNH and HCA on today's weakness. June 24, 2016 87 Brexit: macro and sector implications

Homebuilders & Building Products RBC Capital Markets, LLC Robert Wetenhall (Equity Analyst) | (212) 618-3251 | [email protected]

Assessing Exposure to Brexit and Domestic Opportunities Significant European Exposure – The UK’s decision to exit the European Union increases near-term uncertainty that could affect U.S. based companies that have significant European exposure (AWI, DOOR, MAS, MHK, OC & WHR). In our coverage, the companies with the greatest exposure to Brexit are WHR (27% of LTM sales), MAS (21%), MHK (19%), DOOR (17%), AWI (11%), and OC (10%).

Domestic Opportunities – These political developments also makes domestic plays like homebuilders (DHI, KBH, LEN, PHM, TOL), branded consumer products (FBHS, PGTI) distributors (BECN, BMCH, GMS, IBP, SITE), aggregates (SUM, VMC) and commercial construction companies (CBPX, NCS, USG) comparatively more appealing.

Estimated European & UK Exposure (% of LTM sales) Infrastructure, data center and analytic software RBC Capital Markets, LLC Matthew Hedberg (Equity Analyst) | (612) 313-1293 | [email protected] Dan Bergstrom (Equity Analyst) | (612) 313-1254 | [email protected]

Brexit impact Given the timing of Brexit near quarter end (software tends to be back-end loaded), we believe the vote could have a negative impact to the European demand environment for our software universe given the average company we cover has 23% exposure to EMEA. Also given many of these companies price in local currencies, FX moves could also impact results, most notably deferred revenue and billings which are based quarter end spot rates. In the table below we summarize European exposure to our coverage universe.

Of the companies that have the most exposure, we’d note that MIME sells email security software with lower ASPs and the stock is already down 8% this week. QLIK has a pending bid from Thoma Bravo.

Companies that could be more insulated include Fleetmatics, Proofpoint, SecureWorks, Hortonworks, LifeLock, Q2 and RealPage with less than 10% exposure to Europe.

 Large cap names with the most exposure to Europe include: ADSK at 40%, CHKP at 35%, and CTXS at 30%.  Large cap name with the least exposure to Europe include: PANW at 18%, RHT at 21%, and CA at 22%.  SMID cap names with the most exposure to Europe include: MIME at 58%, QLIK at 50%, VRNS at 38%, and FTNT and PTC at 37%.  SMID cap names with the least exposure to Europe include: RP, QTWO, LOCK and HDP at 0% and PFPT and SCWX at 8%.

June 24, 2016 88 Brexit: macro and sector implications

Company Ticker Mkt Cap ($M) CY/16E Revenue (M) CY/16E EMEA (M) % EMEA Mimecast MIME $599 $163 $94 58% Qlik Technologies QLIK $2,851 $704 $349 50% Autodesk ADSK $13,531 $1,992 $790 40% Varonis VRNS $713 $157 $59 38% Fortinet FTNT $6,063 $1,271 $470 37% PTC PTC $4,539 $1,151 $426 37% Check Point Software CHKP $14,754 $1,753 $614 35% Citrix CTXS $13,494 $3,353 $998 30% CommVault CVLT $2,123 $625 $187 30% Verint Systems VRNT $2,217 $1,109 $325 29% LogMeIn LOGM $1,706 $331 $93 28% Teradata TDC $3,827 $2,250 $575 26% F5 Networks FFIV $8,234 $2,014 $503 25% Imperva IMPV $1,523 $304 $75 25% Symantec SYMC $14,252 $3,508 $872 25% ServiceNow NOW $12,838 $1,367 $331 24% CA Technologies CA $14,135 $4,044 $876 22% Red Hat RHT $14,488 $2,312 $490 21% Qualys QLYS $1,213 $198 $38 19% Palo Alto Networks PANW $11,614 $1,574 $283 18% Interactive Intelligence ININ $905 $432 $72 17% Splunk SPLK $8,024 $894 $155 17% Tableau Software DATA $4,377 $850 $143 17% NetScout NTCT $2,265 $1,193 $196 16% Fleetmatics FLTX $1,777 $344 $34 10% Proofpoint PFPT $2,587 $351 $28 8% SecureWorks SCWX $988 $425 $34 8% Hortonworks HDP $520 $190 $0 0% LifeLock LOCK $1,610 $664 $0 0% Q2 QTWO $1,111 $147 $0 0% RealPage RP $1,741 $571 $0 0% Average 23% All company estimates refer to calendar year results Source: Company reports and RBC Capital Markets estimates

IT Hardware/Large Cap Semiconductor RBC Capital Markets, LLC Amit Daryanani (Equity Analyst) | (415) 633-8659 | [email protected]

Implications from Brexit Due to the volatility in the f/x markets caused by Brexit decision, we think it is prudent to assess the potential future period currency impact for our IT Hardware and Semiconductor coverage companies. Our analysis is based on current spot rates which imply a -9% decline in the British Pound and a -3% decline in the euro vs. the USD. Our initial take is that today's decision will likely create significant currency headwinds for our coverage companies with significant UK/Europe exposure. We note that the ancillary impact from the U.K. exit will likely create further fundamental revenue headwinds for our broader coverage. For the purposes of this analysis, we will assume most companies receive ~15% of their Europe/EMEA revenue in British Pounds and the balance in euros as most companies do not disclose a breakdown between GBP and EUR revenues. Companies with significant Europe/U.K. revenue exposure are listed below:

IT Hardware Exposure: IT Hardware companies in aggregate have the largest GBP/EUR exposure in our coverage.

 IBM: ~33% Europe; estimated -1.3% currency headwind based on 85/15 euro/GBP split of IBM's Europe revenue.  HPQ: ~32% Europe/EMEA exposure; assuming 20% of EMEA is U.K., we estimate a -1.2% f/x headwind for future periods.  NTAP: ~30% Europe; estimated -1.2% revenue headwind.  AAPL: Europe ~22%; estimated -0.8% revenue headwind.

June 24, 2016 89 Brexit: macro and sector implications

 STX and WDC: ~20–25% exposure. estimated -0.7% revenue headwind.  NMBL: ~10% Euro exposure; -0.4% revenue headwind.  CDW: ~6% exposure to GBP amounts to a -0.5% revenue headwind.

Supply Chain/EMS Exposure: Within the Supply Chain space, Connectors & Sensor companies have the largest Euro exposure. On the EMS side, we expect minimal impact solely from FX movements. Although EMS companies (JBL/FLEX/CLS/SANM/PLXS/BHE) have mid-single-digit exposure to Europe, the ancillary impact of the "Brexit" decision could negatively impact business fundamentals.

 TEL: ~34% exposure translates to a -1.3% negative impact.  ST: ~30% exposure or -1.2% revenue headwind.  APH: least amount of Europe exposure among connector names at ~20% which we estimate computes to a -0.8% impact.

Semiconductor & Semicap Exposure: FX movements alone typically have more smaller impacts on Semiconductor and Semicap company revenues, as sales are largely transacted in USD. However, we note that semiconductor/semicap companies with revenues in Europe could see an impact. Notably, ASML sells and reports in Euro but has some costs in USD, which can result in significant revenue (-3%) and cost headwinds. Internet RBC Capital Markets, LLC Mark Mahaney (Equity Analyst) | (415) 633-8608 | [email protected] Andrew Bruckner (AVP) | (415) 633-8651 | [email protected]

Thoughts on Brexit Given the likelihood of the Brexit, we wanted to quickly discuss exposure from U.S. Internet stocks to Europe. 1) Most of the Large Cap 'Nets have material exposure to European markets - with +25% of Revenue from AMZN, EBAY, GOOGL, FB, TRIP, EXPE and PCLN. 2) The Large Cap 'Net with the most exposure is PCLN, where over 70% of Revenue is from Europe. 3) The Large Gap 'Net with the least exposure is ZG, with 0% exposure. Machinery RBC Capital Markets, LLC Seth Weber (Equity Analyst)| (212) 618-7545 | [email protected]

Initial Brexit thoughts We expect the U.K. vote to leave the European Union to create considerable volatility within our coverage, including for those companies with direct regional exposure and generally higher-beta cyclicals.

Companies with higher exposure to Europe include:  WABCO: With more than 50% of sales from Europe, WBC has outsized exposure to the broader region; we believe exposure to the U.K. is relatively low. Big picture, a slow- down in goods moving around Europe would likely be a negative for European truck demand (however we expect global safety mandates to continue). WBC’s guidance includes Euro 1.09 (Euro down ~2% this morning).  PACCAR: Roughly 24% of revenue from Europe and 24% of its Europe truck exposure is in the UK (in 2015, 11,467 DAF UK registrations on PCAR Europe truck deliveries of 47,400). In the Europe heavy truck market, trucks are assembled in both the UK and the

June 24, 2016 90 Brexit: macro and sector implications

Netherlands; in light/medium market, DAF trucks are assembled in the UK by Leyland (wholly-owned subsidiary). Factset estimates 3.6% of sales from UK.  AGCO: Roughly 55% 2015 sales from EMEA, including 5.6% of derived from the UK and Ireland. According to AEA, AGCO had 21.7% market share of UK tractors in 2014.  Terex: Western Europe exposure is 26% of sales following sale of its MHPS business to Konecranes. TEX also has incremental European exposure from its 25% equity stake in Konecranes, headquartered in Finland and which derived roughly 40% of its sales from Europe prior to acquiring the MHPS business.  Manitowoc: YTD 3Q15, 37% of Cranes sales were derived from EMEA.

Companies we believe could be relatively better insulated from regional turmoil include:  United Rentals, H&E Equipment Services: North American equipment rental operators with no exposure to Europe or the U.K.  Mueller Water: North America represents the overwhelming percentage of sales, with almost zero exposure to Europe or the U.K. (nominal amount through nascent Echologics leak detection/pipe assessment business)  Navistar: Large majority of sales from U.S. and Canada (i.e., core truck markets) with Mexico and Brazil the bulk of the balance; small amount of “other” revenue includes some exports to niche markets  Allison Transmission: Roughly 78% of 2015 sales from the U.S. and Canada markets, with just 2% from the U.K.  Oshkosh: Close to 80% of sales into the U.S., including defense and municipal-related markets. Less than 10% of sales to EAME.

Media RBC Capital Markets, LLC Steven Cahall (Equity Analyst) | (212) 618-7688 | [email protected] Leo Kulp (Equity Analyst) | (212) 301-1457 | [email protected]

Brexit Impact on Large Cap Stocks With the Brexit results in overnight we highlight the impact on US Large Cap Media stocks. Our analysis is ranked in descending order based on the exposure to UK/Europe. Overall exposure appears relatively benign for the space.

 DISCA: While DISCA has the most direct exposure to international markets at around 50% of revenues, and Europe in particular, we spoke to the company and learned that 2016 is fully hedged on GBP and mostly hedged on EUR. For 2017 there are rolling hedges in place. DISCA is underperforming the market today despite its hedging. We learned from an industry expert that many companies may be hedged as hedging costs are low since Brexit was viewed as a low probability.  FOXA: We think the primary exposure at FOXA is via its 39% interest in SKY. We estimate income from SKY in our ‘Equity earnings of Affiliates’, which is pre-tax but below EBIT/EBITDA. Assuming a 10% devaluation in the GBP our FY17 pre-tax income for FOXA drops by 1% from $5.89bn to $5.84bn. Separately, our sum-of-the-parts includes Equity Investments worth $10.7bn including $9.5bn for FOXA’s stake in SKY. Based on the current share price, which is -7% today, and the lower GBP exchange rate our SKY contribution to equity drops to $8.4bn. These changes would reduce our target per share from $36 to $34 despite no changes to EBITDA estimates. This would suggest a target P/E of 15.7x vs our current 16.5x. FOXA is off $1.30 today, suggesting this is mostly priced in.

June 24, 2016 91 Brexit: macro and sector implications

 TWX: We estimate Time Warner has around 16% total revenue exposure to Europe (comprised of 8% Eurozone, 8% non-Euro such as UK). We estimate that International revenue overall is just 17% of Turner and we think both Turner and HBO have less and 5% currency exposure to the GBP+EUR. Reductions to Euro area earnings could have a modest impact on TWX, but we see it as limited given these metrics (eg a 10% drop in the 16% exposure is only 1.6% overall, though the Euro is down far less thus far today).  VIAB: We think Viacom derives 17% of total company sales from EMEA, and most of that is probably Europe. The Channel 5 acquisition represents around a quarter of International Media Nets revenue, but that’s just 5% of total Media Nets revenue. Like TWX, this suggest overall exposure to brexit is small.  DIS: Disney’s exposure includes cable nets, studio (int’l box) and parks (Euro Disney). We estimate 12% of DIS’s sales and 13% of OI is in Europe suggesting relatively limited exposure as a 10% reduction in European OI (from lower currency values) is only ~1% to total DIS OI.  SNI: SNI has just 11% of total revenues derived from International markets (and the bulk of that is in Poland with TVN). SNI does have a 50% share of UKTV that is included in the Earnings of Affiliates line – the total line is only 5% pre-tax income and 3% of EPS.  CBS: With just 2% of total company revenues derived in the U.K. and 5% generated in Other Europe, CBS is one of the least exposed media companies to the Brexit news and moves in currency. CBS does have translational hedges in place for moves in the British Pound, the Euro, the Canadian dollar, and the Australian dollar.

Medtech RBC Capital Markets, LLC Glenn Novarro (Equity Analyst) | (212) 428-6411 | [email protected] Brandon Henry (Equity Analyst) | (212) 428-6982 | [email protected]

Brexit Impact With the UK voting to leave the EU, we analyzed our sector to ascertain exposure to the UK. Approximately 2.4% of medtech sales are from the UK (range: 0-4%) with ~16% of medtech sales from Europe overall (range: 0-29%). Large cap names with the most exposure to the UK (from a % sales point of view) include EW, BAX, and BDX. Large cap names with the most exposure to Europe overall include EW, ABT, and BAX. Separately, the large cap name with the least exposure to the UK is SYK. Finally, the SMID cap names with the most exposure to the UK/Europe are ARAY and ELGX. We do not expect utilization or surgical volumes to be impacted by the UK vote, but expect there will be fx implications at a later date. For investors looking to play defense, we recommend JNJ and MDT in large cap, and NUVA in small cap.

Separately, we have put together a spreadsheet with sales exposure per company. Feel free to email us for this spreadsheet. Multi-Industry RBC Capital Markets, LLC Deane Dray (Equity Analyst) | (212) 428-6465 | [email protected] Matthew McConnell (Equity Analyst) | (212) 428-6412 | [email protected]

Brexit Implications Relatively insulated names:  HD Supply (HDS, Outperform) has essentially all US-based revenue, setting it up as well insulated from the European angst. But as a leveraged, high beta name, an indiscriminate risk-off scenario could result in selling pressure right out of the blocks. June 24, 2016 92 Brexit: macro and sector implications

Once that dust settles, and the market becomes more discerning about insulated names, HDS should be favorably positioned.  Similarly, of the SMID caps, Carlisle Companies (CSL, Sector Perform) has a US-centric mix from its leading position in the US commercial roofing market driving 63% of earnings, making it one of the better insulated SMID names.

Relatively vulnerable names:  ITW (ITW, Sector Perform) has one the higher European exposures at 28% of sales, with construction as one of its key end markets. Margins are also at a peak, suggesting this name could be singled out as vulnerable to a pullback in discretionary capex, especially in construction.  Xylem (XYL, Outperform) has a high European revenue exposure at about 36%, but arguably more than half of this regional exposure is municipal water-related, with 70% of that in the more recurring “break & fix” mode that would not be considered discretionary capex. So the headline 36% is arguably not as severe as it looks, but this nominal exposure and stock outperformance YTD might put it in the cross-hairs of a “sell first and ask questions later” volatile market.  Of the SMID caps, Colfax (Sector Perform) would be among the companies considered at risk since it generates roughly one-third of its sales in Europe but a higher percent of earnings since this is its home turf in welding equipment. Colfax is the No. 2 global welding competitor but it is the strong No. 1 player in Europe since the acquisition of UK-based Charter.  Actuant (Outperform) is also poorly positioned with roughly 30% of sales from Europe, 9% of sales from the UK.  Companies with US-centric manufacturing footprints and export models including Graco, Nordson, AMETEK, and Lincoln Electric are at a disadvantage when foreign currencies such as the pound and euro weaken relative to the $US.

Networking Equipment and Small/Mid Cap Semiconductor RBC Capital Markets, LLC Mitch Steves (Equity Analyst) | (415) 633-8535 | [email protected]

Implications of Brexit Due to the volatility in the f/x markets caused by the Brexit decision, we think it is prudent to assess the potential future period currency impact for our Networking Equipment and Small/Mid Cap Semiconductor coverage companies. Our analysis is based on current spot rates which imply a -9% decline in the British Pound's and a -3% decline in the euro vs. the USD. Our initial take is that today's decision will likely create significant currency headwinds for our coverage companies with significant UK/Europe exposure. We note that the ancillary impact from the U.K. exit will likely create further fundamental revenue headwinds for our coverage. For the purposes of this analysis, we will assume most companies receive ~15% of their Europe/EMEA revenue in British Pounds and the balance in euros as most companies do not disclose a breakdown between GBP and EUR revenues. Companies with significant Europe/U.K. revenue exposure are listed below:

Networking Exposure: Networking Equipment companies in aggregate have the largest GBP/EUR exposure in our coverage.

 JNPR: ~25% exposure to Europe; estimated -1.3% headwind.  BRCD: ~25% exposure; estimated -1.3% revenue headwind.  CSCO: ~23% Europe; estimated -1.2% revenue headwind.  RKUS: ~23% exposed; estimated -1.2% revenue headwind. June 24, 2016 93 Brexit: macro and sector implications

 ANET: ~14% exposure to Europe/U.K.; -0.7% headwind.  ARRS: ~6% exposure; lowest among networking names with -0.3% impact.

Semiconductor & EDA Software Exposure: FX movements alone typically have more muted impacts on Semiconductor and EDA company revenues, as sales are largely transacted in USD (we note a strengthening USD could make US-based companies less competitive vs. local players). However, we note that semiconductor/EDA companies with revenues in Europe could see an impact.

 DLG: DLG's revenues are mostly USD while expenses are Euro-based, which could result in a cost tailwind however it is too early to tell what the negative macro impact from Brexit will be given that it is headquartered in Europe.  CDNS: Has ~19% exposure to EMEA however most of its revenue is transacted in USD.  SNPS: Has ~13% exposure to Europe which could translate to a -0.5% revenue headwind for future periods however the company partially hedges currency risk.  NVDA: ~10% exposure to Europe; revenue is largely transacted in USD.  SMTC: ~17% exposure to Europe; revenue transacted in USD.  MSCC: ~16% Europe; revenue transacted in USD.

EMS Exposure: On the EMS side, we expect minimal impact solely from FX movements. Although EMS companies (SANM/PLXS/BHE) have mid-single-digit exposure to Europe, the ancillary impact of the "Brexit" decision could negatively impact business fundamentals. Non-precious metals mining RBC Dominion Securities Inc. Fraser Phillips (Equity Analyst)| (416) 842-7859 | [email protected]

Brexit Implications The two key fundamental impacts on the global mining industry of Brexit will be through currency movements and economic growth.

The U.S. dollar is negatively correlated with commodity prices and the strength of the U.S. dollar post the vote is therefore negative for the commodities. The negative impact on individual companies is mitigated in part by the degree to which their cost base is denominated in currencies other than the dollar.

Exhibit 32: Trade- Weighted U.S. Dollar and Metal Prices

180 260

160 220

140 180

120 140

100 100

80 60

60 20 00 02 04 06 08 10 12 14 16

US Recessions US$ Index (LS) Economist Base Metals Price Index (RS) Source: Bloomberg, NBER, RBC Capital Markets

June 24, 2016 94 Brexit: macro and sector implications

A slowdown in economic growth in the U.K. and Europe as a result of Brexit would result in a slowing in global commodity demand growth which would exacerbate the current oversupply in commodity markets and put downward pressure on prices. The U.K. alone is not material in terms of global commodity consumption. However, in total Europe makes up 16% to 18% of global base metals demand and a significant slowing in European growth would have negative implications for global commodity demand, the supply/demand balances, and prices.

Share of 2015 Global consumption UK % Europe % Aluminium 0.5% 15.8% Copper 0.1% 16.6% Zinc 0.9% 17.9% Nickel 0.9% 18.1%

Source: WBMS, ICSG, ILZSG, INSG, RBC Capital Markets

P&C Insurance sector RBC Capital Markets, LLC Mark Dwelle (Equity Analyst) | (804) 782-4008 | [email protected]

Brexit exposure Most of our coverage list is somewhat insulated as they are U.S. centric and/or part of the global reinsurance market. Although many insurers in our coverage list operate Lloyd's of London syndicates, they also do business in Bermuda, Dublin, Zurich and various other alternative destinations around the globe. The biggest exposure is through personnel located in the UK that transact business through Lloyd's more so than business written with customers there.

In terms of FX, any weakening of major currencies (particularly against the U.S. Dollar) could have a short-term negative impact although our coverage list isn't particularly currency exposed. Aon would benefit from the British Pound weakening as many of its personnel expenses are paid in Pounds. If interest rates weaken further, that would be a negative for reinvestment yields but a plus for book values (through positive marks on bond portfolios).

Negative implications We don't see any one company as having outsized exposure to Brexit. On the insurance carrier side, we would view Markel as being most exposed to the Brexit in our coverage universe (9% of business in the UK last year) as they have a fairly large Lloyd's syndicate.

Insurance broker Arthur J. Gallagher also has been trying to build/integrate a UK operation (19% of its business was UK business last year). Also, Aon is headquartered in the UK and has a fairly large employee base located in London.

We would note that the top four largest global insurance brokers operate globally and aren't wedded to the London/UK market. In other words, they can staff up more in locations where the business is going fairly rapidly.

Positive implications Possible companies that could benefit from Brexit-driven disruption would be Chubb as they are Swiss based and have a diversified global premium base. Bermuda insurers/reinsurers June 24, 2016 95 Brexit: macro and sector implications

Arch Capital and RenaissanceRe also could be beneficiaries if more business flows to Bermuda.

Safety trades For those investors that are looking to avoid any exposure to Brexit/Europe, Travelers is our favorite idea as 98% of its business is written in the U.S. and Canada. Other large-cap names that are essentially all U.S. business include Allstate, The Hartford, and Progressive. Payments, Processors & IT Services RBC Capital Markets, LLC Daniel Perlin (Equity Analyst) | (410) 625-6130 | [email protected]

Exposure to the UK and Europe In light of the Brexit vote, we felt it would be helpful to review our coverage for (a) exposure to the UK / Europe and (b) the global banks. Based on this review we would highlight the following exposures:

 Accenture (ANC) – 35% of FQ3/16 revenue was generated in Europe, 21% from Financial Services  Cognizant (CTSH) – 15% of Q1/16 revenue was generated in Europe, 40% from Financial Services  Fidelity National Information Services (FIS) – 8% of Q1/16 revenue was generated in the UK, 10% in Europe and 44% from its Global Financial Solutions segment  Global Payments (GPN) – 26% of FQ2/16 revenue was generated in Europe  MasterCard (MA) – 28% of Q1/16 Gross Dollar Volume (GDV) was nerated in Europe  NCR Corporation (NCR) – 30% of Q1/16 revenue was generated in Europe  Verifone (PAY) – 37% of FQ2/16 revenue was generated in Europe, Middle East and Africa  Visa (V) – currently in the process of buying Visa Europe which we estimate could represent ~10% of pro-forma annual revenue  Western Union (WU) – 26% of Q1/16 consumer-to-consumer (C2C) revenue was from Europe, or ~20% of total revenue

Powersports RBC Capital Markets, LLC Joseph Spak (Equity Analyst) | (212) 428-2364 | [email protected]

Thinking through Brexit Broader economic concerns and risk-off could weigh on the group, however for the most part the powersports sector is US-centric. Below is total exposure to Europe. We don't have exact UK data but on average believe it to be low-to-mid single digit as a percent of sales.

Harley-Davidson (HOG) - 14% of 2015 sales were in EMEA. We don't have HOG's direct exposure to the UK, but believe that UK accounts for ~10% of European total motorcycle sales and that HOG's 651cc+ share in the UK is ~10%.

Polaris (PII) exposure to EMEA (we believe mainly Europe) was ~10% in 2015. The UK alongside Germany is a target growth region for PII’s small vehicle business.

Brunswick (BC) had overall a ~12% exposure to Europe in 2015. By segment, Europe is ~12% of Marine Engine sales and ~8% of Boat. The Fitness segment is relatively more exposed with June 24, 2016 96 Brexit: macro and sector implications

~20% exposure to Europe in 2015. However, we note that the recent Cybex acquisition (acquired 1/20/2016) has likely bolstered UK exposure. Specialty Finance RBC Capital Markets, LLC Jason Arnold (Equity Analyst)| (415) 633-8594 | [email protected]

Brexit Exposure and Implications Given the results of the UK referendum vote to leave the European Union, we provide our initial thoughts on the implications of Brexit for our coverage. Overall, direct exposure to Europe is largely limited and/or manageable for all of our companies under coverage. Several sectors would benefit from lower benchmark interest rates for longer.

Aircraft Lessors: The highest exposure to Europe comes from the leasing sector, with an average exposure of 32.5% of net book value for names under coverage - FLY (42%), AER (32%), AL (31%), and AYR (25%). While exposures screen higher, individual country/airline exposure is far more modest (UK exposure is limited for most), while aircraft are highly mobile and airline demand remains robust for the more in demand types. Aircraft leases are nearly all dollar denominated and the assets tend to trade in dollars, substantially limiting lessor risk. A significant slowdown in broader European economies that curtails air travel demand could be expected to create higher operational risk for the lessors - air travel demand globally/aircraft demand by airlines remain the primary fundamental drivers for lessor performance. On the plus side, low short-term benchmark interest rates persisting would be expected to benefit net income via lowering borrowing costs.

Consumer Finance: AXP has the highest exposure to Europe with ~10% of revenues coming from the EMEA markets - primarily via spending revenue. COF’s exposure to Europe is in the UK, which accounts for a modest ~3% of its credit card loan portfolio and 1.4% of total loans. DFS’s exposure is through its Diners Club International division, which accounts for ~8.5% of its transactional volume, however this is a much more modest source of revenue (we estimate well below 1% of NII/fee revenue), along with the fact that it recently sold its Diners Club Italy subsidiary. Card issuers DFS and COF are more or less modestly asset sensitive now, while AXP is liability sensitive - so varying impact from lower interest rates.

Mortgage REITs: The only company under coverage with European exposure is CLNY - European investments account for ~19% of net book value and 35% of AUM under its investment management business. CLNY has minimal currency exposure (~4% of total loans and investments) related to Euro and British Pound-denominated investments, of which approximately 83%/66% respectively is hedged. Agency mortgage REITs (NLY, AGNC, ANH, along with MFA from the hybrid MREITs) from our coverage would benefit from lower rates longer - good defensive names in particular given valuations at 0.8x-0.9x book value and 10- 12%+ dividend yields.

Business Development Companies (BDCs): Few have direct exposure to Europe directly with most loans concentrated in North America. To the degree that investment portfolio companies have operations/exposure in Europe, credit performance could challenge portfolio company capacity to repay - though this would be only more impactful in the event of more dire macro conditions. Lower benchmark interest rates longer would help funding costs, while wider credit spreads would presumably benefit new investment returns as a possible offset - though clearly many moving parts here.

June 24, 2016 97 Brexit: macro and sector implications

Coupled with relatively limited net exposures to the UK (and the Eurozone as a whole), we believe that the US Specialty Finance sector is well positioned to weather through a period of stress/volatility from Europe from a credit and capital perspective. Specialty Retail & Department Stores RBC Capital Markets, LLC Brian Tunick (Equity Analyst) | (212) 905-2926 | [email protected]

Brexit Impact We believe Brexit could have a moderate impact on our group given: 1) companies’ direct exposure to UK, and 2) stronger USD could continue to negatively impact tourism in the US.

Direct UK exposure: Of the companies under our coverage we note the ones with highest UK exposure include SIG (~12% of sales), TJX (~10% of sales), KORS (~10% of sales), ANF (7% of sales), TIF (~5% of sales), and GPS (~5% of sales). That said, we note that TIF, KORS, ANF could possibly offset the weaker consumer environment in the region with increased tourist spending due to weaker GBP. We also believe both SIG and TJX have a number of initiatives that could help them largely maintain comp momentum in the UK.

Weaker tourism / outlet traffic: In addition to the international top line impact, we expect stronger USD to continue to pose a headwind to companies with tourism and outlet exposure. Of those we highlight M ( tourism accounts for ~5% of sales), TIF ( tourism accounts for ~25% Americas and 40% of NY flagship sales), COH (outlets account for 45% of NA store base), and KORS (outlets account for ~35% of NA store base.)

Within our coverage we continue to favor LULU, TJX, BURL, COH, and SIG. Software RBC Capital Markets, LLC Ross MacMillan (Equity Analyst) | (212) 428-7917 | [email protected]

EMEA revenue exposure Within our coverage universe, we highlight EMEA Revenue Exposure from largest to smallest.

DWRE and MKTO are not on the list given pending M&A transactions.

 SAP ~45%  ORCL ~34%  MSFT ~ est. ~30-40%  ADBE ~31%  ANSS ~31%  ZEN ~28%  N ~25%  CRM ~18%  WDAY ~18%  HUBS <15%  BNFT <10%  SHOP <10%  ULTI <5%  ELLI <5%

June 24, 2016 98 Brexit: macro and sector implications

Telecom Services / Specialized REITS / Internet RBC Capital Markets, LLC Jonathan Atkin (Equity Analyst) | (415) 633-8589 | [email protected]

Initial thoughts on Brexit We believe Brexit is not a disruptive operational event for our universe, but note the associated FX risks. The trend over the past few IT deployments in European datacenters, particularly in the wake of the NSA revelations, has increasingly been to distribute the colocated IT assets across multiple countries. Hence, it is no longer as common to serve all of Europe out of a single hub such as Dublin, London, or Amsterdam.

We suspect the Brexit could continue this trend, and hence is not a disruptive event for datacenter or network operators but involves some FX risk.

The companies in our coverage universe with GBP exposures are as follows:

 INXN operates exclusively in Europe, reporting in Euros, and has 12% exposure to the GBP.  EQIX has 17% Euro and 11% GBP exposure.  DLR has 11% GBP and 4% Euro exposure.  LVLT has 4% GBP exposure and 3% Euro exposure.  RAX has roughly 30% GBP exposure with no notable Euro exposure

U.S. Banking Sector RBC Capital Markets, LLC Jon G. Arfstrom (Equity Analyst) | (612) 373-1785 | [email protected] Gerard Cassidy (Equity Analyst) | (207) 780-1554 | [email protected] Jake Civiello (Equity Analyst) | (207) 780-1554 | [email protected] Joe Morford (Equity Analyst) | (415) 633-8518 | [email protected]

Brexit Exposure and Implications Given the results of the U.K. referendum vote to leave the European Union, we provide our initial thoughts on the implications of Brexit for our coverage. Additionally, in the table below, we detail the net exposures disclosed by several of our banks to the UK.

Overall, while the direct exposure to the UK is fairly contained and manageable for all of our banks, we view the Brexit decision as a net negative for U.S. banks since it means the Fed is unlikely to raise short-term rates in the near-term. Furthermore, turmoil in the European bond markets could further weigh on U.S. long-term rates, which would drive a flatter yield curve and put greater pressure on margins.

In terms of a potential credit event in the U.S. from Brexit, keep in mind that the severely adverse scenario in the Federal Reserve’s DFAST results yesterday included extremely harsh global and domestic conditions including a 50% decline in equity market prices, a doubling of the U.S. unemployment rate to ~10%, a materially negative GDP, and negative interest rates. Even in such a scenario, the U.S. banking industry as a whole demonstrated that it would maintain very healthy capital levels. Coupled with relatively limited net exposures to the UK (and the Eurozone as a whole), we believe that the U.S. banking sector is well positioned to weather through a period of stress/volatility from Europe from a credit and capital perspective. U.S. Banking Sector – Brexit Exposure and Implications

June 24, 2016 99 Brexit: macro and sector implications

Net Country Asset Exposures Disclosed ($ millions) UK Exposure Total Assets % Bank of America BAC 51,467 2,186,596 2.4% Citigroup C* 30,941 1,800,967 1.7% JPMorgan Chase & Co. JPM 50,400 2,423,808 2.1% Morgan Stanley MS 18,746 807,497 2.3% SVB Financial SIVB* 1,000 43,574 2.3% Wells Fargo & Co WFC 27,035 1,849,182 1.5%

*Loan Exposures only **As of 2015, exposures on gross basis Source: Company reports

Brexit implications for East Coast community banks East Coast small and mid cap community banks have negligible direct exposure to the UK and Europe more broadly. This is true from the perspectives of revenue, expense and total exposure. While global unease could negatively impact US GDP and broader economic expansion, which could lead to slower than projected loan growth or signs of weakness in credit quality, we would be surprised if fundamentals dramatically changed in the near-term.

The primary issue community banks face is associated with added uncertainty regarding the yield curve. Small cap banks are heavily reliant on spread lending for operating revenues, especially compared to larger regional and money center peers.

At the short end of the curve, consensus expectations prior to Brexit were for 1-2 Federal Funds rate increases in 2016. In our models, we expected an increase in July and December 2016. The FOMC has historically pointed to global developments as a factor for not adjusting the FF rate. This could have a negative impact on consensus EPS projections over the next few weeks as banks prepare for the end of the second quarter and reporting results in late July.

Another issue that could pressure community banks is the unprecedented demand at the long end of the yield curve. With the 10-year US Treasury near an all-time low of about 1.55% (in conjunction with persistent flattening at the intermediate part of the curve where most community banks price commercial loans), management teams could have to adjust loan growth trajectories to preserve NIM. This may also be reflected in investment securities portfolio reinvestment yields.

On a positive note, the global uncertainty provides those banks with more acute funding issues (in particular some of the metro-NY multi-family lenders) an opportunity to pursue core deposits from larger competitors that may have more direct exposure to the UK and Europe. Furthermore, the perception of community banks being insulated from global exposure may lead to relative outperformance.

June 24, 2016 100 Brexit: macro and sector implications

U.S. E&Ps RBC Capital Markets, LLC Scott Hanold (Equity Analyst) | (512) 708-6354 | [email protected] Kyle Rhodes (Equity Analyst) | (512) 708-6342 | [email protected]

Brexit impact The immediate implications from Brexit for the US E&Ps (covered by RBC analysts Scott Hanold and Kyle Rhodes) is related to currency driven weakness in oil price. Thus, we view the referendum results as negative in the near-term for oily operators, with less of an impact for gas-weighted producers. However, we think there is likely limited intermediate term impact to our fundamental oil supply/demand thoughts. As a result, we would be buyers on any prolonged selloff in select oil-weighted names. Our top oil-weighted ideas to target on weakness are CRZO, CXO, DVN, NBL, NFX and PXD. U.S. Food Retail RBC Capital Markets, LLC William Kirk (Equity Analyst)| (212) 548-3183 | [email protected]

Little International Exposure This morning’s Brexit result has stirred up a new wave of market volatility. However, companies in our coverage space have very limited foreign exposure. Sprouts, Kroger, Natural Grocers, and SUPERVALU operate completely in the domestic market; Smart & Final has 14 stores (5%) in Mexico under a joint venture; and 4% of UNFI’s business comes from Canada. Whole Foods is the only one has exposure to U.K. With 9 stores in U.K. and 10 stores in Canada out of 434 store base (2.1% and 2.3%, respectively), international markets contribute ~3% to the overall company revenue in FY15. We believe the risk imposed by Brexit to our universe is minimal; our companies could be a defensive play in the current environment. U.S. Packaged Food RBC Capital Markets, LLC David Palmer (Equity Analyst) | (212) 905-5998 | [email protected]

Thoughts on Brexit Food for thought after a historic Brexit vote: We believe a Brexit vote has 3 implications for packaged food and restaurant stocks: 1) US dollar strength versus the Pound and Euro (and the resultant drag to EPS for multi-nationals, 2) Rising political and economic uncertainty in Europe (and potential consumer confidence impact to demand), and 3) financial market instability with further implications for consumer confidence (e.g. restaurant dinner demand) and sector rotation to safety/dividend stocks. Overall, for the food sector, we see this event as potentially positive for relative performance. Among food companies, we see the greatest potential negative impact to Hain Celestial (~27% of sales from UK). Other companies with some exposure to the UK include Kellogg’s (10% of sales), and Mondelez, Kraft Heinz, and General Mills (all in the MSD range).

Reasons why Brexit may be a net positive for food: We see 5 reasons for strong relative performance for food after Brexit: 1) Perpetuate the favorable input cost and interest rate environment that has helped support food stock earnings and multiples, 2) International exposure is less than the average in the food sector (25% average vs. 50%+ other staples), 3) Relatively low direct exposure to UK pound (Hain Celestial and Kellogg’s are highest with 27% and 10% of sales, with several others with MSD or lower exposure), 4) Average dividend yield June 24, 2016 101 Brexit: macro and sector implications

for the sector of 2.3%, which has widened 50bps versus the 10-year treasury over the last 12 months—something that augurs well for relative performance, and 5) relatively large margin gains occurring at some food companies (see below).

Potential margin opportunity should continue to bolster food sector; Some transactional margin implications: Overall, we believe the Brexit event (and resultant FX drag) is largely dwarfed by the ongoing EPS upside potential in US Food driven by 1) continued benign interest and commodity input costs, 2) restructuring and productivity initiatives, 3) global footprint optimizations for likes of KHC and MDLZ, 4) trade promotion optimization, and 5) EPS step changes through M&A and consolidation. In our coverage universe, That said, we will be watching not only the USD/GBP, but also the USD/EUR – especially for Mondelez with 5% UK exposure and ~24% EUR exposure. Companies such as Mondelez and Kraft Heinz also have Euro-dominated costs into the UK market, which may create small transactional impact to margins in that market. Generally speaking, we believe a strong US dollar benefits smaller and more domestic companies like B&G Foods and Pinnacle Foods, particularly with regard to input costs. U.S. Power & Utilities: RBC Capital Markets, LLC Shelby Tucker (Equity Analyst) | (212) 428-6462 | [email protected] Insoo Kim (Equity Analyst) | (212) 905-2995 | [email protected]

Utility Financial Exposure to Brexit Minimal; Power Names More at Risk Our View: For the most part, U.S. utilities should hold up well today relative to the broader market following the Brexit vote. With the exception of PPL (see today's note), U.S. utilities have no exposure to the pound or the euro. Furthermore, a tightening Treasury market should help the group, relatively speaking. A likely risk-off trade might create weakness for U.S. power names. Within that sub-group, AES Corp (AES, Outperform) has the most exposure to foreign currencies (~25% of pre-tax contribution). For full year 2016, AES management had guided for a $0.005 and <$0.005 EPS impact for every 10% move in the euro (EUR) and British pound (GBP).

Our favorite defensive names are Duke Energy (DUK, Outperform), Southern Co (SO, Sector Perform), NextEra Energy (NEE, Outperform), and CMS Energy (CMS, Sector Perform). US Refiners RBC Capital Markets, LLC Brad Heffern (Equity Analyst) | (512) 708-6311 | [email protected]

Brexit Implications On a direct basis, we think the US refiners are relatively well insulated from Brexit implications, as our entire coverage universe has limited operations in Europe and limited sales into the European market. Refiners also generally buy crude and sell products in USD only. Indirectly, if Brexit has a long-term impact on petroleum demand in Europe, this could potentially cause an oversupply in the Atlantic Basin, which would likely bring down US cracks in general as well. Marathon Petroleum (MPC) remains our Top Pick, and we would be buyers on weakness. Please see below for company specific implications:

June 24, 2016 102 Brexit: macro and sector implications

Moderate Impact:  Valero Energy (VLO): The Pembroke refinery in the UK represents 9% of VLO's capacity, and another 8% of capacity resides in Quebec and is highly exposed to the Atlantic Basin. VLO is also the largest product exporter in our universe, and we think a meaningful portion of these exports go to Europe.  Phillips 66 (PSX): PSX has direct exposure to the UK through the Humber refinery, which represents 10% of capacity. Overall, 16% of PSX's refining capacity is located in Europe. PSX is also a large product exporter, and some of these exports go to Europe. PSX also has significant marketing operations in Europe, and has chemical facilities located in Belgium.  PBF Energy (PBF): PBF has no direct exposure to Europe, and does not export products in any meaningful way. However, 42% of PBF's capacity is composed of coastal East Coast refineries, which would be highly affected by Atlantic Basin oversupply.

Low Impact:  Marathon Petroleum (MPC): MPC has no direct exposure to Europe, and no refineries on the East Coast. However, the company is a significant product exporter. We think most of these exports stay in the Americas, but oversupply in the Atlantic Basin could affect these markets.

No Direct Impact:  Calumet Petroleum (CLMT): No European/East Coast refineries and limited exports.  Delek US (DK): No European/East Coast refineries and no exports.  HollyFrontier Corp (HFC): No European/East Coast refineries and no exports.  Tesoro Corp (TSO): No European/East Coast refineries and exports only to the Pacific Basin.  Western Refining (WNR): No European/East Coast refineries and exports only to Mexico.

June 24, 2016 103 Brexit: macro and sector implications

U.S. REITs RBC Capital Markets, LLC Rich Moore (Equity Analyst) | (440) 715-2646 | [email protected] Michael Carroll (Equity Analyst) | (440) 715-2649 | [email protected] Wes Golladay (Equity Analyst) | (440) 715-2650 | [email protected]

Brexit is a near-term positive for REITs The decision for the UK to leave the European Union (Brexit) is a net positive for REITs due to our expectation that interest rates should remain low. The industry could outperform the overall market by 100+ bps today as investors seek security and stable cash flows. Below we outline the impact on each sector and names to play/avoid:

Positively Impacted  Healthcare: The sector should benefit as the risk-off trade will likely drive interest rates lower. These property types typically have the longest leases in the industry and along with the triple net REIT sector are the most levered to interest rate moves. o Names to Play: Ventas (VTR) and Physicians Realty Trust (DOC)  Triple Net Lease: Sustained low interest rates along with the longest duration leases in the industry should set the stage for outperformance in a volatile global environment. o Names to Play: National Retail (NNN) and EPR Properties (EPR)  Office: This sector should benefit as companies could potentially look to reallocate human capital away from the UK and Europe. o Names to Play: Boston Properties (BXP) and Alexandria Real Estate Equities (ARE)  Multifamily: The sector should benefit from a potential increase in domestic employment. o Names to Play: Essex (ESS) and Camden (CPT)

Negatively Impacted  Lodging: Global growth concerns and a potential currency related decline in in-bound domestic tourism should hit lodging REITs the hardest. o Names to Avoid: Host Hotels (HST) and Hersha Hospitality (HT)  Industrial: We believe the Industrial REIT sector will be among the most impacted spaces in the industry today. The property type is directly impacted by global economic growth and global trade. o Names to Avoid: Prologis (PLD)

Neutral  Community Centers: This sector should be largely unaffected as community centers are largely pure play domestic companies. o Names to Play: Regency (REG) and Kimco (KIM)  Malls: The sector should remain largely on the sidelines but some headwinds exist due to a potential slowdown in travel and foreign exchange worries. o Names to Play: General Growth Properties (GGP) and Macerich (MAC)  Storage: The sector should be largely unaffected as the targeted customer is the US domestic consumer. o Names to Play: Extra Space (EXR) and Public Storage (PSA)Brexit is a near-term positive for REITs

June 24, 2016 104 Brexit: macro and sector implications

U.S. Restaurants RBC Capital Markets, LLC David Palmer (Equity Analyst) | (212) 905-5998 | [email protected]

Thoughts on Brexit Contemplating UK exposure and a shaky consumer mood in restaurants In restaurants, we see 3 major implications from the Brexit vote: 1) Currency impact from the pound and euro, 2) potential consumer confidence weakness in Europe and US as a result of geo-political uncertain and financial market turbulence, and 3) rising potential appeal for names with “staple like” demand and/or high dividend.

Currency and consumption impact in the UK and Europe The British pound and euro are down 6%+ and 2%+ today on the Brexit vote. Regarding UK and total Europe exposure (including the UK), we note that those with the highest exposure are McDonald’s (9% and 41% for UK and Europe respectively), Yum Brands (3%/11%), Restaurant Brands (2%/8%) and Starbucks (<5% EMEA). While currency translation is likely going to be a headwind to earnings, we also wonder how much overall economic uncertainty might weigh on the consumer mindset in the near term.

Another reason for demand gap between fast food and casual dining? In recent months and weeks, restaurant industry demand trends have decelerated and it is unclear to us if the Brexit vote will further worsen trends. We estimate fast food chain SSS trends in the 1.5%+ range in recent weeks while casual dining chain SSS has declined 2%+. Our guess is that this vote could sustain the relatively wide gap between fast food and casual dining demand growth. One potential outcome is that this could impact more discretionary US occasions (e.g. full service dinner occasions) if it results in sustained US financial market turbulence. In addition, it is perhaps just as likely that a strong dollar and a potential drop in gasoline prices would be net supportive to fast food demand. Our favorite restaurant stocks remain Yum Brands, Starbucks and McDonald’s.

June 24, 2016 105 Brexit: macro and sector implications

Companies mentioned 3i Infrastructure PLC (LSE: 3IN.L; GBp180; Outperform) Alibaba Group Holding Limited (NYSE: BABA; $79.14; Outperform) 3M Company (NYSE: MMM; $174.11; Underperform) Alimentation Couche-Tard (TSX: ATDb.TO; C$53.01; Outperform) A10 Networks Inc (NYSE: ATEN; $6.62; Not Rated) Allergan plc (NYSE: AGN; $233.51; Outperform) ABB Ltd (VX: ABBN.S; CHFNA; Sector Perform) Alliance Data Systems Corp. (NYSE: ADS; $201.61; Outperform) Abbott Laboratories (NYSE: ABT; $39.63; Outperform) Allianz SE (XETRA: ALV GR; €140.90; Outperform) Abcam PLC (LSE: ABC LN; GBp653; Sector Perform) Allied Properties Real Estate Investment Trust (TSX: AP_u.TO; C$37.93; Abercrombie & Fitch Co. (NYSE: ANF; $19.33; Sector Perform) Outperform) Aberdeen Asset Management Plc (LSE: ADN.L; GBp313; Sector Perform) Alliqua BioMedical Inc (NASDAQ: ALQA; $1.14; Outperform) Abertis Infraestructuras S.A. (SIBE: ABE SM; €13.72; Outperform) Allison Transmission Holdings Inc (NYSE: ALSN.N; $28.56; Outperform) Abivax SA (NXT PA: ABVX FP; €5.58; Outperform; Speculative Risk) Allscripts Healthcare Solutions, Inc. (NASDAQ: MDRX; $12.63; Outperform) ABN AMRO Group NV (NXT AM: ABN NA; €18.51; Outperform) Almost Family, Inc. (NASDAQ: AFAM; $43.00; Sector Perform) Acacia Mining PLC (LSE: ACA.LN; GBp342; Outperform) Alphabet Inc. (NASDAQ: GOOGL; $714.87; Outperform) Acadia Healthcare Company, Inc. (NASDAQ: ACHC; $62.44; Outperform) Alrosa Ao (MICEX: ALRS RM; RUB71.42; Underperform; Speculative Risk) Acadian Timber Corp. (TSX: ADN.TO; C$16.62; Outperform) Alstom SA (NXT PA: ALO FP; €21.85; Underperform) Acadia Realty Trust (NYSE: AKR; $34.14; Outperform) AltaGas Ltd. (TSX: ALA.TO; C$30.79; Sector Perform) Accenture plc (NYSE: ACN; $118.91; Outperform) Altice NV (NXT AM: ATC NA; €14.95; Outperform) Accuray Inc (NASDAQ: ARAY; $5.26; Sector Perform) Altria Group, Inc. (NYSE: MO; $66.31; Sector Perform) AcelRx Pharmaceuticals Inc. (NASDAQ: ACRX; $2.73; Outperform) Altus Group Limited (TSX: AIF CN; C$22.20; Sector Perform) Aconex Ltd (ASX: ACX AU; AUD7.03; Outperform; Speculative Risk) Amazon.com, Inc. (NASDAQ: AMZN; $722.08; Outperform) Acorda Therapeutics, Inc. (NASDAQ: ACOR; $26.31; Outperform; Speculative AMC Entertainment Holdings Inc (NYSE: AMC; $27.24; Outperform) Risk) Amdocs Ltd (NASDAQ: DOX; $56.53; Not Rated) Actuant Corporation (NYSE: ATU; $24.90; Outperform) Amedisys, Inc. (NASDAQ: AMED; $50.91; Sector Perform) Adecco SA (VX: ADEN VX; CHF59.55; Sector Perform) America Movil SAB de CV (NYSE: AMX; $12.41; Underperform) Adelaide Brighton Ltd. (ASX: ABC AU; AUD5.31; Underperform) American Assets Trust Inc. (NYSE: AAT; $41.04; Outperform) adidas AG (XETRA: ADS GR; €123.40; Sector Perform) American Axle & Manufacturing Holdings Inc. (NYSE: AXL; $15.80; Sector Admiral Group PLC (LSE: ADM.L; GBp2,011; Underperform) Perform) Adobe Systems Inc (NASDAQ: ADBE; $96.21; Outperform) American Capital Agency Corp. (NASDAQ: AGNC; $19.29; Outperform) Advance Auto Parts, Inc. (NYSE: AAP; $154.93; Outperform) American Eagle Outfitters, Inc. (NYSE: AEO; $15.36; Outperform) Advanced Drainage Systems, Inc. (NYSE: WMS; $27.39; Outperform) American Electric Power Company, Inc. (NYSE: AEP; $66.59; Sector Perform) Advantage Oil & Gas Ltd. (TSX: AAV.TO; C$7.06; Outperform) American Equity Investment Life Holding Co (NYSE: AEL US; $16.62; Outperform) Aecon Group Inc. (TSX: ARE.TO; C$17.58; Outperform) American Express Company (NYSE: AXP; $63.25; Underperform) Aegon NV (NXT AM: AGN NA; €4.34; Sector Perform) American Farmland Company (AMEX: AFCO; $6.03; Sector Perform) Aena SA (MADRID: AENA SM; €119.45; Sector Perform) American International Group (NYSE: AIG; $54.71; Outperform) AerCap Holdings N.V. (NYSE: AER; $38.34; Outperform) American Tower Corporation (NYSE: AMT; $111.47; Outperform) Aerie Pharmaceuticals, Inc. (NASDAQ: AERI; $18.18; Outperform; Speculative Ameriprise Financial Inc. (NYSE: AMP; $101.71; Outperform) Risk) AmerisourceBergen Corp. (NYSE: ABC; $77.55; Outperform) Aéroports de Paris S.A. (NXT PA: ADP FP; €102.75; Sector Perform) Amerisur Resources plc (LSE: AMER LN; GBp27.00; Outperform; Speculative Risk) Aetna, Inc. (NYSE: AET US; $121.00; Outperform) Ametek, Inc. (NYSE: AME; $47.47; Outperform) AFLAC Inc. (NYSE: AFL; $71.77; Sector Perform) Amgen Inc. (NASDAQ: AMGN; $152.27; Outperform) Africa Oil Corp. (TSX: AOI CN; C$1.93; Outperform; Speculative Risk) Amphenol Corporation (NYSE: APH; $59.54; Top Pick) AGCO Corporation (NYSE: AGCO; $52.25; Sector Perform) Anadarko Petroleum Corporation (NYSE: APC; $55.52; Outperform) Agellan Commercial Real Estate Investment Trust (TSX: ACR_u.TO; C$10.27; Analog Devices, Inc. (NASDAQ: ADI; $58.11; Outperform) Sector Perform) Anglo American Platinum Limited (JSE: AMS SJ; ZAc35,745; Sector Perform) AGF Management Limited (TSX: AGFb.TO; C$5.27; Underperform) Anglo American PLC (LSE: AAL.L; GBp695; Sector Perform) Aggreko PLC (LSE: AGK LN; GBp1,205; Sector Perform) AngloGold Ashanti Ltd (JSE: ANG SJ; ZAc23,243; Outperform) Agile Therapeutics (NASDAQ: AGRX; $7.28; Outperform; Speculative Risk) Anheuser-Busch InBev (BRU: ABI BB; €114.10; Sector Perform) AGL Energy Limited (ASX: AGL AU; AUD18.39; Underperform) Annaly Capital Management, Inc. (NYSE: NLY; $10.76; Outperform) Agnico Eagle Mines Limited (NYSE: AEM; $49.80; Outperform) ANSYS, Inc. (NASDAQ: ANSS; $92.41; Sector Perform) Agrium Inc. (NYSE: AGU; $95.80; Outperform) Anthem, Inc. (NYSE: ANTM US; $128.67; Outperform) Aimia Inc. (TSX: AIM.TO; C$8.20; Sector Perform) Antofagasta PLC (LSE: ANTO.L; GBp440; Sector Perform) Airbus Group NV (NXT PA: AIR.PA; €55.53; Sector Perform) Anworth Mortgage Asset Corporation (NYSE: ANH; $4.65; Outperform) Air Canada (TSX: AC CN; C$9.41; Outperform; Speculative Risk) Aon plc (NYSE: AON; $108.90; Outperform) Aircastle Limited (NYSE: AYR; $21.61; Sector Perform) Apache Corp (NYSE: APA; $58.16; Sector Perform) Air France-KLM SA (NXT PA: AF FP; €6.57; Sector Perform; Speculative Risk) APA Group (ASX: APA.AX; AUD8.71; Outperform) Air Lease Corporation (NYSE: AL; $28.13; Top Pick) Apartment Investment and Management Company (NYSE: AIV; $42.12; Sector Akamai Technologies Inc (NASDAQ: AKAM; $57.17; Sector Perform) Perform) Akorn Inc. (NASDAQ: AKRX; $29.10; Outperform) APERAM SA (NXT AM: APAM NA; €33.79; Sector Perform) Alacer Gold Corp. (TSX: ASR.TO; C$2.89; Sector Perform) Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI; $16.38; Outperform) Alamos Gold Inc. (NYSE: AGI; $7.54; Sector Perform) Apollo Global Management, LLC (NYSE: APO; $15.69; Sector Perform) Alcoa Inc. (NYSE: AA; $10.15; Sector Perform) Apollo Investment Corporation (NASDAQ: AINV; $5.52; Outperform) Aldermore Group Plc (LSE: ALD LN; GBp206; Outperform) Apple Inc (NASDAQ: AAPL; $96.10; Outperform) Alexandria Real Estate Equities, Inc. (NYSE: ARE; $99.24; Outperform) Applied Materials Inc (NASDAQ: AMAT; $24.52; Sector Perform) Alfa Laval AB (OMX: ALFA SS; SEK135.00; Sector Perform) Aptose Biosciences Inc. (NASDAQ: APTO; $2.44; Outperform; Speculative Risk) Algonquin Power and Utilities Corp. (TSX: AQN.TO; C$11.71; Outperform) Aramark (NYSE: ARMK; $33.91; Top Pick)

June 24, 2016 106 Brexit: macro and sector implications

Arbutus Biopharma Corporation (NASDAQ: ABUS; $3.54; Outperform; B&G Foods Inc. (NYSE: BGS; $46.65; Outperform) Speculative Risk) B&M European Value Retail S.A. (LSE: BME LN; GBp291; Underperform) ArcBest Corporation (NASDAQ: ARCB; $16.78; Sector Perform) B2Gold Corp (TSX: BTO.TO; C$2.78; Outperform) ArcelorMittal (NXT AM: MT NA; €4.81; Sector Perform) BAE Systems PLC (LSE: BA/ LN; GBp504; Top Pick) Arch Capital Group Ltd. (NASDAQ: ACGL; $70.86; Outperform) Baker Hughes Inc (NYSE: BHI; $47.17; Outperform) Archrock, Inc. (NYSE: AROC; $9.11; Underperform) Banco Bilbao Vizcaya Argentaria S.A. (SIBE: BBVA SM; €5.78; Sector Perform) Archrock Partners, L.P. (NASDAQ: APLP US; $14.10; Sector Perform) Banco de Sabadell SA (SIBE: SAB SM; €1.50; Sector Perform) ARC Resources Ltd. (TSX: ARX.TO; C$21.68; Outperform) Banco Popular Español SA (SIBE: POP SM; €1.39; Underperform) Arena Pharmaceuticals, Inc. (NASDAQ: ARNA; $1.91; Sector Perform; Speculative BancorpSouth, Inc. (NYSE: BXS; $22.84; Outperform) Risk) Banco Santander SA (SIBE: SAN SM; €4.22; Underperform) Ares Capital Corporation (NASDAQ: ARCC; $14.44; Sector Perform) Bankers Petroleum Ltd. (TSX: BNK CN; C$2.11; Sector Perform) Ares Management, L.P. (NYSE: ARES; $14.02; Outperform) Bank of America Corporation (NYSE: BAC; $14.04; Outperform) Argonaut Gold Inc. (TSX: AR.TO; C$3.39; Sector Perform) Bank of Hawaii Corporation (NYSE: BOH; $70.98; Sector Perform) Ariad Pharmaceuticals, Inc. (NASDAQ: ARIA; $7.54; Sector Perform; Speculative Bank of Montreal (TSX: BMO.TO; C$83.27; Sector Perform) Risk) BankUnited, Inc. (NYSE: BKU; $32.97; Outperform) Arista Networks Inc (NYSE: ANET; $73.82; Sector Perform) Barclays PLC (LSE: BARC LN; GBp187; Sector Perform) Arizona Mining Inc. (TSX: AZ CN; C$1.66; Outperform; Speculative Risk) Bar Harbor Bankshares (AMEX: BHB; $35.47; Outperform) ARM Holdings plc (LSE: ARM.L; GBp1,019; Outperform) Barrick Gold Corporation (NYSE: ABX; $19.35; Sector Perform) Armstrong World Industries, Inc. (NYSE: AWI; $40.51; Sector Perform) Bats Global Markets Inc. (NYSE: BATS US; $26.72; Underperform) ArQule Inc. (NASDAQ: ARQL; $1.92; Outperform; Speculative Risk) Baxter International Inc. (NYSE: BAX; $45.96; Sector Perform) ARRIS International PLC (NASDAQ: ARRS; $22.82; Outperform) Baytex Energy Corp (TSX: BTE CN; C$7.69; Sector Perform) Arrowhead Pharmaceuticals, Inc. (NASDAQ: ARWR US; $5.88; Sector Perform; BB&T Corporation (NYSE: BBT; $36.95; Outperform) Speculative Risk) BCE Inc. (TSX: BCE.TO; C$60.25; Outperform) Arthur J. Gallagher & Co. (NYSE: AJG; $47.56; Sector Perform) Beach Energy Ltd (ASX: BPT AU; AUD0.60; Outperform) Artisan Partners Asset Management Inc. (NYSE: APAM; $30.90; Outperform) Beacon Roofing Supply, Inc. (NASDAQ: BECN; $45.57; Outperform) Artis REIT (TSX: AX_u.TO; C$13.18; Sector Perform) Beadell Resources Ltd (ASX: BDR AU; AUD0.34; Sector Perform) Asanko Gold Inc (TSX: AKG.TO; C$5.26; Sector Perform; Speculative Risk) Beazley PLC (LSE: BEZ LN; GBp385; Outperform) Ascena Retail Group, Inc (NASDAQ: ASNA; $7.12; Outperform) Becton, Dickinson and Co. (NYSE: BDX; $172.19; Sector Perform) Asciano Limited (ASX: AIO.AX; AUD8.83; Sector Perform) Beiersdorf AG (XETRA: BEI GR; €81.31; Outperform) Ashmore Group Plc (LSE: ASHM LN; GBp309; Underperform) Bemis Company, Inc. (NYSE: BMS; $51.66; Sector Perform) ASML Holding NV (NASDAQ: ASML; $101.39; Sector Perform) Benchmark Electronics, Inc. (NYSE: BHE; $22.40; Sector Perform) ASOS PLC (LSE: ASC LN; GBp3,845; Outperform) Benefitfocus Inc. (NASDAQ: BNFT; $39.66; Sector Perform) Assa Abloy AB (STO: ASSAB SS; SEK171.60; Outperform) Berendsen PLC (LSE: BRSN LN; GBp1,229; Sector Perform) Assicurazioni Generali SpA (MILAN: G IM; €13.12; Sector Perform) Berry Plastics Group Inc (NYSE: BERY US; $38.26; Outperform) Associated Banc-Corp (NYSE: ASB; $18.19; Sector Perform) Best Buy Co., Inc. (NYSE: BBY; $30.43; Sector Perform) Associated British Foods (LSE: ABF LN; GBp2,829; Underperform) BHP Billiton Ltd (ASX: BHP AU; AUD17.54; Sector Perform) AT&T Inc. (NYSE: T; $41.88; Sector Perform) BHP Billiton PLC (LSE: BLT.L; GBp871; Sector Perform) ATCO Ltd. (TSX: ACOx.TO; C$44.31; Underperform) Biogen (NASDAQ: BIIB; $238.62; Outperform) Athabasca Oil Corp (TSX: ATH.TO; C$1.48; Sector Perform; Speculative Risk) BioMarin Pharmaceutical Inc. (NASDAQ: BMRN; $83.65; Outperform) athenahealth, Inc. (NASDAQ: ATHN; $132.82; Underperform) Birchcliff Energy Ltd. (TSX: BIR.TO; C$6.54; Outperform) Atlantia S.p.A. (MILAN: ATL IM; €23.64; Sector Perform) BlackBerry Ltd (NASDAQ: BBRY; $7.00; Sector Perform; Speculative Risk) Atlantica Yield plc (NASDAQ: ABY; $18.51; Outperform) Black Diamond Group Ltd. (TSX: BDI.TO; C$5.54; Sector Perform) Atlantic Power Corporation (TSX: ATP.TO; C$3.16; Sector Perform) Black Hills Corp (NYSE: BKH; $61.96; Outperform) Atlas Air Worldwide Holdings, Inc. (NASDAQ: AAWW; $43.09; Sector Perform) BlackPearl Resources Inc. (TSX: PXX CN; C$1.04; Sector Perform; Speculative Risk) Atlas Copco AB (STO: ATCOA SS; SEK224.20; Sector Perform) BlackRock, Inc. (NYSE: BLK; $356.85; Outperform) ATS Automation Tooling Systems Inc. (TSX: ATA.TO; C$9.93; Sector Perform) Blueknight Energy Partners, LP (NASDAQ: BKEP; $5.13; Sector Perform) Atwood Oceanics Inc (NYSE: ATW; $13.27; Sector Perform) BMC Stock Holdings, Inc. (NASDAQ: BMCH; $18.09; Outperform) Aureus Mining Inc (TSX: AUE CN; C$0.08; Restricted) BNP Paribas (NXT PA: BNP FP; €47.70; Outperform) Aurizon Holdings Limited (ASX: AZJ AU; AUD4.76; Underperform) Boardwalk Pipeline Partners, LP (NYSE: BWP; $17.91; Outperform) Ausnet Services (ASX: AST AU; AUD1.58; Underperform) Boardwalk Real Estate Investment Trust (TSX: BEI_u.TO; C$54.21; Outperform) AutoCanada Inc. (TSX: ACQ.TO; C$22.13; Outperform) Bodycote Plc (LSE: BOY LN; GBp613; Sector Perform) Autodesk, Inc. (NASDAQ: ADSK; $59.06; Sector Perform) Bojangles' Inc. (NASDAQ: BOJA; $17.74; Sector Perform) Autoliv Inc. (NYSE: ALV; $124.48; Underperform) BOK Financial Corporation (NASDAQ: BOKF; $62.76; Sector Perform) Automatic Data Processing, Inc. (NYSE: ADP; $89.94; Sector Perform) Bolsas y Mercados Espanoles (MADRID: BME SM; €25.46; Underperform) AutoZone, Inc. (NYSE: AZO; $762.77; Sector Perform) Bombardier Inc. (TSX: BBDb.TO; C$1.98; Outperform; Speculative Risk) AvalonBay Communities, Inc. (NYSE: AVB; $174.73; Outperform) Bonanza Creek Energy Inc (NYSE: BCEI; $2.39; Sector Perform; Speculative Risk) Avanti Communications Group PLC (LSE: AVN LN; GBp64.00; Outperform; Bonavista Energy Corporation (TSX: BNP.TO; C$3.37; Sector Perform) Speculative Risk) Booz Allen Hamilton Holding Corp (NYSE: BAH; $29.12; Outperform) Avigilon Corp (TSX: AVO.TO; C$12.90; Sector Perform) Boralex Inc. (TSX: BLX.TO; C$18.89; Sector Perform) Aviva Plc (LSE: AV/ LN; GBp445; Underperform) Boral Limited (ASX: BLD AU; AUD5.92; Underperform) Avon Products (NYSE: AVP; $4.24; Sector Perform) BorgWarner Inc. (NYSE: BWA; $33.70; Sector Perform) AWE Limited (ASX: AWE AU; AUD0.84; Outperform) Boston Beer Co. Inc. (NYSE: SAM; $161.11; Sector Perform) Axalta Coating Systems Ltd (NYSE: AXTA; $28.02; Outperform) Boston Private Financial Holdings, Inc. (NASDAQ: BPFH; $12.45; Sector Perform) AXA SA (NXT PA: CS FP; €21.51; Outperform) Boston Properties, Inc. (NYSE: BXP; $129.98; Outperform) Axiall Corporation (NYSE: AXLL; $32.67; Sector Perform) Boston Scientific Corporation (NYSE: BSX; $22.97; Outperform) Axovant Sciences Ltd (NYSE: AXON; $12.25; Outperform; Speculative Risk) Bouygues SA (NXT PA: EN FP; €28.18; Underperform) B/E Aerospace, Inc. (NASDAQ: BEAV; $49.49; Sector Perform) Boyd Group Income Fund (TSX: BYD-U CN; C$74.09; Sector Perform) June 24, 2016 107 Brexit: macro and sector implications

bpost SA (BRU: BPOST BB; €23.39; Sector Perform) Cardinal Health, Inc. (NYSE: CAH; $78.12; Outperform) BP p.l.c. (LSE: BP/ LN; GBp387; Sector Perform) CareTrust REIT, Inc. (NASDAQ: CTRE; $13.35; Outperform) Brambles Ltd (ASX: BXB AU; AUD12.20; Outperform) Cargojet Inc. (TSX: CJT.TO; C$31.91; Outperform) Brewin Dolphin Holdings PLC (LSE: BRW.L; GBp260; Sector Perform) Carillion PLC (LSE: CLLN.L; GBp279; Sector Perform) Bridge Bancorp, Inc. (NASDAQ: BDGE; $29.43; Outperform) Carlisle Companies Incorporated (NYSE: CSL; $105.16; Sector Perform) Bright Horizons Family Solutions (NYSE: BFAM; $66.19; Outperform) Carlsberg A/S (CSE: CARLB DC; DKK626.00; Outperform) Brinker International, Inc. (NYSE: EAT; $46.06; Sector Perform) CarMax, Inc. (NYSE: KMX; $46.98; Sector Perform) British American Tobacco p.l.c. (LSE: BATS.L; GBp4,276; Underperform) Carmike Cinemas Inc (NASDAQ: CKEC; $31.23; Sector Perform) Britvic plc (LSE: BVIC LN; GBp657; Sector Perform) Carrizo Oil & Gas Inc (NASDAQ: CRZO; $40.96; Outperform) Brixmor Property Group Inc. (NYSE: BRX; $25.67; Sector Perform) Cascades Inc. (TSX: CAS.TO; C$9.39; Outperform) Broadcom Limited (NASDAQ: AVGO US; $158.62; Top Pick) Casey's General Stores, Inc. (NASDAQ: CASY; $119.69; Outperform) Brocade Communications Systems Inc (NASDAQ: BRCD; $9.55; Sector Perform) Caterpillar Inc. (NYSE: CAT; $78.22; Sector Perform) Brookdale Senior Living Inc. (NYSE: BKD; $16.26; Top Pick) Cathay General Bancorp, Inc. (NASDAQ: CATY; $29.64; Outperform) Brookfield Asset Management Inc. (NYSE: BAM; $34.41; Outperform) CBL & Associates Properties, Inc. (NYSE: CBL; $9.74; Underperform) Brookfield Canada Office Properties (TSX: BOX_u.TO; C$28.92; Sector Perform) CBOE Holdings Inc (NASDAQ: CBOE; $64.66; Outperform) Brookfield Infrastructure Partners L.P. (NYSE: BIP; $44.59; Outperform) CBS Corp (NYSE: CBS; $53.69; Outperform) Brookfield Property Partners LP (NYSE: BPY; $24.58; Outperform) CDW Corporation (NASDAQ: CDW; $41.73; Outperform) Brookfield Renewable Partners L.P. (TSX: BEP_u.TO; C$37.80; Sector Perform) CEB Inc. (NYSE: CEB; $63.85; Outperform) Brown & Brown, Inc. (NYSE: BRO; $36.98; Sector Perform) Celanese Corp (NYSE: CE; $69.60; Sector Perform) Brown-Forman Corporation (NYSE: BF/B; $97.97; Sector Perform) Celestica Inc. (NYSE: CLS; $10.24; Sector Perform) BRP Inc. (TSX: DOO.TO; C$21.12; Outperform) Celgene Corp. (NASDAQ: CELG; $100.66; Outperform) Brunswick Corporation (NYSE: BC; $48.82; Outperform) Cellnex Telecom, S.A.U. (MADRID: CLNX SM; €14.24; Outperform) BTG PLC (LSE: BTG LN; GBp656; Outperform) Cenovus Energy Inc. (TSX: CVE.TO; C$18.74; Outperform) BT Group PLC (LSE: BT/A LN; GBp440; Outperform) Centamin PLC (LSE: CEY.L; GBp109; Sector Perform; Speculative Risk) Buckeye Partners, L.P. (NYSE: BPL; $72.22; Sector Perform) CenterPoint Energy, Inc. (NYSE: CNP; $23.49; Outperform) Bunzl PLC (LSE: BNZL LN; GBp2,065; Underperform) Centerra Gold Inc (TSX: CG.TO; C$7.22; Sector Perform) Burberry Group PLC (LSE: BRBY LN; GBp1,109; Underperform) Central Pacific Financial Corp. (NYSE: CPF; $24.54; Sector Perform) Burford Capital Ltd (LSE: BUR LN; GBp314; Outperform) Centrica plc (LSE: CNA.L; GBp218; Outperform) Burlington Stores Inc (NYSE: BURL.N; $62.85; Outperform) CenturyLink Inc. (NYSE: CTL; $28.52; Sector Perform) C.H. Robinson Worldwide, Inc. (NASDAQ: CHRW; $71.92; Outperform) Cerner Corporation (NASDAQ: CERN; $56.89; Top Pick) Cable & Wireless Communications PLC (LSE: CWC LN; GBp74.60; Outperform) Cervus Equipment Corporation (TSX: CVL.TO; C$11.30; Outperform) CACI International Inc (NYSE: CACI; $90.89; Sector Perform) CF Industries Holdings Inc. (NYSE: CF; $27.64; Sector Perform) Cadence Design Systems, Inc. (NASDAQ: CDNS US; $24.62; Outperform) CGG (NXT PA: CGG FP; €0.67; Not Rated) CAE Inc. (TSX: CAE.TO; C$16.18; Outperform) CGI Group Inc. (TSX: GIBa.TO; C$59.08; Outperform) CA Inc. (NASDAQ: CA; $33.58; Sector Perform) Chartwell Retirement Residences (TSX: CSH_u.TO; C$15.58; Sector Perform) Cairn Energy plc (LSE: CNE.L; GBp195; Sector Perform) Check Point Software Technologies Ltd. (NASDAQ: CHKP; $81.98; Sector Perform) CaixaBank SA (SIBE: CABK SM; €2.35; Underperform) Chemed Corporation (NYSE: CHE; $133.99; Sector Perform) Calfrac Well Services Ltd. (TSX: CFW.TO; C$3.69; Sector Perform) Chemtrade Logistics Income Fund (TSX: CHE_u.TO; C$17.79; Sector Perform) Callon Petroleum Company (NYSE: CPE; $11.87; Sector Perform) Cheniere Energy Partners, LP (NYSE:MKT: CQP; $29.61; Outperform) Calpine Corporation (NYSE: CPN; $14.18; Outperform) Cheniere Energy Partners LP Holdings LLC (NYSE:MKT: CQH; $19.96; Outperform) Calumet Specialty Products Partners LP (NASDAQ: CLMT; $4.98; Sector Perform; Chesapeake Energy Corporation (NYSE: CHK; $4.64; Underperform) Speculative Risk) Chesapeake Lodging Trust (NYSE: CHSP; $23.78; Sector Perform) Camden Property Trust (NYSE: CPT; $85.05; Outperform) Chevron Corporation (NYSE: CVX; $104.44; Sector Perform) Cameco Corporation (TSX: CCO.TO; C$14.58; Outperform) Chico's FAS, Inc. (NYSE: CHS; $10.94; Outperform) Campbell Soup Company (NYSE: CPB; $62.64; Sector Perform) Chipotle Mexican Grill, Inc. (NYSE: CMG; $408.89; Outperform) Canadian Apartment Properties Real Estate Investment Trust (TSX: CAR_u.TO; Choice Properties Real Estate Investment Trust (TSX: CHP_u.TO; C$13.68; Sector C$31.65; Outperform) Perform) Canadian Energy Services & Technology Corp (TSX: CEU.TO; C$4.04; Outperform) Chorus Aviation Inc. (TSX: CHRb.TO; C$6.33; Outperform) Canadian Imperial Bank of Commerce (TSX: CM.TO; C$103.91; Sector Perform) Chubb Limited (NYSE: CB; $128.64; Outperform) Canadian National Railway Company (TSX: CNR.TO; C$76.03; Outperform) Church & Dwight Co., Inc. (NYSE: CHD; $100.51; Sector Perform) Canadian Natural Resources Limited (TSX: CNQ.TO; C$39.41; Top Pick) CI Financial Corp. (TSX: CIX.TO; C$27.14; Sector Perform) Canadian Pacific Railway Limited (TSX: CP.TO; C$166.11; Outperform) CIGNA Corp. (NYSE: CI US; $129.75; Sector Perform) Canadian Real Estate Investment Trust (TSX: REF_u.TO; C$46.65; Outperform) Cincinnati Financial Corp. (NASDAQ: CINF; $71.82; Sector Perform) Canadian Tire Corporation, Limited (TSX: CTCa.TO; C$140.20; Outperform) Cinemark Holdings Inc (NYSE: CNK US; $34.69; Outperform) Canadian Utilities Limited (TSX: CU.TO; C$36.57; Sector Perform) Cineplex Inc (TSX: CGX.TO; C$51.72; Sector Perform) Canadian Western Bank (TSX: CWB.TO; C$25.33; Restricted) Cintas Corporation (NASDAQ: CTAS; $95.69; Sector Perform) Canam Group Inc. (TSX: CAM.TO; C$12.95; Outperform) Circassia Pharmaceuticals Plc (LSE: CIR LN; GBp107; Sector Perform) Canexus Corp. (TSX: CUS.TO; C$1.35; Sector Perform; Speculative Risk) Cisco Systems Inc (NASDAQ: CSCO; $29.22; Outperform) Canfor Corporation (TSX: CFP.TO; C$13.24; Sector Perform) Citigroup Inc. (NYSE: C; $44.46; Outperform) Canfor Pulp Products Inc. (TSX: CFX.TO; C$9.99; Sector Perform) Citizens Financial Group Inc. (NYSE: CFG; $22.12; Sector Perform) Canyon Services Group Inc. (TSX: FRC.TO; C$5.83; Outperform) Citrix Systems, Inc. (NASDAQ: CTXS; $86.35; Sector Perform) Capital One Financial Corp. (NYSE: COF; $65.60; Outperform) Clearwater Paper Corporation (NYSE: CLW; $66.55; Sector Perform) Capital Power Corporation (TSX: CPX.TO; C$19.04; Sector Perform) Cliffs Natural Resources Inc. (NYSE: CLF; $5.25; Sector Perform) Capita PLC (LSE: CPI LN; GBp1,090; Sector Perform) Clinigen Group Plc (LSE: CLIN LN; GBp555; Outperform) Capstone Mining Corp (TSX: CS.TO; C$0.71; Underperform; Speculative Risk) Close Brothers Group PLC (LSE: CBG LN; GBp1,355; Underperform) Cara Operations Ltd. (TSX: CAO CN; C$28.74; Outperform) CMC Markets PLC (LSE: CMCX LN; GBp275; Outperform) Cardinal Energy Ltd. (TSX: CJ CN; C$10.20; Outperform) CME Group Inc/IL (NASDAQ: CME; $96.16; Underperform) June 24, 2016 108 Brexit: macro and sector implications

CMS Energy Corp. (NYSE: CMS; $43.59; Sector Perform) CT Real Estate Investment Trust (TSX: CRT_u.TO; C$14.85; Sector Perform) Coach, Inc. (NYSE: COH; $40.43; Outperform) CTT-Correios de Portugal S.A. (LIS: CTT PL; €8.31; Underperform) Cobalt International Energy Inc. (NYSE: CIE; $1.93; Sector Perform; Speculative Cullen/Frost Bankers, Inc. (NYSE: CFR; $66.65; Sector Perform) Risk) Cummins Inc (NYSE: CMI; $118.96; Sector Perform) Cobham plc (LSE: COB LN; GBp156; Sector Perform) Curetis AG (NXT AM: CURE NA; €6.69; Outperform) CoBiz Financial Inc. (NASDAQ: COBZ; $12.29; Outperform) Curis, Inc. (NASDAQ: CRIS; $1.66; Outperform; Speculative Risk) Coeur Mining Inc (NYSE: CDE US; $9.48; Sector Perform) CVS Health Corp (NYSE: CVS; $94.02; Outperform) Cogeco Communications Inc. (TSX: CCA.TO; C$67.80; Outperform) CYBG PLC (LSE: CYBG LN; GBp288; Outperform) Cogent Communications Holdings Inc (NASDAQ: CCOI; $39.95; Outperform) CyrusOne Inc. (NASDAQ: CONE; $51.86; Outperform) Cognizant Technology Solutions Corporation (NASDAQ: CTSH; $62.70; D.R. Horton, Inc. (NYSE: DHI; $31.29; Outperform) Outperform) Dalradian Resources Inc (TSX: DNA CN; C$1.04; Outperform; Speculative Risk) Colfax Corporation (NYSE: CFX; $30.80; Sector Perform) Danaher Corporation (NYSE: DHR; $100.44; Sector Perform) Colgate-Palmolive Company (NYSE: CL; $72.67; Sector Perform) Dana Holding Corporation (NYSE: DAN; $12.61; Sector Perform) Colliers International Group Inc. (NASDAQ: CIGI; $37.85; Outperform) Danone (NXT PA: BN FP; €63.88; Underperform) Colony Capital, Inc. (NYSE: CLNY; $16.80; Outperform) Danske A/S (CSE: DANSKE DC; DKK187.10; Outperform) Columbia Banking System, Inc. (NASDAQ: COLB; $29.71; Sector Perform) Darden Restaurants, Inc. (NYSE: DRI; $67.98; Sector Perform) Comcast Corp (NASDAQ: CMCSA; $62.95; Outperform) Davide Campari S.p.A. (ITA: CPR IM; €8.66; Outperform) Comerica Incorporated (NYSE: CMA; $44.48; Outperform) DaVita HealthCare Partners Inc. (NYSE: DVA; $77.15; Sector Perform) Com Hem Holding AB (OMX: COMH SS; SEK69.85; Outperform) DCP Midstream Partners, LP (NYSE: DPM; $36.77; Outperform) Cominar Real Estate Investment Trust (TSX: CUF_u.TO; C$17.03; Sector Perform) DDR Corp. (NYSE: DDR; $17.50; Sector Perform) Commerzbank AG (XETRA: CBK GR; €7.16; Sector Perform) Debenhams PLC (LSE: DEB LN; GBp67.80; Outperform) Community Bank System, Inc. (NYSE: CBU; $42.18; Sector Perform) Dechra Pharmaceuticals PLC (LSE: DPH LN; GBp1,099; Outperform) Community Health Systems, Inc. (NYSE: CYH; $13.89; Sector Perform) Deere & Company (NYSE: DE; $84.29; Sector Perform) CommVault Systems, Inc. (NASDAQ: CVLT; $45.57; Sector Perform) Delek US Holdings, Inc. (NYSE: DK; $13.07; Outperform) Compagnie Financiere Richemont SA (SWX: CFR VX; CHF60.15; Outperform) Delphi Automotive PLC (NYSE: DLPH; $70.71; Outperform) Compass Group PLC (LSE: CPG LN; GBp1,299; Outperform) Delta Lloyd NV (NXT AM: DL NA; €4.12; Underperform) Computer Modelling Group Ltd (TSX: CMG.TO; C$9.99; Underperform) Demandware Inc. (NYSE: DWRE; $74.91; Sector Perform) Computer Programs and Systems (NASDAQ: CPSI; $38.63; Sector Perform) Denbury Resources Inc. (NYSE: DNR; $4.68; Sector Perform) Computer Sciences Corp. (NYSE: CSC; $51.81; Restricted) Depomed Inc. (NASDAQ: DEPO; $19.67; Sector Perform; Speculative Risk) ConAgra Foods, Inc. (NYSE: CAG; $47.91; Sector Perform) Det Norske Oljeselskap ASA (OSLO: DETNOR NO; NOK95.10; Sector Perform) Concho Resources (NYSE: CXO; $129.95; Outperform) Detour Gold Corporation (TSX: DGC.TO; C$29.40; Outperform) Concordia Healthcare Corp. (NASDAQ: CXRX; $24.01; Outperform) Deutsche Bank AG (XETRA: DBK GR; €15.63; Sector Perform) CONE Midstream Partners, LP (NYSE: CNNX; $17.73; Outperform) Deutsche Börse AG (XETRA: DB1 GR; €81.33; Restricted) Conifex Timber Inc. (TSX: CFF.TO; C$3.55; Sector Perform; Speculative Risk) Deutsche Lufthansa AG (XETRA: LHA GR; €11.99; Sector Perform) ConocoPhillips (NYSE: COP; $45.63; Outperform) Deutsche Post AG (XETRA: DPW GR; €26.41; Sector Perform) Consolidated Edison, Inc. (NYSE: ED; $76.86; Sector Perform) Deutsche Telekom AG (XETRA: DTE GR; €14.85; Outperform) Consort Medical PLC (LSE: CSRT LN; GBp1,030; Sector Perform) Devon Energy Corporation (NYSE: DVN; $38.80; Outperform) Constellation Brands, Inc. (NYSE: STZ; $155.99; Outperform) DH Corporation (TSX: DH.TO; C$32.43; Outperform) Constellation Software Inc. (TSX: CSU.TO; C$507.01; Outperform) DHX Media Ltd. (TSX: DHX/B CN; C$6.25; Outperform) Contango Oil & Gas Co (AMEX: MCF; $13.03; Outperform) Diageo PLC (LSE: DGE LN; GBp1,833; Outperform) Continental Building Products, Inc. (NYSE: CBPX; $21.84; Outperform) Dialog Semiconductor PLC (XETRA: DLG GR; €27.77; Outperform) Continental Gold Limited (TSX: CNL.TO; C$3.13; Outperform; Speculative Risk) Diamond Offshore Drilling Inc (NYSE: DO; $25.86; Sector Perform) Continental Resources Inc. (NYSE: CLR; $45.88; Outperform) DICK'S Sporting Goods Inc. (NYSE: DKS; $40.79; Sector Perform) Core Laboratories NV (NYSE: CLB; $126.92; Outperform) Digital Realty Trust, Inc. (NYSE: DLR; $104.82; Outperform) CorEnergy Infrastructure Trust, Inc. (NYSE: CORR; $28.05; Sector Perform) Diploma PLC (LSE: DPLM LN; GBp853; Outperform) CoreSite Realty Corporation (NYSE: COR; $85.21; Outperform) Direct Line Insurance Group Plc (LSE: DLG LN; GBp374; Outperform) Corporate Office Properties Trust (NYSE: OFC; $28.14; Sector Perform) Discover Financial Services (NYSE: DFS; $54.28; Top Pick) Corus Entertainment Inc (TSX: CJRb.TO; C$13.20; Sector Perform) Discovery Communications Inc (NASDAQ: DISCA; $26.37; Outperform) Costco Wholesale Corp (NASDAQ: COST; $157.03; Outperform) DISH Network Corporation (NASDAQ: DISH; $53.50; Sector Perform) Cotiviti Holdings Inc (NYSE: COTV US; $19.51; Outperform) Dixons Carphone plc (LSE: DC/ LN; GBp427; Top Pick) Cott Corporation (NYSE: COT; $15.29; Restricted) DnB ASA (OSLO: DNB NO; NOK100.50; Underperform) Coty Inc. (NYSE: COTY; $26.73; Sector Perform) DNO ASA (OSLO: DNO.OL; NOK8.95; Outperform; Speculative Risk) Crane Co. (NYSE: CR; $59.57; Sector Perform) Dollarama Inc. (TSX: DOL.TO; C$91.03; Outperform) Credit Agricole SA (PSE: ACA FP; €8.90; Sector Perform) Dollar General Corporation (NYSE: DG; $91.68; Outperform) Credit Suisse Group AG (VX: CSGN VX; CHF13.06; Outperform) Dollar Tree, Inc. (NASDAQ: DLTR; $92.38; Top Pick) Crescent Point Energy Corp. (TSX: CPG.TO; C$20.56; Sector Perform) Dominion Diamond Corporation (NYSE: DDC; $9.51; Sector Perform) Crestwood Equity Partners LP (NYSE: CEQP; $21.31; Sector Perform) Dominion Midstream Partners, LP (NYSE: DM; $27.85; Outperform) Crew Energy Inc. (TSX: CR.TO; C$5.83; Outperform) Dominion Resources, Inc. (NYSE: D; $73.95; Restricted) Criteo SA (NASDAQ: CRTO; $47.12; Outperform) Domtar Corporation (NYSE: UFS; $37.44; Outperform) Crius Energy Trust (TSX: KWH_u.TO; C$8.27; Sector Perform; Speculative Risk) Dorel Industries Inc. (TSX: DIIb.TO; C$35.80; Sector Perform) Crombie REIT (TSX: CRR_u.TO; C$15.15; Sector Perform) Dover Corp (NYSE: DOV; $71.66; Sector Perform) Crown Castle International Corp. (NYSE: CCI; $96.08; Outperform) Drax Group Plc (LSE: DRX.L; GBp325; Underperform) CSG Systems International Inc (NASDAQ: CSGS; $41.15; Not Rated) Dream Office REIT (TSX: D_u.TO; C$18.58; Sector Perform) CSI Compressco, LP (NASDAQ: CCLP; $8.00; Sector Perform) Dr Pepper Snapple Group Inc. (NYSE: DPS; $92.57; Sector Perform) CSRA Inc (NYSE: CSRA; $24.61; Outperform) DSV A/S (CSE: DSV DC; DKK289.60; Outperform) CSR Limited (ASX: CSR AU; AUD3.64; Outperform) Duet Group (ASX: DUE.AX; AUD2.52; Sector Perform) CSX Corp (NYSE: CSX; $27.00; Outperform) Duke Energy Corporation (NYSE: DUK; $82.05; Outperform) June 24, 2016 109 Brexit: macro and sector implications

Duke Realty Corporation (NYSE: DRE; $25.44; Outperform) Ensign Energy Services Inc. (TSX: ESI.TO; C$7.37; Sector Perform) Dundee Precious Metals Inc. (TSX: DPM.TO; C$2.98; Restricted) Entergy Corporation (NYSE: ETR; $78.29; Sector Perform) Dunelm Group PLC (LSE: DNLM LN; GBp972; Underperform) Enterprise Products Partners L.P. (NYSE: EPD; $29.42; Outperform) Dunkin' Brands Group, Inc. (NASDAQ: DNKN; $43.53; Outperform) Envestnet, Inc. (NYSE: ENV; $35.99; Sector Perform) DuPont Fabros Technology, Inc. (NYSE: DFT; $46.26; Sector Perform; Speculative Envision Healthcare Holdings, Inc. (NYSE: EVHC; $26.68; Outperform) Risk) Enviva Partners LP (NYSE: EVA; $23.15; Outperform) Dynavax Technologies Corp (NASDAQ: DVAX; $15.01; Sector Perform; EOG Resources Inc (NYSE: EOG; $84.50; Sector Perform) Speculative Risk) EP Energy Corporation (NYSE: EPE; $6.33; Outperform) Dynegy Inc. (NYSE: DYN; $16.38; Outperform) Epizyme Inc. (NASDAQ: EPZM; $10.44; Outperform; Speculative Risk) E.I. du Pont de Nemours & Co. (NYSE: DD; $69.21; Sector Perform) EPR Properties (NYSE: EPR; $75.06; Outperform) E.ON SE (FSE: EOAN GR; €9.26; Sector Perform) EQT Corporation (NYSE: EQT; $78.76; Outperform) Eagle Pharmaceuticals Inc (NASDAQ: EGRX; $39.40; Outperform) EQT GP Holdings, LP (NYSE: EQGP; $24.30; Outperform) Easterly Government Properties, Inc. (NYSE: DEA; $18.70; Sector Perform) EQT Midstream Partners, LP (NYSE: EQM; $76.74; Outperform) Eastman Chemical Co (NYSE: EMN; $73.01; Outperform) Equifax Inc. (NYSE: EFX; $126.96; Outperform) East West Bancorp, Inc. (NASDAQ: EWBC; $37.33; Outperform) Equinix, Inc. (NASDAQ: EQIX; $385.43; Outperform) easyJet plc (LSE: EZJ LN; GBp1,533; Sector Perform) Equitable Group Inc. (TSX: EQB.TO; C$56.80; Sector Perform) Eaton Corporation plc (NYSE: ETN; $62.82; Sector Perform) Equity Commonwealth (NYSE: EQC; $29.09; Underperform) Eaton Vance Corp. (NYSE: EV; $37.49; Outperform) Equity Residential (NYSE: EQR; $66.09; Sector Perform) eBay, Inc. (NASDAQ: EBAY; $24.85; Sector Perform) Esperion Therapeutics (NASDAQ: ESPR; $16.90; Outperform; Speculative Risk) Eclipse Resources Corporation (NYSE: ECR; $4.32; Outperform; Speculative Risk) Essex Property Trust, Inc. (NYSE: ESS; $218.45; Outperform) Ecolab, Inc. (NYSE: ECL; $120.94; Outperform) Estée Lauder Companies Inc. (NYSE: EL; $94.95; Outperform) Ecopetrol S.A. (NYSE: EC; $9.80; Underperform) esure Group PLC (LSE: ESUR.L; GBp274; Outperform) EcoSynthetix Inc. (TSX: ECO.TO; C$1.40; Sector Perform; Speculative Risk) Etsy Inc (NASDAQ: ETSY; $9.93; Sector Perform) Edgewell Personal Care Company (NYSE: EPC; $84.43; Outperform) Euronext NV (PSE: ENX FP; €36.12; Outperform) Edison International (NYSE: EIX; $73.99; Outperform) Eutelsat Communications SA (NXT PA: ETL FP; €16.83; Underperform) EDP Energias De Portugal SA (BVL: EDP PL; €2.95; Sector Perform) Evertz Technologies Limited (TSX: ET.TO; C$18.18; Outperform) EDP Renovaveis SA (BVL: EDPR PL; €6.78; Outperform) Evolution Mining Ltd (ASX: EVN.AX; AUD2.46; Underperform) Education Realty Trust, Inc. (NYSE: EDR; $44.11; Outperform) Exchange Income Corporation (TSX: EIF CN; C$31.34; Outperform) Edwards Lifesciences Corp. (NYSE: EW; $99.08; Outperform) Exelon Corporation (NYSE: EXC; $34.95; Outperform) eHealth, Inc. (NASDAQ: EHTH; $14.18; Outperform) EXFO Inc. (NASDAQ: EXFO; $4.02; Sector Perform) Eldorado Gold Corporation (NYSE: EGO; $4.20; Outperform) Expedia, Inc. (NASDAQ: EXPE; $109.90; Outperform) Electricite de France SA (NXT PA: EDF FP; €11.06; Underperform) Expeditors International of Washington, Inc. (NASDAQ: EXPD; $49.01; Sector Electrocomponents PLC (LSE: ECM LN; GBp286; Sector Perform) Perform) Electrolux AB (STO: ELUXB SS; SEK234.20; Outperform) Express Scripts Holding Co (NASDAQ: ESRX; $76.95; Outperform) Element Financial (TSX: EFN.TO; C$14.68; Outperform) Extendicare Inc. (TSX: EXE.TO; C$8.18; Sector Perform) Elisa Oyj (HEL: ELISA FH; €33.66; Underperform) Extra Space Storage Inc. (NYSE: EXR; $87.04; Outperform) Ellie Mae Inc. (NYSE: ELLI; $87.53; Outperform) ExxonMobil Corporation (NYSE: XOM; $91.80; Outperform) Embraer S.A. (NYSE: ERJ; $22.03; Sector Perform) F.N.B. Corporation (NYSE: FNB; $13.24; Sector Perform) EMC Corporation (NYSE: EMC; $27.86; Restricted) F5 Networks Inc (NASDAQ: FFIV; $121.44; Sector Perform) Emera Incorporated (TSX: EMA.TO; C$46.48; Outperform) Facebook, Inc. (NASDAQ: FB; $115.08; Outperform) Emerson Electric Co. (NYSE: EMR; $53.67; Sector Perform) Fairfax Financial Holdings (TSX: FFH/U CN; $508.00; Outperform) Enable Midstream Partners, LP (NYSE: ENBL; $14.00; Sector Perform) Fairmount Santrol Holdings Inc (NYSE: FMSA; $8.16; Outperform) Enagás SA (SIBE: ENG SM; €26.75; Sector Perform) FAR Ltd (ASX: FAR AU; AUD0.08; Outperform; Speculative Risk) Enbridge Energy Management, L.L.C. (NYSE: EEQ; $23.02; Sector Perform) Faroe Petroleum plc (AIM: FPM LN; GBp68.00; Outperform; Speculative Risk) Enbridge Energy Partners, L.P. (NYSE: EEP; $23.29; Sector Perform) Federal Realty Investment Trust (NYSE: FRT; $157.77; Underperform) Enbridge Inc. (TSX: ENB.TO; C$54.92; Outperform) Federated Investors, Inc. (NYSE: FII; $30.52; Underperform) Enbridge Income Fund Holdings Inc. (TSX: ENF.TO; C$32.10; Sector Perform) FedEx Corporation (NYSE: FDX; $157.89; Sector Perform) Encana Corporation (NYSE: ECA; $8.32; Sector Perform) Ferrellgas Partners LP (NYSE: FGP; $17.36; Sector Perform) Endesa SA (SIBE: ELE SM; €17.63; Underperform) Ferrovial SA (SIBE: FER SM; €18.89; Outperform) Endocyte, Inc. (NASDAQ: ECYT; $3.52; Outperform; Speculative Risk) FibroGen, Inc (NASDAQ: FGEN; $16.17; Outperform; Speculative Risk) Endo International Plc (NASDAQ: ENDP; $15.84; Sector Perform) Fidelity & Guaranty Life (NYSE: FGL; $22.98; Sector Perform) Endologix Inc (NASDAQ: ELGX; $12.80; Outperform) Fidelity National Information Services (NYSE: FIS; $73.91; Outperform) Enel SpA (MILAN: ENEL IM; €4.00; Outperform) Fifth Street Asset Management Inc. (NASDAQ: FSAM; $4.12; Outperform) Enercare Inc (TSX: ECI.TO; C$16.84; Sector Perform) Fifth Street Finance Corp. (NASDAQ: FSC; $4.94; Outperform) Enerflex Ltd. (TSX: EFX.TO; C$10.65; Sector Perform) Fifth Third Bancorp (NASDAQ: FITB; $19.11; Outperform) Energen Corporation (NYSE: EGN; $49.85; Sector Perform) Finning International Inc. (TSX: FTT.TO; C$23.53; Sector Perform) Energizer Holdings, Inc. (NYSE: ENR; $50.00; Outperform) Firestone Diamonds Plc (AIM: FDI.L; GBp30.50; Sector Perform; Speculative Risk) Energy Transfer Equity, L.P. (NYSE: ETE; $14.35; Restricted) First Capital Realty Inc. (TSX: FCR.TO; C$22.11; Outperform) Energy Transfer Partners, L.P. (NYSE: ETP; $41.24; Outperform) FirstEnergy Corporation (NYSE: FE; $33.16; Sector Perform) Enerplus Corporation (TSX: ERF.TO; C$8.34; Outperform) First Financial Bancorp (NASDAQ: FFBC; $20.00; Sector Perform) Enghouse Systems Limited (TSX: ESL.TO; C$54.83; Outperform) FirstGroup PLC (LSE: FGP LN; GBp103; Underperform) ENGIE (NXT PA: ENGI FP; €14.69; Outperform) First Horizon National Corp. (NYSE: FHN; $14.10; Sector Perform) ENI SpA (MILAN: E; €14.58; Outperform) FirstMerit Corporation (NASDAQ: FMER; $21.18; Sector Perform) ENI SpA (MILAN: ENI.IM; €14.58; Outperform) First National Financial Corporation (TSX: FN.TO; C$31.10; Sector Perform) EnLink Midstream, LLC (NYSE: ENLC; $16.18; Sector Perform) First Niagara Financial Group, Inc. (NASDAQ: FNFG; $10.34; Sector Perform) EnLink Midstream Partners, LP (NYSE: ENLK; $16.45; Restricted) First Quantum Minerals Ltd. (TSX: FM.TO; C$9.83; Sector Perform) EnQuest PLC (LSE: ENQ LN; GBp31.25; Sector Perform) First Republic Bank (NYSE: FRC; $71.73; Sector Perform) June 24, 2016 110 Brexit: macro and sector implications

Fiserv, Inc. (NASDAQ: FISV; $105.63; Sector Perform) Gold Road Resources Ltd (ASX: GOR.AX; AUD0.64; Outperform; Speculative Risk) Fitbit Inc (NYSE: FIT; $13.29; Not Rated) Government Properties Income Trust (NYSE: GOV; $20.87; Underperform) Five Below, Inc. (NASDAQ: FIVE; $46.34; Outperform) Graco Inc. (NYSE: GGG; $82.54; Sector Perform) Fleetmatics Group PLC (NYSE: FLTX; $44.73; Outperform) Gramercy Property Trust, Inc. (NYSE: GPT US; $9.08; Sector Perform) Fletcher Building Limited (NZSE: FBU NZ; NZD6.68; Sector Perform) Granite Oil Corp. (TSX: GXO CN; C$7.67; Outperform) Flexion Therapeutics Inc (NASDAQ: FLXN; $14.84; Outperform; Speculative Risk) Granite Real Estate Investment Trust (TSX: GRT_u.TO; C$38.69; Sector Perform) Flextronics International Ltd. (NASDAQ: FLEX; $13.19; Outperform) Gran Tierra Energy Inc (TSX: GTE.TO; C$4.37; Top Pick) Flowserve Corporation (NYSE: FLS; $50.28; Underperform) Gray Television Inc (NYSE: GTN; $11.40; Outperform) Flughafen Wien AG (VSX: FLU AV; €100.15; Outperform) Greatbatch Inc. (NYSE: GB; $31.84; Sector Perform) Flughafen Zuerich AG (SWX: FHZN SW; CHF172.50; Outperform) Great Western Bancorp (NYSE: GWB; $32.98; Outperform) FLY Leasing Ltd. (NYSE: FLY; $10.93; Outperform) Great-West Lifeco Inc. (TSX: GWO.TO; C$35.70; Sector Perform) FMC Technologies Inc (NYSE: FTI; $28.11; Sector Perform) Green Bancorp, Inc. (NASDAQ: GNBC; $8.82; Outperform) Ford Motor Co. (NYSE: F; $13.40; Sector Perform) Greencoat UK Wind PLC (LSE: UKW LN; GBp105; Outperform) Foresight Solar Fund Ltd. (LSE: FSFL LN; GBp95.50; Sector Perform) Green Plains Partners LP (NASDAQ: GPP; $15.27; Outperform) Fortinet, Inc. (NASDAQ: FTNT; $34.32; Sector Perform) Groupe Eurotunnel SA (NXT PA: GET FP; €11.70; Sector Perform) Fortis Inc. (TSX: FTS.TO; C$41.88; Outperform) Groupon, Inc. (NASDAQ: GRPN; $3.35; Underperform) Fortress Investment Group LLC (NYSE: FIG; $4.59; Outperform) Gulfport Energy Corporation (NASDAQ: GPOR; $32.55; Outperform) Fortune Brands Home & Security, Inc. (NYSE: FBHS; $56.84; Outperform) Guyana Goldfields Inc (TSX: GUY.TO; C$9.57; Outperform; Speculative Risk) Forward Air Corporation (NASDAQ: FWRD; $46.85; Outperform) H&E Equipment Services, Inc. (NASDAQ: HEES; $20.31; Outperform) Forward Pharma (NASDAQ: FWP; $18.50; Outperform; Speculative Risk) H&R Real Estate Investment Trust (TSX: HR_u.TO; C$21.38; Sector Perform) Franco-Nevada Corporation (TSX: FNV.TO; C$86.89; Outperform) Halliburton Company (NYSE: HAL; $45.84; Outperform) Frank's International NV (NYSE: FI; $16.49; Sector Perform) Hancock Holding Company (NASDAQ: HBHC; $27.18; Sector Perform) Franklin Resources, Inc. (NYSE: BEN; $34.58; Sector Perform) Hannover Rueck SE (XETRA: HNR1 GY; €98.20; Sector Perform) Fraport AG Frankfurt Airport Services Worldwide (XETRA: FRA GR; €48.77; Sector Hargreaves Lansdown PLC (LSE: HL/ LN; GBp1,389; Sector Perform) Perform) Harley-Davidson, Inc. (NYSE: HOG; $46.86; Sector Perform) Freehold Royalties Ltd. (TSX: FRU.TO; C$11.99; Outperform) Harman International Industries, Incorporated (NYSE: HAR; $76.83; Outperform) Freeport-McMoRan Inc. (NYSE: FCX; $11.77; Sector Perform) Harris Corp (NYSE: HRS; $84.14; Outperform) Fresenius Medical Care AG & Co (NYSE: FMS; $43.26; Sector Perform) Hartford Financial Services Group Inc. (NYSE: HIG; $44.96; Sector Perform) Fresnillo PLC (LSE: FRES.L; GBp1,239; Underperform) Hastings Group Holdings plc (LSE: HSTG.L; GBp186; Sector Perform) Frontier Communications Corp. (NASDAQ: FTR; $5.10; Sector Perform) Hatteras Financial Corp. (NYSE: HTS; $15.83; Outperform) Fusionex International Plc (LSE: FXI LN; GBp150; Outperform) Hays PLC (LSE: HAS LN; GBp137; Outperform) G4S PLC (LSE: GFS LN; GBp181; Underperform) HCA Holdings, Inc. (NYSE: HCA; $79.75; Outperform) GAM Holding AG (SWX: GAM SW; CHF10.35; Underperform) HCP, Inc. (NYSE: HCP; $34.11; Underperform) Gartner, Inc. (NYSE: IT; $99.82; Sector Perform) HD Supply Holdings Inc. (NASDAQ: HDS; $35.27; Outperform) Gas Natural SDG SA (SIBE: GAS SM; €17.66; Underperform) Healthcare Realty Trust Inc (NYSE: HR; $33.62; Sector Perform) GBST Holdings Ltd (ASX: GBT AU; AUD4.65; Outperform) HealthSouth Corporation (NYSE: HLS; $40.82; Outperform) GEA Group AG (XETRA: G1A GR; €43.85; Sector Perform) Heartland Express, Inc. (NASDAQ: HTLD; $17.36; Underperform) Geberit AG (SWX: GEBN VX; CHF378.30; Outperform) Hecla Mining Company (NYSE: HL; $4.66; Sector Perform) Gem Diamonds Limited (LSE: GEMD.L; GBp131; Outperform) Heineken NV (NXT AM: HEIA NA; €81.27; Sector Perform) Genel Energy Plc (LSE: GENL LN; GBp138; Sector Perform; Speculative Risk) Hellenic Telecommunications Organization (ATHENS: HTO GA; €7.55; General Dynamics Corporation (NYSE: GD; $139.78; Outperform) Outperform; Speculative Risk) General Electric Co (NYSE: GE US; $31.19; Outperform) Helmerich & Payne Inc (NYSE: HP; $69.17; Outperform) General Growth Properties, Inc. (NYSE: GGP; $29.00; Outperform) Hemisphere Media Group Inc (NASDAQ: HMTV; $11.01; Outperform) General Mills, Inc. (NYSE: GIS; $66.77; Outperform) Henderson Group Plc (LSE: HGG LN; GBp267; Sector Perform) General Motors Company (NYSE: GM; $29.82; Sector Perform) Henkel AG & Co KGaA (XETRA: HEN3 GR; €104.69; Sector Perform) Genesee & Wyoming Inc (NYSE: GWR; $64.72; Sector Perform) Hennes & Mauritz AB (OMX: HMB SS; SEK256.70; Sector Perform) Genesis Energy, L.P. (NYSE: GEL; $38.41; Outperform) Henry Schein, Inc. (NASDAQ: HSIC; $177.61; Outperform) Genesis Healthcare, Inc. (NYSE: GEN; $1.72; Outperform) Hercules Capital, Inc. (NYSE: HTGC; $12.21; Outperform) Genuine Parts Company (NYSE: GPC; $99.41; Sector Perform) Hermes International (NXT PA: RMS FP; €341.40; Outperform) Genworth MI Canada (TSX: MIC.TO; C$33.55; Outperform) Hersha Hospitality Trust (NYSE: HT; $18.01; Sector Perform) George Weston Limited (TSX: WN.TO; C$111.34; Outperform) Hewlett-Packard Co (NYSE: HPQ; $12.95; Sector Perform) Georg Fischer AG (SWX: FI/N SW; CHF804.00; Outperform) Hewlett Packard Enterprise Co (NYSE: HPE; $19.65; Restricted) Gibson Energy Inc. (TSX: GEI.TO; C$15.70; Sector Perform) Hexagon AB (OMX: HEXAB SS; SEK320.00; Outperform) Gildan Activewear Inc. (NYSE: GIL; $28.96; Outperform) Hexcel Corp (NYSE: HXL; $42.97; Outperform) Gilead Sciences, Inc. (NASDAQ: GILD; $83.37; Outperform) HICL Infrastructure Company LD (LSE: HICL LN; GBp168; Sector Perform) Gjensidige Forsikring ASA (OSLO: GJF NO; NOK137.30; Outperform) Highfield Resources Ltd. (ASX: HFR.AX; AUD1.40; Outperform; Speculative Risk) GKN Plc (LSE: GKN LN; GBp288; Outperform) High Liner Foods Inc. (TSX: HLF.TO; C$18.97; Sector Perform) Glacier Bancorp, Inc. (NASDAQ: GBCI; $27.33; Sector Perform) Hilton Worldwide Holdings Inc. (NYSE: HLT; $23.43; Outperform) Glencore PLC (LSE: GLEN LN; GBp153; Outperform) Hiscox Ltd (LSE: HSX.L; GBp1,016; Outperform) Global Payments Inc. (NYSE: GPN; $75.89; Outperform) HNZ Group Inc. (TSX: HNZ CN; C$12.95; Sector Perform) Gluskin Sheff + Associates Inc. (TSX: GS.TO; C$16.76; Sector Perform) Hochschild Mining PLC (LSE: HOC LN; GBp158; Outperform) GMS Inc. (NYSE: GMS US; $22.43; Outperform) HollyFrontier Corporation (NYSE: HFC; $24.80; Outperform) Go-Ahead Group PLC (LSE: GOG LN; GBp2,088; Outperform) Hologic, Inc. (NASDAQ: HOLX; $35.62; Sector Perform) GoDaddy Inc. (NYSE: GDDY; $32.48; Outperform) Home Bancshares Inc. (NASDAQ: HOMB; $21.56; Sector Perform) Goldcorp Inc. (NYSE: GG; $17.60; Underperform) Home Capital Group Inc. (TSX: HCG.TO; C$32.10; Sector Perform) Gold Fields Ltd (JSE: GFI SJ; ZAc6,069; Outperform) Home Retail Group PLC (LSE: HOME LN; GBp160; Outperform) Goldman Sachs Group Inc/The (NYSE: GS; $152.66; Sector Perform) Homeserve PLC (LSE: HSV LN; GBp505; Outperform) June 24, 2016 111 Brexit: macro and sector implications

Honeywell International Inc. (NYSE: HON; $117.32; Outperform) International Personal Finance Plc (LSE: IPF.L; GBp299; Underperform) Horizon Discovery Group PLC (LSE: HZD LN; GBp150; Outperform; Speculative Inter Pipeline Ltd. (TSX: IPL.TO; C$26.92; Outperform) Risk) Interpublic Group of Cos Inc/The (NYSE: IPG; $24.60; Not Rated) Hortonworks, Inc. (NASDAQ: HDP US; $11.45; Outperform; Speculative Risk) Intertape Polymer Group Inc. (TSX: ITP.TO; C$20.77; Outperform) Hospitality Properties Trust (NYSE: HPT; $27.57; Underperform) Intertek Group Plc (LSE: ITRK LN; GBp3,215; Outperform) Host Hotels & Resorts Inc (NYSE: HST; $16.95; Outperform) InterXion Holding N.V. (NYSE: INXN; $38.62; Outperform) HSBC Holdings plc (LSE: HSBA.L; GBp454; Sector Perform) Intesa Sanpaolo SpA (MILAN: ISP.IM; €2.26; Outperform) Hub Group, Inc. (NASDAQ: HUBG; $40.47; Sector Perform) Intra-Cellular Therapies Inc. (NASDAQ: ITCI; $37.74; Outperform; Speculative HubSpot Inc (NYSE: HUBS US; $48.66; Outperform) Risk) HudBay Minerals Inc (TSX: HBM.TO; C$6.53; Outperform) Intuit Inc. (NASDAQ: INTU; $108.95; Sector Perform) Hudson's Bay Company (TSX: HBC.TO; C$15.90; Outperform) Intuitive Surgical Inc (NYSE: ISRG; $661.32; Sector Perform) Hugo Boss (XETRA: BOSS GR; €56.30; Underperform) Invesco Ltd. (NYSE: IVZ; $29.62; Outperform) Humana, Inc. (NYSE: HUM US; $187.31; Sector Perform) Investors Bancorp, Inc. (NASDAQ: ISBC; $11.87; Outperform) Huntington Bancshares Inc. (NASDAQ: HBAN; $9.43; Outperform) Iress Ltd (ASX: IRE AU; AUD10.85; Sector Perform) Husky Energy Inc. (TSX: HSE.TO; C$15.54; Outperform) Ithaca Energy (TSX: IAE.TO; C$1.25; Outperform) Hydro One Limited (TSX: H.TO; C$24.83; Outperform) Ivanhoe Mines Ltd. (TSX: IVN.TO; C$1.00; Outperform; Speculative Risk) IAMGOLD Corporation (NYSE: IAG US; $4.01; Underperform) J.B. Hunt Transport Services, Inc. (NASDAQ: JBHT; $80.75; Outperform) Iberdrola SA (SIBE: IBE SM; €6.00; Outperform) Jabil Circuit, Inc. (NYSE: JBL; $19.90; Sector Perform) IDEX Corporation (NYSE: IEX; $86.51; Outperform) Jack Henry & Associates Inc. (NASDAQ: JKHY; $84.37; Sector Perform) IG Group Holdings PLC (LSE: IGG LN; GBp840; Sector Perform) James Hardie Industries plc (ASX: JHX AU; AUD19.46; Sector Perform) IGM Financial (TSX: IGM.TO; C$36.76; Sector Perform) Jardine Lloyd Thompson Group PLC (LSE: JLT LN; GBp943; Outperform) IHS Inc. (NYSE: IHS; $116.18; Sector Perform) Jimmy Choo PLC (LSE: CHOO LN; GBp107; Outperform) Iliad SA (NXT PA: ILD FP; €187.65; Outperform) John Laing Group plc (LSE: JLG LN; GBp227; Outperform) Illinois Tool Works Inc (NYSE: ITW US; $106.82; Sector Perform) John Laing Infrastructure Fund Limited (LSE: JLIF LN; GBp125; Sector Perform) Iluka Resources Limited (ASX: ILU.AX; AUD6.30; Underperform) Johnson & Johnson (NYSE: JNJ; $117.38; Outperform) Imagination Technologies Group PLC (LSE: IMG.L; GBp181; Underperform) Johnson Controls, Inc. (NYSE: JCI; $44.99; Sector Perform) IMI Plc (LSE: IMI LN; GBp986; Underperform) Joy Global Inc. (NYSE: JOY; $22.76; Sector Perform) ImmunoGen, Inc. (NASDAQ: IMGN; $3.32; Sector Perform; Speculative Risk) JP Energy Partners LP (NYSE: JPEP; $7.52; Sector Perform) Impala Platinum Holdings Limited (JSE: IMP SJ; ZAc4,613; Sector Perform) JPMorgan Chase & Co. (NYSE: JPM; $64.05; Outperform) Impax Laboratories, Inc. (NASDAQ: IPXL; $30.33; Sector Perform) JRP Group PLC (LSE: JRP LN; GBp149; Outperform) Imperial Brands PLC (LSE: IMB.L; GBp3,678; Sector Perform) Juniper Networks Inc (NYSE: JNPR; $24.04; Sector Perform) Imperial Metals Corp (TSX: III.TO; C$5.69; Sector Perform; Speculative Risk) Jupiter Fund Management Plc (LSE: JUP LN; GBp447; Outperform) Imperial Oil Limited (TSX: IMO.TO; C$40.47; Sector Perform) Just Energy Group Inc. (TSX: JE.TO; C$8.04; Sector Perform) Imperva Inc. (NYSE: IMPV; $46.30; Outperform) Kansas City Southern (NYSE: KSU; $91.12; Outperform) Incitec Pivot Ltd (ASX: IPL.AX; AUD3.06; Outperform) KapStone Paper and Packaging Corporation (NYSE: KS; $15.51; Outperform) Independence Contract Drilling Inc (NYSE: ICD; $5.75; Outperform) KAZ Minerals PLC (LSE: KAZ LN; GBp140; Sector Perform) Independence Group (ASX: IGO.AX; AUD3.20; Outperform) KB Home (NYSE: KBH; $15.08; Sector Perform) Inditex (SIBE: ITX SM; €31.01; Outperform) Kellogg Co. (NYSE: K; $77.83; Sector Perform) Indivior PLC (LSE: INDV LN; GBp230; Underperform) Kelt Exploration Ltd. (TSX: KEL.TO; C$4.76; Outperform) Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG.TO; C$42.79; KemPharm, Inc. (NASDAQ: KMPH; $4.40; Outperform; Speculative Risk) Sector Perform) Kering (NXT PA: KER FP; €153.50; Sector Perform) Infinity Pharmaceuticals, Inc. (NASDAQ: INFI; $1.30; Sector Perform; Speculative KeyCorp (NYSE: KEY; $11.99; Outperform) Risk) Keyera Corp. (TSX: KEY.TO; C$37.86; Outperform) Information Services Corporation (TSX: ISV.TO; C$16.81; Sector Perform) KEYW Holding Corp/The (NASDAQ: KEYW; $9.84; Sector Perform) InfraREIT, Inc. (NYSE: HIFR; $17.20; Outperform) Killam Apartment REIT (TSX: KMP_u.TO; C$12.49; Outperform) Infrastrutture Wireless Italiane SpA (MILAN: INW IM; €4.13; Sector Perform) Kilroy Realty Corporation (NYSE: KRC; $64.67; Outperform) Ingersoll-Rand plc (NYSE: IR; $66.29; Sector Perform) Kimberly-Clark Corporation (NYSE: KMB; $133.96; Sector Perform) ING Groep NV (NXT AM: INGA NA; €10.98; Sector Perform) Kimco Realty Corporation (NYSE: KIM; $29.73; Outperform) Inmarsat PLC (LSE: ISAT LN; GBp756; Outperform) Kinaxis Inc. (TSX: KXS.T; C$53.81; Outperform) Innergex Renewable Energy (TSX: INE.TO; C$14.15; Sector Perform) Kinder Morgan, Inc. (NYSE: KMI; $18.90; Sector Perform) InnVest Real Estate Investment Trust (TSX: INN_u.TO; C$7.00; Restricted) Kindred Healthcare, Inc. (NYSE: KND; $11.59; Outperform) Installed Building Products Inc. (NYSE: IBP; $34.75; Outperform) Kingfisher PLC (LSE: KGF LN; GBp366; Underperform) Insys Therapeutics (NASDAQ: INSY; $13.07; Outperform) Kinross Gold Corporation (NYSE: KGC; $4.90; Outperform) Intact Financial Corp. (TSX: IFC.TO; C$89.57; Outperform) Kirby Corporation (NYSE: KEX; $67.78; Sector Perform) Integra LifeSciences Holdings Corp. (NASDAQ: IART; $77.07; Sector Perform) Kite Pharma Inc (NASDAQ: KITE; $53.11; Outperform; Speculative Risk) Intel Corporation (NASDAQ: INTC; $32.99; Sector Perform) Klondex Mines Ltd (TSX: KDX.TO; C$4.33; Outperform; Speculative Risk) Intelsat SA (NYSE: I US; $2.47; Underperform; Speculative Risk) Knight Transportation, Inc. (NYSE: KNX; $26.18; Sector Perform) Interactive Intelligence Group Inc. (NASDAQ: ININ; $41.66; Outperform) KNOT Offshore Partners, LP (NYSE: KNOP; $18.10; Outperform) Intercept Pharmaceuticals, Inc. (NASDAQ: ICPT; $154.26; Outperform; Kohl's Corp (NYSE: KSS; $37.52; Underperform) Speculative Risk) KONE OYJ (HEL: KNEBV FH; €41.30; Sector Perform) Intercontinental Exchange Inc (NYSE: ICE; $256.05; Sector Perform) Koninklijke KPN NV (NXT AM: KPN NA; €3.38; Outperform) Interfor Corporation (TSX: IFP.TO; C$11.22; Outperform) Koninklijke Philips N.V. (NXT AM: PHIA NA; €23.69; Outperform) International Business Machines Corporation (NYSE: IBM; $155.35; Sector Kosmos Energy Ltd. (NYSE: KOS; $5.81; Sector Perform; Speculative Risk) Perform) KP Tissue Inc. (TSX: KPT.TO; C$12.60; Sector Perform) International Consolidated Airlines Group S.A. (LSE: IAG LN; GBp528; Kuehne + Nagel International AG (VX: KNIN VX; CHF138.50; Outperform) Underperform) L'Oréal SA (NXT PA: OR FP; €170.65; Underperform) International Paper Company (NYSE: IP; $43.29; Sector Perform) L-3 Communications Holdings, Inc. (NYSE: LLL; $144.32; Outperform) June 24, 2016 112 Brexit: macro and sector implications

Laboratory Corp. of America Holdgs, Inc. (NYSE: LH; $131.18; Sector Perform) Marathon Petroleum Corporation (NYSE: MPC; $36.62; Top Pick) Labrador Iron Ore Royalty Corporation (TSX: LIF.TO; C$12.49; Outperform) Marinus Pharmaceuticals Inc (NASDAQ: MRNS US; $1.43; Sector Perform; Lam Research Corp (NASDAQ: LRCX; $87.18; Outperform) Speculative Risk) Lancashire Holdings Limited (LSE: LRE.L; GBp584; Underperform) Markel Corporation (NYSE: MKL; $947.68; Sector Perform) Landmark Infrastructure Partners, LP (NYSE: LMRK; $16.12; Outperform) Marketo Inc. (NASDAQ: MKTO; $34.88; Sector Perform) Landstar Systems, Inc. (NASDAQ: LSTR; $67.55; Sector Perform) Markit Ltd. (NASDAQ: MRKT; $32.69; Sector Perform) Lantheus Holdings Inc. (NASDAQ: LNTH; $2.70; Outperform) Marks & Spencer Group PLC (LSE: MKS LN; GBp366; Outperform) LaSalle Hotel Properties (NYSE: LHO; $24.34; Sector Perform) Marriott International Inc. (NYSE: MAR; $68.95; Outperform) Laurentian Bank of Canada (TSX: LB.TO; C$51.40; Sector Perform) Marsh & Mclennan Cos Inc (NYSE: MMC; $67.91; Outperform) L Brands, Inc. (NYSE: LB; $69.15; Sector Perform) Martin Midstream Partners L.P. (NASDAQ: MMLP; $23.50; Sector Perform) LDR Holding Corp. (NASDAQ: LDRH; $37.03; Sector Perform) Martinrea International Inc. (TSX: MRE.TO; C$8.58; Outperform) Lear Corp. (NYSE: LEA; $115.87; Outperform) Masco Corporation (NYSE: MAS; $31.48; Outperform) Legal & General Group Plc (LSE: LGEN LN; GBp236; Outperform) Masonite International Corp. (NYSE: DOOR; $69.40; Outperform) Legg Mason, Inc. (NYSE: LM; $32.61; Sector Perform) MasterCard Inc. (NYSE: MA; $95.71; Outperform) Legrand SA (NXT PA: LR FP; €50.02; Underperform) Matador Resources Company (NYSE: MTDR; $22.72; Outperform) LendingTree Inc (NASDAQ: TREE US; $79.23; Outperform) Maxim Integrated Products, Inc. (NASDAQ: MXIM; $37.89; Outperform) Lennar Corporation (NYSE: LEN; $46.58; Outperform) McDonald's Corporation (NYSE: MCD; $121.21; Outperform) Level 3 Communications, Inc (NASDAQ: LVLT; $52.45; Outperform) McKesson Corporation (NYSE: MCK; $184.00; Outperform) LHC Group Inc. (NASDAQ: LHCG; $42.90; Sector Perform) MDC Partners Inc (NASDAQ: MDCA; $19.22; Not Rated) Liberty Global PLC (NASDAQ: LBTYA; $33.14; Outperform) Media General Inc (NYSE: MEG; $17.48; Restricted) Liberty LiLAC Group (NASDAQ: LILA; $34.20; Outperform) Medical Facilities Corp (TSX: DR.TO; C$18.66; Outperform) LifeLock, Inc. (NYSE: LOCK; $15.95; Sector Perform; Speculative Risk) Medical Properties Trust Inc (NYSE: MPW; $15.13; Outperform) LifePoint Health, Inc. (NASDAQ: LPNT; $69.01; Outperform) Medivation, Inc. (NASDAQ: MDVN; $59.26; Sector Perform; Speculative Risk) Lightstream Resources Ltd. (TSX: LTS.TO; C$0.19; Underperform; Speculative Medtronic PLC (NYSE: MDT; $85.77; Outperform) Risk) MEG Energy Corp (TSX: MEG.TO; C$6.98; Outperform) Linamar Corporation (TSX: LNR.TO; C$52.46; Sector Perform) Meggitt PLC (LSE: MGGT.L; GBp397; Outperform) Lincoln Electric Holdings, Inc. (NASDAQ: LECO; $60.76; Sector Perform) Melcor Developments Ltd. (TSX: MRD.TO; C$13.68; Sector Perform) Lincoln National Corporation (NYSE: LNC; $44.37; Sector Perform) Melcor REIT (TSX: MR_u.TO; C$8.61; Sector Perform) LinkedIn Corp. (NYSE: LNKD; $190.45; Sector Perform) Melrose Industries Plc (LSE: MRO LN; GBp420; Outperform) Lions Gate Entertainment Corp (NYSE: LGF; $21.75; Sector Perform) Memorial Resource Development Corp (NASDAQ: MRD; $16.67; Outperform) Liquor Stores N.A. Ltd. (TSX: LIQ.TO; C$9.08; Sector Perform) Mercer International Inc. (NASDAQ: MERC; $8.13; Outperform) Lloyds Banking Group PLC (LSE: LLOY.L; GBp72.15; Outperform) Metaldyne Performance Group Inc. (NYSE: MPG; $16.10; Outperform) Loblaw Companies Limited (TSX: L.TO; C$68.99; Sector Perform) Methanex Corporation (NASDAQ: MEOH; $31.32; Sector Perform) Lockheed Martin Corp. (NYSE: LMT; $240.00; Sector Perform) MetLife, Inc. (NYSE: MET; $44.17; Outperform) LogMeIn, Inc. (NASDAQ: LOGM; $65.74; Outperform) Metro Bank PLC (LSE: MTRO LN; GBp2,100; Outperform) London Stock Exchange Group plc (LSE: LSE.L; GBp2,735; Restricted) Metro Inc. (TSX: MRU.TO; C$43.75; Outperform) Lonmin PLC (LSE: LMI LN; GBp179; Underperform; Speculative Risk) Metso OYJ (HEL: MEO1V FH; €22.25; Sector Perform) Louisiana-Pacific Corporation (NYSE: LPX; $17.50; Top Pick) MFA Financial Inc. (NYSE: MFA; $7.18; Outperform) Lowe's Companies, Inc. (NYSE: LOW; $78.57; Outperform) Michael Kors Holdings Limited (NYSE: KORS; $50.82; Sector Perform) LTC Properties, Inc. (NYSE: LTC; $49.79; Sector Perform) Microsemi Corporation (NASDAQ: MSCC; $34.31; Top Pick) Lucara Diamond Corp. (TSX: LUC.TO; C$3.80; Sector Perform) Microsoft Corporation (NASDAQ: MSFT; $51.91; Outperform) lululemon athletica inc. (NASDAQ: LULU; $71.82; Outperform) Mid-America Apartment Communities, Inc. (NYSE: MAA; $102.33; Sector Lumenpulse Inc. (TSX: LMP.TO; C$16.50; Outperform) Perform) Lundin Gold Inc (TSX: LUG CN; C$5.89; Outperform; Speculative Risk) Midas Gold Corporation (TSX: MAX.TO; C$0.82; Sector Perform; Speculative Risk) Lundin Mining Corporation (TSX: LUN.TO; C$4.46; Outperform) Milestone Apartments REIT (TSX: MST-U CN; C$17.96; Outperform) Lundin Petroleum AB (OMX: LUPE SS; SEK153.90; Sector Perform) Millicom International Cellular SA (OMX: MIC SS; SEK507.00; Sector Perform) Luxottica Group SpA (MILAN: LUX IM; €46.86; Outperform) Mimecast Ltd (NASDAQ: MIME; $11.06; Outperform) LVMH Moët Hennessy-Louis Vuitton (NXT PA: MC FP; €144.60; Outperform) Mineral Deposits Ltd (ASX: MDL.AX; AUD0.23; Outperform) LyondellBasell Industries NV (NYSE: LYB; $79.05; Outperform) Mitel Networks Corp (NASDAQ: MITL US; $6.60; Outperform) M&T Bank Corporation (NYSE: MTB; $120.42; Outperform) Mitie Group PLC (LSE: MTO LN; GBp271; Outperform) MacDonald, Dettwiler and Associates Ltd. (TSX: MDA.TO; C$86.18; Outperform) Mobileye N.V. (NYSE: MBLY; $43.25; Outperform) Macerich Company (NYSE: MAC; $81.91; Outperform) Mohawk Industries, Inc. (NYSE: MHK; $197.85; Outperform) Macquarie Infrastructure Corporation (NYSE: MIC; $72.13; Outperform) Moncler SpA (MILAN: MONC IM; €15.84; Sector Perform) Macy's Inc (NYSE: M US; $33.38; Sector Perform) Mondelez International, Inc. (NASDAQ: MDLZ; $44.85; Outperform) Madalena Energy Inc. (TSXV: MVN.V; C$0.18; Sector Perform; Speculative Risk) Monster Beverage Corp. (NASDAQ: MNST; $157.42; Outperform) Magellan Midstream Partners, L.P. (NYSE: MMP; $77.40; Outperform) Morgan Advanced Materials plc (LSE: MGAM LN; GBp268; Sector Perform) Magna International Inc. (NYSE: MGA; $40.12; Outperform) Morgan Stanley (NYSE: MS; $27.29; Outperform) Main Street Capital Corporation (NYSE: MAIN; $32.86; Outperform) Morguard Corporation (TSX: MRC.TO; C$164.39; Sector Perform) Major Drilling Group International (TSX: MDI.TO; C$7.18; Sector Perform) Morguard North American Residential Real Estate Investment Trust (TSX: Man Group Plc (LSE: EMG.L; GBp126; Sector Perform) MRG_u.TO; C$12.48; Outperform) Manitoba Telecom Services Inc. (TSX: MBT.TO; C$37.70; Sector Perform) Morguard Real Estate Investment Trust (TSX: MRT_u.TO; C$14.96; Sector Manitowoc Co., Inc. (NYSE: MTW; $5.79; Sector Perform) Perform) MannKind Corporation (NASDAQ: MNKD; $1.24; Underperform; Speculative Risk) Mountain Province Diamonds Inc (TSX: MPV.TO; C$6.19; Sector Perform; ManpowerGroup (NYSE: MAN; $76.83; Sector Perform) Speculative Risk) Manulife Financial Corporation (TSX: MFC.TO; C$18.74; Outperform) MPLX LP (NYSE: MPLX US; $33.45; Outperform) Maple Leaf Foods Inc. (TSX: MFI.TO; C$27.36; Sector Perform) Mueller Water Products, Inc. (NYSE: MWA; $11.22; Outperform) Marathon Oil Corporation (NYSE: MRO; $15.27; Sector Perform) Mullen Group Ltd. (TSX: MTL.TO; C$14.66; Outperform) June 24, 2016 113 Brexit: macro and sector implications

Munich Reinsurance Co. (XETRA: MUV2 GY; €160.80; Outperform) Numericable-SFR SAS (NXT PA: NUM FP; €25.35; Top Pick) Murphy Oil Corp (NYSE: MUR; $32.41; Sector Perform) NuVasive Inc. (NASDAQ: NUVA; $58.86; Outperform) Mylan N.V. (NASDAQ: MYL; $46.16; Sector Perform) NuVista Energy Ltd. (TSX: NVA.TO; C$6.32; Outperform) Nabors Industries Ltd (NYSE: NBR; $10.79; Outperform) NVIDIA Corporation (NASDAQ: NVDA; $48.49; Sector Perform) Nabriva Therapeutics AG (NASDAQ: NBRV; $7.27; Outperform; Speculative Risk) Nyrstar NV (BRU: NYR.BR; €8.70; Outperform) Nasdaq Inc (NASDAQ: NDAQ; $64.41; Outperform) O'Reilly Automotive, Inc. (NASDAQ: ORLY; $264.25; Sector Perform) National Bank of Canada (TSX: NA.TO; C$44.92; Outperform) Oasis Petroleum Inc. (NYSE: OAS; $10.78; Outperform) National Express Group PLC (LSE: NEX LN; GBp317; Outperform) Occidental Petroleum Corp (NYSE: OXY; $78.31; Not Rated) National Grid plc (LSE: NG/ LN; GBp980; Outperform) OceanaGold Corp (ASX: OGC.AX; AUD5.09; Sector Perform) National Oilwell Varco, Inc. (NYSE: NOV; $36.50; Sector Perform) Oceaneering International Inc (NYSE: OII; $32.02; Sector Perform) National Retail Properties, Inc. (NYSE: NNN; $47.39; Outperform) Och-Ziff Capital Management Group LLC (NYSE: OZM; $4.03; Outperform) Natural Grocers by Vitamin Cottage, Inc. (NYSE: NGVC; $13.05; Sector Perform) OC Oerlikon Corporation AG (SWX: OERL SW; CHF8.86; Outperform) Navistar International Corp. (NYSE: NAV; $13.14; Sector Perform) Ocular Therapeutix, Inc. (NASDAQ: OCUL; $5.41; Outperform; Speculative Risk) NCI Building Systems Inc. (NYSE: NCS; $16.18; Sector Perform) Oesterreichische Post AG (VSX: POST AV; €29.50; Outperform) NCR Corporation (NYSE: NCR; $30.36; Outperform) Oil Search Ltd (ASX: OSH AU; AUD6.43; Outperform) Neos Therapeutics, Inc (NASDAQ: NEOS; $9.65; Outperform; Speculative Risk) Oil States International Inc (NYSE: OIS; $34.06; Sector Perform) Nestlé S.A. (VX: NESN VX; CHF72.35; Outperform) Oi SA (NYSE: OIBR/C US; $2.45; Underperform; Speculative Risk) NetApp, Inc. (NASDAQ: NTAP; $26.02; Sector Perform) Old Dominion Freight Line, Inc. (NASDAQ: ODFL; $61.03; Sector Perform) Netflix Inc. (NASDAQ: NFLX; $91.66; Outperform) Old Mutual plc (LSE: OML LN; GBp196; Underperform) Netscout Systems Inc (NASDAQ: NTCT; $24.63; Outperform) Old National Bancorp (NASDAQ: ONB; $13.02; Sector Perform) NetSuite Inc. (NYSE: N; $79.14; Outperform) Olin Corporation (NYSE: OLN; $24.96; Outperform) NeuStar, Inc. (NYSE: NSR; $24.32; Sector Perform) Ollie's Bargain Outlet Holdings Inc (NASDAQ: OLLI; $24.42; Outperform) Nevsun Resources Ltd (TSX: NSU.TO; C$3.71; Outperform; Speculative Risk) OM Asset Management Plc (NYSE: OMAM; $14.53; Outperform) Newalta Corporation (TSX: NAL.TO; C$2.16; Sector Perform) Omnicom Group Inc (NYSE: OMC; $84.96; Not Rated) Newcrest Mining Limited (ASX: NCM.AX; AUD23.55; Sector Perform) On Assignment, Inc. (NYSE: ASGN; $38.67; Outperform) Newell Brands Inc. (NYSE: NWL; $49.46; Top Pick) OncoGenex Pharmaceuticals Inc. (NASDAQ: OGXI; $1.02; Sector Perform; Newfield Exploration Co (NYSE: NFX; $42.93; Outperform) Speculative Risk) New Gold Inc. (AMEX: NGD; $4.11; Sector Perform) Oncolytics Biotech Inc. (TSX: ONC.TO; C$0.47; Outperform; Speculative Risk) Newmarket Gold Inc (TSX: NMI CN; C$3.54; Outperform) ONEOK Inc (NYSE: OKE US; $46.86; Sector Perform) Newmont Mining Corporation (NYSE: NEM; $35.39; Outperform) ONEOK Partners, L.P. (NYSE: OKS; $40.25; Sector Perform) New York Community Bancorp, Inc. (NYSE: NYCB; $15.44; Sector Perform) OneREIT (TSX: ONR_u.TO; C$3.92; Sector Perform) NEXTDC Ltd (ASX: NXT AU; AUD3.37; Outperform) OneSavings Bank Plc (LSE: OSB LN; GBp333; Outperform) NextEra Energy Inc. (NYSE: NEE; $123.81; Outperform) Onex Corporation (TSX: OCX.TO; C$80.90; Outperform) NextEra Energy Partners LP (NYSE: NEP US; $29.41; Sector Perform) Open Text Corporation (NASDAQ: OTEX; $61.67; Outperform) Next PLC (LSE: NXT LN; GBp5,535; Sector Perform) Ophir Energy plc (LSE: OPHR.L; GBp73.50; Sector Perform; Speculative Risk) NGL Energy Partners LP (NYSE: NGL; $19.77; Outperform) Opsens Inc. (TSXV: OPS CN; C$1.49; Outperform; Speculative Risk) NICE Systems Ltd. (NASDAQ: NICE; $63.60; Restricted) Oracle Corporation (NYSE: ORCL; $40.83; Outperform) Nielsen NV (NYSE: NLSN; $53.69; Not Rated) Orange Belgium SA (BRU: OBEL BB; €21.12; Sector Perform) Nimble Storage Inc. (NYSE: NMBL; $8.41; Sector Perform) Orange SA (NXT PA: ORA FP; €14.78; Outperform) Niska Gas Storage Partners LLC (NYSE: NKA; $4.20; Sector Perform) Orexigen Therapeutics Inc (NASDAQ: OREX; $0.50; Sector Perform; Speculative NN Group N.V. (NXT AM: NN NA; €27.21; Outperform) Risk) Noble Corp plc (NYSE: NE US; $9.53; Sector Perform) Orica Ltd (ASX: ORI.AX; AUD12.47; Sector Perform) Noble Energy Inc (NYSE: NBL; $36.95; Outperform) Origin Energy Limited (ASX: ORG AU; AUD5.61; Outperform) Noodles & Company (NASDAQ: NDLS; $9.93; Sector Perform) Oryx Petroleum Corporation Limited (TSX: OXC.TO; C$0.82; Sector Perform) Norbord Inc (TSX: OSB.TO; C$27.61; Top Pick) Oshkosh Corporation (NYSE: OSK; $48.64; Sector Perform) Nord Anglia Education, Inc. (NYSE: NORD; $22.15; Outperform) Osisko Gold Royalties Ltd. (TSX: OR CN; C$16.20; Outperform) Nordea Bank AB (OMX: NDA SS; SEK73.80; Sector Perform) Owens & Minor, Inc. (NYSE: OMI; $37.89; Sector Perform) Nordson Corp (NASDAQ: NDSN; $87.37; Sector Perform) Owens Corning (NYSE: OC; $51.31; Outperform) Nordstrom Inc (NYSE: JWN; $38.25; Sector Perform) OZ Minerals Limited (ASX: OZL.AX; AUD5.49; Outperform) Norfolk Southern Corporation (NYSE: NSC; $87.00; Sector Perform) PACCAR Inc. (NASDAQ: PCAR; $56.35; Sector Perform) Northern Blizzard Resources Inc (TSX: NBZ CN; C$4.91; Sector Perform) PacWest Bancorp (NASDAQ: PACW; $41.41; Sector Perform) Northern Oil and Gas Inc. (AMEX: NOG; $4.90; Outperform) PageGroup plc. (LSE: PAGE LN; GBp397; Sector Perform) Northern Star Resources Limited (ASX: NST.AX; AUD4.96; Sector Perform) Painted Pony Petroleum Ltd. (TSX: PPY CN; C$7.75; Outperform) Northern Tier Energy LP (NYSE: NTI; $21.15; Sector Perform) Palo Alto Networks, Inc. (NYSE: PANW US; $126.65; Outperform) Northern Trust Corporation (NASDAQ: NTRS; $71.54; Outperform) Panalpina Welttransport Holding AG (SWX: PWTN SW; CHF117.90; Outperform) Northland Power Inc. (TSX: NPI.TO; C$21.99; Sector Perform) Pan American Silver Corporation (NASDAQ: PAAS; $15.21; Sector Perform) Northrop Grumman Corp. (NYSE: NOC; $214.70; Sector Perform) PANDORA (CSE: PNDORA DC; DKK950.00; Outperform) Northview Apartment REIT (TSX: NVU_u.TO; C$22.10; Sector Perform) Pandora Media, Inc. (NYSE: P; $12.20; Sector Perform) Northwest Bancshares, Inc. (NASDAQ: NWBI; $14.78; Outperform) Paragon Group of Companies Plc (LSE: PAG LN; GBp311; Sector Perform) NorthWest Healthcare Properties REIT (TSX: NWH_u.TO; C$9.90; Sector Perform) Paramount Resources Ltd. (TSX: POU.TO; C$10.70; Sector Perform) Nos SGPS SA (LIS: NOS PL; €7.90; Outperform) Parex Resources Inc. (TSX: PXT.TO; C$13.09; Outperform) Nostrum Oil & Gas PLC (LSE: NOG LN; GBp272; Sector Perform) Parkland Fuel Corp (TSX: PKI.TO; C$22.33; Sector Perform) Novadaq Technologies Inc. (NASDAQ: NVDQ; $9.86; Outperform; Speculative Parkway Properties, Inc (NYSE: PKY; $16.93; Sector Perform) Risk) Parsley Energy, Inc. (NYSE: PE; $27.22; Outperform) Novae Group plc (LSE: NVA LN; GBp845; Outperform) Pattern Energy Group Inc. (NASDAQ: PEGI; $22.84; Outperform) NovaGold Resources Inc. (TSX: NG.TO; C$7.92; Sector Perform; Speculative Risk) Patterson-UTI Energy, Inc. (NASDAQ: PTEN; $21.61; Outperform) NRG Yield, Inc. (NYSE: NYLD; $14.91; Sector Perform) Paychex, Inc. (NASDAQ: PAYX; $56.29; Underperform) June 24, 2016 114 Brexit: macro and sector implications

PayPal Holdings, Inc. (NASDAQ: PYPL; $36.66; Outperform) Proximus Group (BRU: PROX BB; €27.87; Underperform) PBF Energy Inc (NYSE: PBF; $24.29; Sector Perform) Prudential Financial, Inc. (NYSE: PRU; $76.95; Sector Perform) PDC Energy Inc (NASDAQ: PDCE; $58.01; Outperform) Prudential plc (LSE: PRU.L; GBp1,359; Sector Perform) PDL BioPharma Inc. (NASDAQ: PDLI; $3.14; Sector Perform) PTC Inc. (NASDAQ: PTC; $39.39; Outperform) Pebblebrook Hotel Trust (NYSE: PEB; $27.41; Outperform) PTC Therapeutics Inc. (NASDAQ: PTCT; $7.00; Sector Perform; Speculative Risk) Pembina Pipeline Corporation (TSX: PPL.TO; C$38.90; Outperform) Public Service Enterprise Group (NYSE: PEG; $44.30; Sector Perform) Pengrowth Energy Corp (TSX: PGF.TO; C$2.42; Underperform; Speculative Risk) Public Storage, Inc. (NYSE: PSA; $241.00; Sector Perform) Pennon Group PLC (LSE: PNN LN; GBp865; Outperform) PulteGroup, Inc. (NYSE: PHM; $19.16; Outperform) PennTex Midstream Partners, LP (NASDAQ: PTXP; $15.63; Outperform) Puma Biotechnology Inc. (NYSE: PBYI; $33.65; Sector Perform; Speculative Risk) Penn West Petroleum Ltd. (TSX: PWT.TO; C$1.82; Restricted) Pure Industrial Real Estate Trust (TSX: AAR_u.TO; C$5.14; Sector Perform) Pentair PLC (NYSE: PNR; $61.51; Outperform) Q2 Holdings, Inc. (NYSE: QTWO; $28.67; Outperform) PepsiCo, Inc. (NYSE: PEP; $104.44; Sector Perform) Qlik Technologies Inc. (NASDAQ: QLIK; $30.02; Sector Perform) Performance Sports Group Ltd. (NYSE: PSG; $3.05; Sector Perform) QLT Inc. (NASDAQ: QLTI; $1.43; Sector Perform) Pernod Ricard (NXT PA: RI FP; €96.64; Sector Perform) QTS Realty Trust Inc (NYSE: QTS; $55.33; Outperform) Perpetual Energy Inc (TSX: PMT.TO; C$2.40; Sector Perform; Speculative Risk) QUALCOMM Inc (NASDAQ: QCOM; $55.55; Sector Perform) Perrigo Company Plc (NYSE: PRGO; $95.20; Sector Perform) Quality Systems Inc. (NASDAQ: QSII; $12.08; Sector Perform) Perseus Mining Ltd (ASX: PRU.AX; AUD0.54; Underperform) Qualys, Inc. (NASDAQ: QLYS; $31.79; Sector Perform) Petra Diamonds Ltd. (LSE: PDL.L; GBp110; Outperform) Qube Holdings Ltd (ASX: QUB AU; AUD2.18; Underperform) Peyto Exploration & Development Corp. (TSX: PEY.TO; C$33.65; Outperform) Quebecor Inc. (TSX: QBRb.TO; C$36.84; Outperform) PG&E Corporation (NYSE: PCG; $62.13; Sector Perform) Quest Diagnostics, Inc. (NYSE: DGX; $80.53; Sector Perform) PGT, Inc. (NASDAQ: PGTI; $10.20; Outperform) Quorum Health Corporation (NYSE: QHC US; $11.61; Sector Perform) Phillips 66 (NYSE: PSX; $80.87; Sector Perform) Quotient Technology Inc. (NYSE: QUOT US; $13.98; Sector Perform) Phillips 66 Partners LP (NYSE: PSXP; $54.33; Restricted) Rackspace Hosting, Inc. (NYSE: RAX; $22.94; Outperform; Speculative Risk) PHX Energy Services Corp. (TSX: PHX.TO; C$2.91; Sector Perform) Raging River Exploration Inc. (TSX: RRX CN; C$10.21; Outperform) Physicians Realty Trust (NYSE: DOC; $20.20; Outperform) Randgold Resources Ltd (LSE: RRS.L; GBp6,455; Sector Perform) Pilot Gold (TSX: PLG.TO; C$0.69; Outperform; Speculative Risk) Randstad Holding NV (NXT AM: RAND NA; €46.88; Sector Perform) Pinnacle Foods Inc. (NYSE: PF; $44.16; Outperform) Range Resources Corporation (NYSE: RRC; $45.44; Outperform) Pinnacle West Capital Corp (NYSE: PNW; $77.31; Sector Perform) Rayonier, Inc. (NYSE: RYN; $26.21; Sector Perform) Pioneer Natural Resources Co (NYSE: PXD; $160.59; Outperform) Rayonier Advanced Materials Inc. (NYSE: RYAM; $13.70; Underperform) Plains All American Pipeline, L.P. (NYSE: PAA; $28.50; Sector Perform) Raytheon Company (NYSE: RTN; $134.83; Top Pick) Platinum Group Metals Ltd (TSX: PTM.TO; C$3.68; Outperform; Speculative Risk) RealPage, Inc. (NASDAQ: RP; $22.59; Sector Perform) Plaza Retail REIT (TSX: PLZ_u.TO; C$4.79; Outperform) Realty Income Corporation (NYSE: O; $64.50; Sector Perform) Plexus Corp. (NASDAQ: PLXS; $45.04; Sector Perform) Reckitt Benckiser Group PLC (LSE: RB/ LN; GBp6,843; Sector Perform) PNM Resources Inc (NYSE: PNM; $33.63; Outperform) Red Eléctrica Corporation SA (SIBE: REE SM; €78.15; Sector Perform) Points International Ltd. (NASDAQ: PCOM; $9.55; Outperform) Red Hat, Inc. (NYSE: RHT; $78.39; Outperform) Polaris Industries Inc. (NYSE: PII; $85.10; Sector Perform) Redknee Solutions Inc. (TSX: RKN.TO; C$1.83; Sector Perform) Polymetal International plc (LSE: POLY LN; GBp871; Outperform) Regal Entertainment Group (NYSE: RGC; $20.58; Outperform) Popular, Inc. (NASDAQ: BPOP; $30.22; Outperform) Regency Centers Corporation (NYSE: REG; $78.98; Top Pick) PostNL NV (NXT AM: PNL NA; €3.89; Sector Perform) Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN; $357.14; Outperform) Potash Corporation of Saskatchewan Inc. (NYSE: POT; $17.48; Sector Perform) Regions Financial Corporation (NYSE: RF; $9.45; Sector Perform) Potlatch Corporation (NASDAQ: PCH; $33.97; Outperform) Regis Resources Ltd (ASX: RRL.AX; AUD3.52; Sector Perform) Power Corporation of Canada (TSX: POW.TO; C$29.00; Sector Perform) Regus PLC (LSE: RGU LN; GBp311; Outperform) Power Financial Corporation (TSX: PWF.TO; C$31.38; Sector Perform) Reinsurance Group of America Inc (NYSE: RGA; $97.58; Sector Perform) PPG Industries, Inc. (NYSE: PPG; $111.22; Outperform) RenaissanceRe Holdings, Ltd. (NYSE: RNR; $116.31; Sector Perform) PPL Corp. (NYSE: PPL; $39.44; Sector Perform) Rentokil Initial PLC (LSE: RTO LN; GBp185; Top Pick) Prada SpA (HKSE: 1913 HK; HK$24.75; Sector Perform) Repsol SA (SIBE: REP SM; €11.70; Sector Perform) PrairieSky Royalty Ltd. (TSX: PSK.TO; C$24.73; Sector Perform) Republic First Bancorp Inc. (NASDAQ: FRBK; $4.14; Sector Perform; Speculative Precision Drilling Corp (TSX: PD.TO; C$6.91; Outperform) Risk) Premier Farnell PLC (LSE: PFL LN; GBp166; Sector Perform) Resolute Forest Products Inc. (NYSE: RFP; $5.36; Sector Perform) Premier Gold Mines Ltd. (TSX: PG.TO; C$3.35; Outperform; Speculative Risk) Resolute Mining Ltd (ASX: RSG AU; AUD1.36; Sector Perform) Premier Oil plc (LSE: PMO LN; GBp75.00; Outperform) Restaurant Brands International Inc. (NYSE: QSR; $43.21; Outperform) President Energy PLC (AIM: PPC LN; GBp7.63; Sector Perform; Speculative Risk) RetailMeNot, Inc. (NASDAQ: SALE; $7.93; Underperform) Pretium Resources Inc. (TSX: PVG.TO; C$12.17; Sector Perform; Speculative Risk) Retail Opportunity Investments Corp (NASDAQ: ROIC.O; $20.74; Sector Perform) Primero Mining Corp. (NYSE: PPP; $1.94; Restricted) Rex Energy Corp (NASDAQ: REXX; $0.82; Outperform) Principal Financial Group Inc. (NYSE: PFG; $44.52; Outperform) Reynolds American, Inc. (NYSE: RAI; $50.84; Outperform) PrivateBancorp, Inc. (NASDAQ: PVTB; $41.15; Outperform) Rice Energy Inc (NYSE: RICE; $22.99; Outperform) Procter & Gamble Company (NYSE: PG; $84.21; Sector Perform) Rice Midstream Partners LP (NYSE: RMP; $19.24; Outperform) Prologis (NYSE: PLD; $50.09; Outperform) RingCentral Inc (NYSE: RNG; $20.85; Not Rated) ProMetic Life Sciences Inc. (TSX: PLI CN; C$2.87; Outperform; Speculative Risk) RioCan Real Estate Investment Trust (TSX: REI_u.TO; C$28.16; Outperform) Proofpoint Inc. (NASDAQ: PFPT; $63.84; Outperform) Rio Tinto Ltd (ASX: RIO AU; AUD42.83; Sector Perform) Prospect Capital Corporation (NASDAQ: PSEC; $7.86; Sector Perform) Rio Tinto PLC (LSE: RIO.L; GBp2,090; Sector Perform) Prosperity Bancshares Inc. (NYSE: PB; $52.86; Sector Perform) Ritchie Bros. Auctioneers, Inc. (NYSE: RBA; $34.21; Outperform) Proteostasis Therapeutics Inc (NASDAQ: PTI US; $16.82; Outperform; Speculative RLI Corp. (NYSE: RLI; $65.87; Sector Perform) Risk) RLJ Lodging Trust (NYSE: RLJ; $22.05; Outperform) Prothena Corporation plc (NASDAQ: PRTA; $40.55; Outperform; Speculative Risk) RM2 International SA (NYSE: RM2 LN; GBp23.00; Outperform; Speculative Risk) Provident Financial Plc (LSE: PFG.L; GBp2,920; Sector Perform) Robert Half International, Inc. (NYSE: RHI; $39.69; Outperform) Provident Financial Services, Inc. (NYSE: PFS; $20.12; Outperform) Rockwell Collins, Inc. (NYSE: COL; $86.81; Outperform) June 24, 2016 115 Brexit: macro and sector implications

Rocky Mountain Dealerships Inc. (TSX: RME.TO; C$7.11; Sector Perform) Securitas AB (OMX: SECUB SS; SEK127.50; Underperform) Rogers Communications Inc. (TSX: RCIb.TO; C$51.31; Outperform) Select Income REIT (NYSE: SIR; $25.25; Outperform) Rolls-Royce Holdings PLC (LSE: RR/ LN; GBp645; Sector Perform) Selective Insurance Group, Inc. (NASDAQ: SIGI; $38.42; Outperform) Roper Technologies Inc. (NYSE: ROP; $172.91; Outperform) Select Medical Holdings Corporation (NYSE: SEM; $11.33; Outperform) Rose Rock Midstream, L.P. (NYSE: RRMS; $26.65; Outperform) SEMAFO Inc (TSX: SMF.TO; C$5.86; Sector Perform) Ross Stores Inc (NASDAQ: ROST; $54.07; Sector Perform) SemGroup Corporation (NYSE: SEMG; $32.96; Outperform) Rotork Plc (LSE: ROR.L; GBp203; Underperform) Sempra Energy (NYSE: SRE; $111.08; Outperform) Rouse Properties Inc. (NYSE: RSE; $18.25; Outperform) Semtech Corporation (NASDAQ: SMTC; $24.61; Sector Perform) Rowan Cos Plc (NYSE: RDC; $19.55; Sector Perform) Senior Housing Properties Trust (NYSE: SNH; $20.06; Outperform) Roxgold Inc (TSXV: ROG.TO; C$1.41; Outperform; Speculative Risk) Sensata Technologies Holding N.V. (NYSE: ST; $37.16; Sector Perform) Royal Bank of Scotland Group PLC (LSE: RBS.L; GBp251; Outperform) Seplat Petroleum (LSE: SEPL LN; GBp68.00; Outperform; Speculative Risk) Royal Dutch Shell, plc (LSE: RDSB LN; GBp1,889; Outperform) Serco Group PLC (LSE: SRP LN; GBp114; Sector Perform) Royal Gold, Inc. (NASDAQ: RGLD; $66.85; Outperform) ServiceMaster Global Holdings, Inc. (NYSE: SERV; $38.38; Outperform) Royal Mail plc (LSE: RMG LN; GBp541; Sector Perform) ServiceNow, Inc. (NYSE: NOW; $75.18; Top Pick) RPC Group PLC (LSE: RPC LN; GBp833; Outperform) SES SA (NXT PA: SESG FP; €19.41; Underperform) RPM International Inc (NYSE: RPM; $51.84; Sector Perform) Seven Generations Energy Ltd. (TSX: VII.TO; C$25.47; Outperform) RSA Insurance Group plc (LSE: RSA.L; GBp484; Sector Perform) Severn Trent PLC (LSE: SVT LN; GBp2,240; Sector Perform) RSP Permian, Inc. (NYSE: RSPP; $36.15; Outperform) SGS SA (VX: SGSN VX; CHF2,159.00; Outperform) Rush Enterprises, Inc. (NASDAQ: RUSHA; $22.51; Sector Perform) Shanks Group plc (LSE: SKS LN; GBp80.50; Sector Perform) Russel Metals Inc. (TSX: RUS.TO; C$24.05; Underperform) Shawbrook Group PLC (LSE: SHAW LN; GBp295; Outperform) RWE AG (FSE: RWE GR; €13.75; Sector Perform) Shaw Communications Inc. (TSX: SJRb.TO; C$25.18; Sector Perform) Ryanair Holdings PLC (ISE: RYA ID; €13.68; Outperform) ShawCor Ltd. (TSX: SCL.TO; C$32.92; Sector Perform) Ryder System, Inc. (NYSE: R; $65.85; Sector Perform) Shell Midstream Partners LP (NYSE: SHLX US; $32.51; Outperform) S2 Resources Ltd (ASX: S2R AU; AUD0.29; Outperform; Speculative Risk) Sherritt International Corporation (TSX: S.TO; C$0.82; Sector Perform) Sabina Gold & Silver Corp. (TSX: SBB.TO; C$1.08; Sector Perform; Speculative Sherwin-Williams Company (NYSE: SHW; $288.93; Outperform) Risk) Shire PLC (NASDAQ: SHPG; $180.29; Outperform) SABMiller plc (LSE: SAB.L; GBp4,293; Sector Perform) Shopify Inc. (NYSE: SHOP; $31.20; Outperform) Sabra Health Care REIT Inc (NASDAQ: SBRA; $20.33; Underperform) Shutterfly Inc (NASDAQ: SFLY; $47.42; Outperform) SAFRAN SA (NXT PA: SAF.PA; €62.19; Outperform) Shutterstock Inc (NYSE: SSTK; $45.78; Sector Perform) Sagent Pharmaceuticals Inc (NASDAQ: SGNT; $15.32; Outperform) Sibanye Gold Ltd (JSE: SGL SJ; ZAc4,366; Sector Perform) salesforce.com, inc. (NYSE: CRM; $82.28; Outperform) Siemens AG (FSE: SIE.GR; €97.58; Sector Perform) Salvatore Ferragamo SpA (MILAN: SFER IM; €20.08; Underperform) Sienna Senior Living Inc. (TSX: SIA.TO; C$17.41; Sector Perform) Salzgitter AG (XETRA: SZG GR; €27.38; Outperform) Sierra Rutile Ltd. (AIM: SRX LN; GBp23.25; Outperform) Sampo Oyj (HEL: SAMAS FH; €37.99; Underperform) Sierra Wireless, Inc. (NASDAQ: SWIR; $17.57; Sector Perform) Sanchez Energy Corporation (NYSE: SN; $8.02; Outperform) Signature Bank (NASDAQ: SBNY; $131.43; Outperform) Sandfire Resources NL (ASX: SFR.AX; AUD5.10; Sector Perform) Signet Jewelers Limited (NYSE: SIG; $86.56; Outperform) Sandstorm Gold Ltd. (TSX: SSL.TO; C$5.69; Sector Perform; Speculative Risk) Silver Lake Resources Ltd (ASX: SLR.AX; AUD0.50; Outperform; Speculative Risk) Sandvik AB (OMX: SAND SS; SEK88.00; Underperform) Silver Standard Resources Inc (NASDAQ: SSRI; $11.45; Sector Perform) Sandvine Corporation (TSX: SVC.TO; C$2.58; Outperform) Silver Wheaton Corp. (NYSE: SLW; $20.83; Outperform) Sanmina Corporation (NASDAQ: SANM; $28.16; Sector Perform; Speculative Risk) Simon Property Group, Inc. (NYSE: SPG; $209.09; Outperform) Santander Consumer USA Holdings Inc. (NYSE: SC; $10.71; Sector Perform) Sinclair Broadcast Group Inc (NASDAQ: SBGI; $30.49; Outperform) Santhera Pharmaceuticals Holding AG (SWX: SANN SW; CHF70.15; Outperform; Sino Gas & Energy Holdings Ltd (ASX: SEH AU; AUD0.10; Outperform) Speculative Risk) Sirius XM Canada Holdings Inc (TSX: XSR.TO; C$4.57; Sector Perform) Santos Ltd (ASX: STO AU; AUD4.68; Sector Perform) Sirius XM Holdings Inc (NASDAQ: SIRI; $4.00; Sector Perform; Speculative Risk) SAP SE (NYSE: SAP; $81.07; Sector Perform) SiteOne Landscape Supply Inc (NYSE: SITE; $33.72; Outperform) Saputo Inc. (TSX: SAP.TO; C$37.99; Sector Perform) Skandinaviska Enskilda Banken AB (OMX: SEBA SS; SEK78.80; Outperform) Saracen Mineral Holdings Ltd (ASX: SAR.AX; AUD1.45; Outperform) SKF AB (STO: SKFB SS; SEK149.20; Underperform) Sarepta Therapeutics, Inc. (NASDAQ: SRPT; $17.88; Sector Perform; Speculative Sky PLC (LSE: SKY LN; GBp894; Underperform) Risk) Slate Retail REIT (TSX: SRT/U CN; $10.65; Sector Perform) Savanna Energy Services Corp. (TSX: SVY.TO; C$1.71; Sector Perform) Smart & Final Stores, Inc. (NYSE: SFS; $15.25; Outperform) Savannah Petroleum PLC (LSE: SAVP LN; GBpNA; Outperform; Speculative Risk) Smart Real Estate Investment Trust (TSX: SRU_u.TO; C$36.46; Outperform) SBA Communications Corporation (NASDAQ: SBAC; $107.26; Outperform) SM Energy Company (NYSE: SM; $30.17; Sector Perform) Schindler Holding AG (SWX: SCHP VX; CHF179.40; Sector Perform) Smiths Group Plc (LSE: SMIN LN; GBp1,120; Outperform) Schlumberger Ltd (NYSE: SLB; $79.59; Outperform) Snam SpA (MILAN: SRG IM; €5.16; Outperform) Schmolz + Bickenbach AG (SWX: STLN SW; CHF0.66; Underperform) SNC-Lavalin Group Inc. (TSX: SNC.TO; C$52.96; Outperform; Speculative Risk) Schneider Electric SA (NXT PA: SU FP; €58.39; Sector Perform) Societe Generale (PSE: GLE FP; €36.26; Sector Perform) Schroders Plc (LSE: SDR.L; GBp2,711; Outperform) SOCO International plc (LSE: SIA LN; GBp136; Sector Perform) SCOR SE (NXT PA: SCR FP; €28.71; Sector Perform) Sodexo SA (NXT PA: SW FP; €96.54; Underperform) Scripps Networks Interactive Inc (NYSE: SNI; $62.19; Sector Perform) South32 Limited (ASX: S32.AX; AUD1.59; Outperform) SCYNEXIS Inc. (NASDAQ: SCYX; $2.19; Outperform; Speculative Risk) Southern Company (NYSE: SO; $51.06; Sector Perform) Seadrill Limited (NYSE: SDRL; $3.41; Not Rated) Southwestern Energy Company (NYSE: SWN; $13.57; Sector Perform) Seadrill Partners LLC (NYSE: SDLP; $5.64; Sector Perform) Spark Infrastructure Group (ASX: SKI.AX; AUD2.41; Outperform) Seagate Technology (NYSE: STX; $24.48; Sector Perform) Spectra Energy Partners, LP (NYSE: SEP; $47.52; Outperform) Sealed Air Corp (NYSE: SEE US; $47.85; Outperform) Spectrum Pharmaceuticals, Inc. (NASDAQ: SPPI; $6.81; Outperform; Speculative Seattle Genetics, Inc. (NASDAQ: SGEN; $40.07; Outperform) Risk) Secure Energy Services Inc. (TSX: SES.TO; C$9.19; Outperform) Speedy Hire PLC (LSE: SDY.L; GBp36.00; Sector Perform) SecureWorks Corp. (NASDAQ: SCWX US; $14.12; Outperform) Spin Master Corp. (TSX: TOY.TO; C$25.95; Outperform) June 24, 2016 116 Brexit: macro and sector implications

Spirax-Sarco Engineering Plc (LSE: SPX.L; GBp3,535; Sector Perform) T. Rowe Price Group, Inc. (NASDAQ: TROW; $73.52; Sector Perform) Spire Inc (NYSE: SR; $67.95; Sector Perform) Tableau Software, Inc. (NYSE: DATA; $55.76; Outperform) Spirit AeroSystems Holdings, Inc. (NYSE: SPR; $45.40; Sector Perform) Tahoe Resources Inc. (TSX: THO.TO; C$16.91; Sector Perform) Spirit Realty Capital Inc. (NYSE: SRC; $11.90; Sector Perform) TAL International Group, Inc. (NYSE: TAL; $13.64; Sector Perform) Splunk Inc. (NASDAQ: SPLK; $59.98; Outperform) TalkTalk Telecom Group PLC (LSE: TALK LN; GBp227; Sector Perform) Sports Direct International PLC (LSE: SPD LN; GBp388; Sector Perform) Tallgrass Energy GP, LP (NYSE: TEGP; $22.24; Sector Perform) Sprint Corporation (NYSE: S; $4.39; Sector Perform; Speculative Risk) Tallgrass Energy Partners, LP (NYSE: TEP; $46.63; Outperform) Sprott Inc. (TSX: SII.TO; C$2.45; Sector Perform) Talmer Bancorp, Inc. (NASDAQ: TLMR; $20.06; Sector Perform) Sprouts Farmers Market, Inc. (NASDAQ: SFM; $22.16; Outperform) Tamarack Valley Energy Ltd. (TSX: TVE.TO; C$3.76; Outperform; Speculative Risk) SPX FLOW Inc (NYSE: FLOW; $30.32; Sector Perform) Tanger Factory Outlet Centers Inc. (NYSE: SKT; $38.04; Outperform) Square Inc (NYSE: SQ; $9.13; Outperform) Targa Resources Corp. (NYSE: TRGP; $42.94; Outperform) SS&C Technologies Holdings, Inc. (NASDAQ: SSNC; $59.08; Outperform) Taseko Mines Ltd (TSX: TKO.TO; C$0.64; Sector Perform; Speculative Risk) SSAB AB (NYSE: SSABA SS; SEK21.24; Sector Perform) TCF Financial Corporation (NYSE: TCB; $13.55; Outperform) SSE PLC (LSE: SSE.L; GBp1,550; Underperform) TC PipeLines, LP (NYSE: TCP; $57.39; Sector Perform) St. James's Place Plc (LSE: STJ LN; GBp924; Sector Perform) TDC A/S (CSE: TDC DC; DKK32.25; Outperform) St. Jude Medical, Inc. (NYSE: STJ; $78.49; Sector Perform) Team Health Holdings, Inc. (NYSE: TMH; $43.79; Outperform) Stagecoach Group PLC (LSE: SGC LN; GBp258; Sector Perform) Teck Resources Limited (TSX: TCKb.TO; C$16.34; Outperform) STAG Industrial, Inc. (NYSE: STAG; $23.03; Outperform) TE Connectivity Ltd. (NYSE: TEL; $63.00; Outperform) Standard Chartered PLC (LSE: STAN.L; GBp578; Sector Perform) Teekay Corporation (NYSE: TK; $7.74; Sector Perform) Standard Life plc (LSE: SL/ LN; GBp343; Underperform) Teekay LNG Partners L.P. (NYSE: TGP; $11.81; Sector Perform) Stantec Inc. (TSX: STN.TO; C$33.29; Sector Perform) Teekay Offshore Partners, LP (NYSE: TOO; $5.93; Sector Perform) Starbucks Corporation (NASDAQ: SBUX; $56.13; Outperform) Teladoc, Inc. (NYSE: TDOC; $12.95; Outperform) Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT; $75.92; Sector Perform) Tele2 AB (OMX: TEL2B SS; SEK71.75; Sector Perform) State Street Corporation (NYSE: STT; $60.27; Sector Perform) Telecom Italia SpA (MILAN: TIT IM; €0.83; Outperform) Statoil ASA (OSLO: STL NO; NOK138.60; Underperform) Telecom Plus PLC (LSE: TEP LN; GBp1,100; Underperform) SteadyMed Ltd. (NASDAQ: STDY; $2.82; Outperform; Speculative Risk) Telefonica Brasil SA (NYSE: VIV; $12.65; Sector Perform) Steinhoff International Holdings NV (XETRA: SNH GR; €5.41; Outperform) Telefonica Deutschland Holding AG (XETRA: O2D GR; €3.77; Outperform) Stella-Jones Inc. (TSX: SJ.TO; C$49.66; Outperform) Telefonica SA (SIBE: TEF SM; €9.22; Underperform) Stericycle, Inc. (NASDAQ: SRCL; $103.38; Underperform) Telekom Austria AG (VSX: TKA AV; €5.35; Outperform) Sterling Bancorp/DE (NYSE: STL; $16.68; Outperform) Telenet Group Holding NV (BRU: TNET BB; €40.98; Sector Perform) Sterling Resources Ltd. (TSXV: SLG.V; C$0.01; Sector Perform; Speculative Risk) Telenor ASA (OSLO: TEL NO; NOK127.80; Sector Perform) SThree PLC (LSE: STHR LN; GBp322; Sector Perform) Telia Company (OMX: TELIA SS; SEK38.26; Underperform) Stillwater Mining Company (NYSE: SWC; $11.16; Sector Perform) TELUS Corporation (TSX: T.TO; C$41.45; Sector Perform) Storebrand ASA (OSLO: STB NO; NOK31.78; Sector Perform) Tembec Inc. (TSX: TMB.TO; C$1.10; Sector Perform) Storm Resources Ltd. (TSXV: SRX.V; C$3.92; Outperform; Speculative Risk) Tenet Healthcare Corporation (NYSE: THC; $29.38; Sector Perform) Stornoway Diamond Corporation (TSX: SWY.TO; C$0.99; Outperform; Speculative Tenneco Inc. (NYSE: TEN; $55.09; Sector Perform) Risk) Teradata Corporation (NYSE: TDC; $28.56; Sector Perform) Stryker Corporation (NYSE: SYK; $118.38; Outperform) Teranga Gold Corp (TSX: TGZ.TO; C$1.06; Sector Perform) Stuart Olson Inc. (TSX: SOX.TO; C$6.31; Sector Perform) Terex Corporation (NYSE: TEX; $22.49; Sector Perform) SUEZ environnement (NXT PA: SEV FP; €14.32; Outperform) Terna SpA (MILAN: TRN.MI; €4.86; Sector Perform) Sulzer AG (SWX: SUN SW; CHF89.20; Sector Perform) Tesla Motors Inc (NASDAQ: TSLA; $196.40; Sector Perform) Summit Hotel Properties Inc (NYSE: INN; $12.88; Outperform) Tesoro Corporation (NYSE: TSO; $77.78; Sector Perform) Summit Materials, Inc. (NYSE: SUM; $21.00; Outperform) Tesoro Logistics LP (NYSE: TLLP; $49.80; Outperform) Summit Midstream Partners LP (NYSE: SMLP; $23.44; Outperform) TETRA Technologies Inc (NYSE: TTI; $6.19; Outperform) Suncor Energy Inc. (TSX: SU.TO; C$36.10; Outperform) Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA; $51.37; Outperform) Sun Life Financial Inc. (TSX: SLF.TO; C$44.19; Outperform) Texas Instruments Inc. (NYSE: TXN; $63.30; Outperform) Sunoco Logistics Partners L.P. (NYSE: SXL; $28.63; Sector Perform) Texas Roadhouse, Inc. (NASDAQ: TXRH; $46.55; Sector Perform) Sunoco LP (NYSE: SUN; $30.82; Outperform) Textainer Group Holdings Ltd. (NYSE: TGH; $11.28; Sector Perform) Sunrise Communication Group AG (VX: SRCG SW; CHF60.90; Sector Perform) Textron Inc. (NYSE: TXT; $38.42; Outperform) Sunrun Inc (NASDAQ: RUN; $5.89; Not Rated) Thales SA (NXT PA: HO FP; €75.90; Sector Perform) SunTrust Banks, Inc. (NYSE: STI; $43.21; Outperform) The AES Corporation (NYSE: AES; $12.10; Outperform) SuperGroup PLC (LSE: SGP LN; GBp1,493; Outperform) The Allstate Corporation (NYSE: ALL; $67.86; Sector Perform) Superior Energy Services Inc (NYSE: SPN; $19.44; Sector Perform) The Bank of New York Mellon Corporation (NYSE: BK; $41.54; Sector Perform) Superior Plus Corp. (TSX: SPB CN; C$10.35; Outperform) The Bank of Nova Scotia (TSX: BNS.TO; C$65.55; Outperform) SUPERVALU INC. (NYSE: SVU; $4.57; Sector Perform) The Blackstone Group LP (NYSE: BX; $25.88; Outperform) Surge Energy Inc. (TSX: SGY.TO; C$2.48; Sector Perform) The Boeing Company (NYSE: BA; $133.55; Sector Perform) Surgery Partners Inc (NASDAQ: SGRY; $15.63; Outperform) The Clorox Company (NYSE: CLX; $134.23; Sector Perform) SVB Financial Group (NASDAQ: SIVB; $104.91; Outperform) The Coca-Cola Company (NYSE: KO; $45.08; Outperform) Svenska Handelsbanken AB (OMX: SHBA SS; SEK106.90; Outperform) The Descartes Systems Group Inc. (NASDAQ: DSGX; $19.99; Outperform) Swedbank AB (OMX: SWEDA SS; SEK181.40; Sector Perform) The Dow Chemical Company (NYSE: DOW; $53.68; Top Pick) Swift Transportation Company (NYSE: SWFT; $15.87; Sector Perform) The Ensign Group, Inc. (NASDAQ: ENSG; $20.43; Outperform) Swisscom AG (VX: SCMN VX; CHF462.30; Sector Perform) The Gap, Inc. (NYSE: GPS; $20.93; Sector Perform) Swiss Re Ltd. (VX: SREN VX; CHF85.05; Sector Perform) The Hain Celestial Group, Inc. (NASDAQ: HAIN; $51.50; Sector Perform) Sydney Airport (ASX: SYD.AX; AUD7.10; Sector Perform) The Hershey Company (NYSE: HSY; $97.12; Sector Perform) Symantec Corporation (NASDAQ: SYMC; $21.24; Outperform) The Home Depot, Inc. (NYSE: HD; $128.29; Outperform) Synopsys, Inc. (NASDAQ: SNPS US; $53.93; Outperform) The Jean Coutu Group (PJC) Inc. (TSX: PJCa.TO; C$19.87; Sector Perform) Synthetic Biologics Inc (AMEX: SYN; $1.76; Outperform; Speculative Risk) The Kraft Heinz Company (NASDAQ: KHC; $86.37; Outperform) June 24, 2016 117 Brexit: macro and sector implications

The Kroger Co. (NYSE: KR; $34.67; Sector Perform) TrueCar, Inc. (NASDAQ: TRUE; $7.87; Sector Perform) The Medicines Company (NASDAQ: MDCO; $34.54; Outperform) Trupanion Inc (NYSE: TRUP; $13.02; Outperform) The Mosaic Company (NYSE: MOS; $28.00; Outperform) Tryg A/S (CSE: TRYG DC; DKK122.10; Underperform) The North West Company Inc. (TSX: NWC.TO; C$28.64; Sector Perform) Tullow Oil plc (LSE: TLW LN; GBp268; Outperform) The PNC Financial Services Group, Inc. (NYSE: PNC; $86.67; Top Pick) Turkcell Iletisim Hizmetleri AS (ISE: TCELL TI; TRY12.75; Outperform) The Priceline Group Inc. (NASDAQ: PCLN; $1,390.20; Outperform) Turk Telekomunikasyon AS (ISE: TTKOM TI; TRY6.43; Outperform) The Progressive Corporation (NYSE: PGR; $32.49; Sector Perform) Twenty-First Century Fox Inc (NASDAQ: FOXA; $29.20; Outperform) The Rubicon Project, Inc. (NYSE: RUBI; $13.94; Outperform) Twitter, Inc. (NYSE: TWTR; $17.04; Sector Perform) The Spectranetics Corp (NASDAQ: SPNC; $18.40; Sector Perform) Tyco International Ltd. (NYSE: TYC; $43.97; Sector Perform) The Swatch Group AG (SWX: UHR VX; CHF293.40; Outperform) Tyson Foods, Inc. (NYSE: TSN; $63.36; Sector Perform) The TJX Companies, Inc. (NYSE: TJX; $76.88; Outperform) U.S. Bancorp (NYSE: USB; $42.23; Outperform) The Travelers Companies, Inc. (NYSE: TRV; $113.85; Outperform) UBS Group AG (VX: UBSG VX; CHF15.31; Sector Perform) The Ultimate Software Group, Inc. (NASDAQ: ULTI; $209.50; Outperform) UDR, Inc. (NYSE: UDR; $35.20; Sector Perform) The Valspar Corporation (NYSE: VAL; $108.17; Sector Perform) UK Mail Group PLC (LSE: UKM LN; GBp307; Sector Perform) The Walt Disney Company (NYSE: DIS; $99.02; Sector Perform) Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ: ULTA; $242.08; Sector The Wendy's Company (NASDAQ: WEN; $9.89; Outperform) Perform) The Western Union Co. (NYSE: WU; $19.38; Sector Perform) Umpqua Holdings Corporation (NASDAQ: UMPQ; $16.31; Sector Perform) Thompson Creek Metals Co Inc (TSX: TCM.TO; C$0.54; Underperform; UniCredit SpA (MILAN: UCG IM; €2.72; Sector Perform) Speculative Risk) Unilever NV (NXT AM: UNA NA; €40.79; Outperform) Thomson Reuters Corporation (NYSE: TRI; $41.95; Sector Perform) Union Pacific Corporation (NYSE: UNP; $88.54; Outperform) ThyssenKrupp AG (XETRA: TKA GR; €19.74; Outperform) Uni-Select Inc. (TSX: UNS.TO; C$33.24; Outperform) Tiffany & Co. (NYSE: TIF; $62.63; Sector Perform) United Financial Bancorp, Inc. (NASDAQ: UBNK; $13.45; Sector Perform) Time Warner Cable Inc. (NYSE: TWC; $209.56; Sector Perform) UnitedHealth Group Inc. (NYSE: UNH US; $139.19; Outperform) Time Warner Inc (NYSE: TWX; $73.05; Outperform) United Natural Foods, Inc. (NASDAQ: UNFI; $45.74; Sector Perform) Timmins Gold Corp. (TSX: TMM.TO; C$0.40; Underperform) United Parcel Service, Inc. (NYSE: UPS; $107.22; Outperform) Tim Participacoes SA (NYSE: TSU; $10.39; Outperform) United Rentals, Inc. (NYSE: URI; $72.23; Sector Perform) T-Mobile US Inc. (NYSE: TMUS; $43.67; Outperform) United Technologies Corporation (NYSE: UTX; $102.33; Sector Perform) TMX Group Limited (TSX: X.TO; C$52.30; Underperform) United Therapeutics Corp. (NASDAQ: UTHR; $105.28; Sector Perform) TNT Express N.V. (NXT AM: TNTE.AS; €8.70; Sector Perform) United Utilities Group PLC (LSE: UU/ LN; GBp933; Sector Perform) Tod's SpA (MILAN: TOD IM; €54.35; Underperform) Unitil Corp (NYSE: UTL; $41.66; Sector Perform) Toll Brothers Inc. (NYSE: TOL; $27.59; Sector Perform) Universal Health Services, Inc. (NYSE: UHS; $138.28; Outperform) Topdanmark A/S (CSE: TOP DC; DKK163.20; Outperform) Unum Group (NYSE: UNM; $35.52; Outperform) Torchmark Corp. (NYSE: TMK; $62.39; Underperform) Uranium Participation Corp. (TSX: U.TO; C$4.00; Outperform) TORC Oil and Gas Ltd (TSX: TOG.TO; C$8.23; Outperform) Urban Outfitters, Inc. (NASDAQ: URBN; $26.90; Sector Perform) Torex Gold Resources Inc. (TSX: TXG.TO; C$2.16; Outperform; Speculative Risk) USA Compression Partners, LP (NYSE: USAC; $14.52; Outperform) Toromont Industries Ltd. (TSX: TIH.TO; C$37.94; Outperform) USG Corporation (NYSE: USG; $26.70; Sector Perform) Toronto-Dominion Bank (TSX: TD.TO; C$56.66; Outperform) US Silica Holdings Inc (NYSE: SLCA; $35.60; Outperform) Torstar Corp (TSX: TSb.TO; C$1.62; Sector Perform) Valeant Pharmaceuticals International, Inc. (NYSE: VRX; $22.25; Sector Perform) Total Energy Services Inc. (TSX: TOT.TO; C$13.82; Sector Perform) Valener Inc. (TSX: VNR.TO; C$21.72; Sector Perform) Total SA (NXT PA: FP FP; €43.69; Outperform) Valero Energy Corporation (NYSE: VLO; $53.71; Outperform) Tourmaline Oil Corp. (TSX: TOU.TO; C$32.79; Outperform) Valero Energy Partners, LP (NYSE: VLP; $46.64; Outperform) Townsquare Media Inc (NYSE: TSQ; $8.44; Outperform) Vale S.A. (NYSE: VALE; $4.96; Sector Perform) Tractor Supply Company (NASDAQ: TSCO; $93.54; Outperform) Valley National Bancorp (NYSE: VLY; $9.43; Sector Perform) TransAlta Corporation (TSX: TA.TO; C$6.64; Underperform) Vantiv, Inc. (NYSE: VNTV; $53.29; Outperform) TransAlta Renewables Inc. (TSX: RNW.TO; C$12.68; Outperform) Varian Medical Systems Inc (NYSE: VAR; $84.31; Sector Perform) TransCanada Corporation (TSX: TRP.TO; C$57.34; Outperform) Varonis Systems, Inc (NASDAQ: VRNS; $25.69; Outperform) Transcontinental Inc (TSX: TCLa.TO; C$17.84; Sector Perform) Vectura Group PLC (LSE: VEC LN; GBp161; Outperform) TransDigm Group Inc. (NYSE: TDG; $265.35; Outperform) Ventas, Inc. (NYSE: VTR; $68.90; Outperform) TransEnterix Inc. (NYSE: TRXC; $1.39; Outperform; Speculative Risk) Veolia Environnement SA (NXT PA: VIE FP; €19.75; Outperform) TransForce Inc. (TSX: TFI.TO; C$24.37; Sector Perform) Veresen Inc. (TSX: VSN.TO; C$10.86; Outperform) TransGlobe Energy Corporation (TSX: TGL CN; C$2.49; Sector Perform) VeriFone Systems, Inc. (NYSE: PAY; $19.50; Sector Perform) Transition Therapeutics Inc. (TSX: TTH.TO; C$0.98; Sector Perform; Speculative Verint Systems Inc. (NASDAQ: VRNT; $35.24; Outperform) Risk) Verizon Communications Inc. (NYSE: VZ; $54.67; Outperform) Transocean Ltd (NYSE: RIG US; $12.03; Sector Perform) Vermilion Energy Inc. (TSX: VET.TO; C$42.74; Sector Perform) TransUnion (NYSE: TRU; $33.54; Outperform) Vertex Pharmaceuticals Inc. (NASDAQ: VRTX; $88.20; Outperform) Transurban Group (ASX: TCL AU; AUD11.60; Sector Perform) Vesuvius plc (LSE: VSVS LN; GBp351; Sector Perform) Travis Perkins PLC (LSE: TPK.L; GBp1,917; Outperform) Viacom Inc (NASDAQ: VIAB; $43.47; Sector Perform) Trican Well Service Ltd. (TSX: TCW.TO; C$2.43; Outperform) VimpelCom Ltd. (NASDAQ: VIP; $3.84; Outperform; Speculative Risk) Tricon Capital Group Inc. (TSX: TCN.TO; C$8.64; Outperform) Vinci SA (NXT PA: DG FP; €64.65; Outperform) Trilogy Energy Corp. (TSX: TET.TO; C$5.75; Sector Perform) Visa Inc. (NYSE: V; $78.23; Outperform) Trimac Transportation Ltd. (TSX: TMA.TO; C$6.25; Sector Perform) VIVUS, Inc. (NASDAQ: VVUS; $1.10; Sector Perform; Speculative Risk) Trinidad Drilling Ltd. (TSX: TDG.TO; C$2.70; Outperform) VMware, Inc. (NYSE: VMW; $62.15; Restricted) Trinity Exploration and Production PLC (LSE: TRIN.L; GBp2.13; Sector Perform; Vodafone Group PLC (LSE: VOD LN; GBp218; Outperform) Speculative Risk) Voestalpine AG (VSX: VOE AV; €32.73; Outperform) TripAdvisor Inc. (NASDAQ: TRIP; $65.98; Sector Perform) Voya Financial Inc. (NYSE: VOYA; $29.24; Top Pick) Triumph Group Inc (NYSE: TGI; $39.50; Outperform; Speculative Risk) Vulcan Materials Company (NYSE: VMC; $119.04; Outperform) Tronox Limited (NYSE: TROX; $4.90; Outperform) W.R. Berkley Corporation (NYSE: WRB; $57.39; Sector Perform) June 24, 2016 118 Brexit: macro and sector implications

W.W. Grainger, Inc. (NYSE: GWW; $225.97; Underperform) Zayo Group Holdings Inc. (NYSE: ZAYO; $27.90; Outperform) WABCO Holdings, Inc. (NYSE: WBC; $108.67; Outperform) Zendesk, Inc. (NYSE: ZEN; $27.90; Outperform) Waddell & Reed Financial, Inc. (NYSE: WDR; $19.02; Outperform) Zillow Group Inc. (NASDAQ: ZG; $35.50; Outperform) Wajax Corporation (TSX: WJX.TO; C$15.37; Sector Perform) Zimmer Biomet Holdings, Inc. (NYSE: ZBH; $120.92; Outperform) Wal-Mart Stores Inc (NYSE: WMT; $72.10; Underperform) Zions Bancorporation (NASDAQ: ZION; $28.16; Outperform) Washington Federal, Inc. (NASDAQ: WAFD; $25.22; Sector Perform) Zurich Insurance Group Ltd. (VX: ZURN VX; CHF240.70; Underperform) Waste Connections, Inc. (NYSE: WCN; $70.36; Outperform) Weatherford International plc (NYSE: WFT; $6.29; Outperform) Web.com Group Inc (NASDAQ: WEB; $17.97; Sector Perform) WebMD Health Corp. (NASDAQ: WBMD; $60.75; Outperform) Webster Financial Corporation (NYSE: WBS; $36.14; Sector Perform) Weingarten Realty Investors (NYSE: WRI; $38.77; Outperform) Weir Group Plc (LSE: WEIR LN; GBp1,389; Underperform) Wells Fargo & Company (NYSE: WFC; $47.91; Outperform) Welltower Inc. (NYSE: HCN US; $73.04; Sector Perform) Werner Enterprises, Inc. (NASDAQ: WERN; $22.40; Outperform) WESCO International Inc. (NYSE: WCC; $57.98; Sector Perform) Westamerica Bancorporation (NASDAQ: WABC; $50.73; Sector Perform) West Corporation (NASDAQ: WSTC; $20.80; Sector Perform) Western Alliance Bancorporation (NYSE: WAL; $34.80; Outperform) Western Areas Ltd. (ASX: WSA.AX; AUD2.06; Underperform) Western Digital Corp. (NASDAQ: WDC; $50.81; Outperform) Western Energy Services Corp. (TSX: WRG.TO; C$3.44; Outperform) Western Forest Products Inc. (TSX: WEF.TO; C$2.09; Outperform) Western Gas Equity Partners LP (NYSE: WGP; $38.33; Outperform) Western Gas Partners LP (NYSE: WES; $50.57; Outperform) Western Refining, Inc. (NYSE: WNR; $20.25; Sector Perform) WesternZagros Resources Ltd. (TSXV: WZR.V; C$0.12; Sector Perform; Speculative Risk) West Fraser Timber Co. Ltd. (TSX: WFT.TO; C$39.08; Sector Perform) WestJet Airlines Ltd. (TSX: WJA.TO; C$21.87; Sector Perform) Westlake Chemical Corporation (NYSE: WLK; $44.72; Sector Perform) WestRock Company (NYSE: WRK; $41.51; Sector Perform) Westshore Terminals Investment Corporation (TSX: WTE.TO; C$18.88; Outperform) Weyerhaeuser Company (NYSE: WY; $29.52; Outperform) Whirlpool Corporation (NYSE: WHR; $178.80; Top Pick) Whistler Blackcomb Holdings Inc. (TSX: WB CN; C$24.22; Sector Perform) Whitecap Resources Inc. (TSX: WCP.TO; C$9.97; Outperform) Whiting Petroleum Corporation (NYSE: WLL; $11.32; Sector Perform) Whole Foods Market, Inc. (NASDAQ: WFM; $30.67; Outperform) WH Smith PLC (LSE: SMWH LN; GBp1,712; Outperform) Williams Partners L.P. (NYSE: WPZ; $34.93; Restricted) Williams-Sonoma, Inc. (NYSE: WSM; $54.40; Sector Perform) Wincanton plc (LSE: WIN LN; GBp201; Outperform) Wintrust Financial Corporation (NASDAQ: WTFC; $52.64; Outperform) Wix.com Ltd. (NASDAQ: WIX; $27.90; Outperform) Wolseley PLC (LSE: WOS.L; GBp3,847; Outperform) Woodside Petroleum Ltd (ASX: WPL AU; AUD25.77; Underperform) Workday Inc. (NYSE: WDAY; $80.33; Outperform) WPT Industrial REIT (TSX: WIRu.TO; $11.45; Sector Perform) Wright Medical Group, Inc. (NASDAQ: WMGI; $17.63; Outperform; Speculative Risk) WS Atkins PLC (LSE: ATK LN; GBp1,404; Outperform) WSP Global Inc. (TSX: WSP.TO; C$41.27; Sector Perform) Xcel Energy Inc. (NYSE: XEL; $42.70; Sector Perform) Xenoport, Inc. (NASDAQ: XNPT; $7.03; Outperform) XL Group plc (NYSE: XL; $33.28; Outperform) XOMA Corporation (NASDAQ: XOMA; $0.57; Sector Perform; Speculative Risk) Xylem (NYSE: XYL; $46.35; Outperform) Yahoo! Inc. (NASDAQ: YHOO; $37.78; Sector Perform) Yamana Gold Inc. (NYSE: AUY; $4.85; Sector Perform) Yellow Pages Ltd. (TSX: Y.TO; C$18.37; Outperform) Yelp Inc. (NYSE: YELP; $29.73; Outperform) Yum! Brands, Inc. (NYSE: YUM; $85.90; Top Pick) Zafgen, Inc. (NASDAQ: ZFGN; $6.28; Outperform; Speculative Risk) Zalando SE (XETRA: ZAL GR; €26.07; Outperform) June 24, 2016 119 Brexit: macro and sector implications

Required Equity disclosures Non-U.S. analyst disclosure Biraj Borkhataria, John Musk, Martin Young, Maurice Choy, Olly Jeffery, Nick Keher, Andrew Carter, Jonathan Dann, Tyler Broda, Peter Lenardos, Portia Patel, Gordon Aitken, Kamran Hossain, Paul De’Ath, Anna Hui, Ioannis Masvoulas, Richard Chamberlain, Claire Huff, Fiona Swaffield, Rogerio Fujimori, Andrew Brooke, James Edwardes Jones, Damian Brewer, Stephen D. Walker, Dan Rollins, Sam Crittenden, Nelson, Ng, Sara O'Brien, Robert Kwan Matt Barasch, Sabahat Khan and Fraser Phillips (i) are not registered/qualified as research analysts with the NYSE and/or FINRA and (ii) may not be associated persons of the RBC Capital Markets, LLC and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Conflicts disclosures This product constitutes a compendium report (covers six or more subject companies). As such, RBC Capital Markets chooses to provide specific disclosures for the subject companies by reference. To access conflict of interest and other disclosures for the subject companies, clients should refer to https://www.rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?entityId=1. These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7 or an email to [email protected].

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. Distribution of ratings For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/Outperform, Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above).

Distribution of Ratings RBC Capital Markets, Equity Research As of 31-Mar-2016 Investment Banking Serv./Past 12 Mos. Rating Count Percent Count Percent BUY [Top Pick & Outperform] 887 51.78 258 29.09 HOLD [Sector Perform] 722 42.15 115 15.93 SELL [Underperform] 104 6.07 8 7.69 Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time. Dissemination of research and short-term trade ideas RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firm’s proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time, include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view June 24, 2016 120 Brexit: macro and sector implications

on how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. Analyst certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.

The Global Industry Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard & Poor’s Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

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Required Fixed Income & Currency Strategy disclosures Conflicts disclosures The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates.

RBC Capital Markets, LLC trades or may trade as principal in the debt securities (or in related derivatives) of the Government of the United Kingdom. RBC Capital Markets, or one of its affiliates, managed or co-managed a public offering of securities for the Government of the United Kingdom. RBC Capital Markets, or one of its affiliates, received compensation for Investment Banking services from the Government of the United Kingdom in the past 12 months. RBC Capital Markets, or one of its affiliates, expects to receive, or intends to seek, compensation for Investment Banking services from the Government of the United Kingdom in the next 3 months. Conflicts policy RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time. Dissemination of research and short-term trade ideas RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary website to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax, or other electronic means, or regular mail. Clients may also receive our research via third party vendors. RBC Capital Markets also provides eligible clients with access to SPARC on the Firm’s proprietary INSIGHT website, via email and via third-party vendors. SPARC contains market color and commentary regarding subject companies on which the Firm currently provides equity research coverage. Research Analysts may, from time to time, include short-term trade ideas in research reports and / or in SPARC. A short-term trade idea offers a short-term view on how a security may trade, based on market and trading events, and the resulting trading opportunity that may be available. A short-term trade idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'Sector Perform' or even an 'Underperform' might present a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'Outperform' could be considered susceptible to a short-term downward price correction. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm generally does not intend, nor undertakes any obligation, to maintain or update short-term trade ideas. Short-term trade ideas may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. Analyst certification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report.

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