Magnifier - October 2010

UNITED STATES
Macquarie Magnifier
US Small-/Mid-Cap Monthly
Mobilize to globalize
We think it is rational to invest international, as the investment environment appears ideal to accumulate equity positions in US firms with foreign exposure. Our study reveals that the average stock among US companies generating more than 10% of sales from foreign markets trades at a 15% relative discount (versus a 12% historic premium) to domestic-focused peers a relationship that we think will shortly revert back to the historic setting. In our opinion, a favorable US$ exchange rate and a healing global economy will lift demand for US products at a faster pace, particularly outside the US, than investor expectations imply. We also predict a capex surge into higher-growth regions will bolster market share capture among US firms abroad.
Top ten small-/mid-cap picks

The determinants for our top ten picks run deeper than merely buying US stocks with exposure to foreign markets - the firms possess either a sustainable competitive advantage, ranging from technology to location, direct exposure to above-industry growth rates in target foreign markets, or a compelling mix of these items. Our picks, which mostly fall within the industrials or healthcare sector, also trade at a discount to historic relative peer valuations despite above-average return outlooks. Each pick averages nearly 30% upside to our analysts one-year forward target price.
Top ten US small-/mid-cap picks (below US$5bn market cap)

Company Interpublic Group Of Cos. Iron Mountain Inc. Global Payments Inc. Manpower Inc. McDermott International Inc. Ticker IPG IRM GPN MAN MDR Rating OP OP OP OP OP Company Mettler-Toledo International Inc. Reinsurance Group of America Inc. Sonoco Products Co. Terex Corp. Websense Inc. Ticker MTD RGA SON TEX WBSN Rating OP OP OP OP OP
Source: Macquarie Capital (USA), September 2010
The quantitative view

Our October EMC2 quantitative screen portrays the US materials sector, chiefly chemicals and containers & packaging producers, in a positive light, while taking a bearish view of media and financials. The outputs ring positive for an investment framework to play a period of rising consumer health and low energy prices. In addition to sector picks, our screen of the Russell 2500 yields 20 long and short ideas derived from value, volatility and fundamental momentum indicators.
Top US small-/mid-cap long ideas from EMC2 quant screen

Company Crown Holdings Inc. Scotts Miracle-Gro Co. Sealed Air Corp. Albemarle Corp. Owens-Illinois Inc. Ticker CCK SMG SEE ALB OI Rating OP NR Neutral NR Neutral Company International Flavors & Fragrances Nalco Holding Co. Koppers Holdings Inc. Silgan Holdings Inc. Solutia Inc. Ticker IFF NLC KOP SLGN SOA Rating NR NR NR Neutral NR
Cooley May, CFA +1 212 231 2586
Cooley.May@macquarie.com
1 October 2010
Source: Macquarie Research, September 2010
Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com.au/research/disclosures.
Macquarie (USA) Research
Macquarie Magnifier
Inside
US Small-/Mid-Cap Monthly Mobilize to globalize A quantitative view Top ten US small-/mid-cap picks Global Payments Inc. Interpublic Group of Cos. Iron Mountain Inc. Manpower Inc. McDermott International Inc. Mettler-Toledo International Reinsurance Group of America Inc. Sonoco Products Co. Terex Corp. Websense Inc. Performance of prior top ten picks Appendix 1: US sub-sector view Appendix 2: Small-/mid-cap coverage Appendix 3: Quant EMC -USE model Contributing analysts
2
Introduction and event calendar

3 8 21 22 23 24 25 26 27 28 29 30 31 32 33 41 47 53 57 The Macquarie Magnifier scopes out undervalued, underfollowed companies with an unrecognized positive dynamic for change or continued operational performance. Each month, we erect an investment theme. With this theme in hand, we perform fundamental and quantitative screens to determine top sector and individual picks among the 361 companies that we cover with a market capitalization below US$5bn. We intend for the Macquarie Magnifier to serve as an idea generation tool and point out salient market features to small-/mid-cap investors.
US event calendar
Corporate marketing October
5-Oct 5-Oct Oct 7-12 Oct 12-13 Oct 12-13 Oct 31-Nov 2 Iron Mountain (IRM) NDR West Coast Entertainment Tour Asian Gaming Tour Oklahoma Energy Day Solar Power Conference Mgm't Meetings EEI Financial Conference Mgm't Meetings First Horizon (FHN) NDR SunTrust Banks (STI) NDR Columbia Banking System (COLB) Client Tour Washington Federal (WFSL) Client Tour Mettler-Toledo International (MTD) NDR Corrections Corp (CXW) Facility Tour Silgan Holdings (SLGN) NDR Boston Life Sciences Bus Tour CNO Financial Group (CNO) NDR New York Los Angeles Macau & Singapore Oklahoma City Anaheim, CA Palm Springs, CA Boston Boston Seattle Seattle Boston Nashville, TN New York Boston Milwaukee, Minneapolis,
November
3-Nov 3-Nov 8-Nov 8-Nov 10-Nov 11-Nov 12-Nov Nov 15-16 Nov 15-16
US Conferences 2010
Nov 1-2 Nov 15-16 Nov 22-23 Dec. 2-3 Dec. 8-9 Korea & Taiwan Corporate Day Global TMET Conference Global Metals & Mining Conference Global Property Conference Wind & Solar New York New York New York New York New York
1 October 2010
Macquarie Magnifier
US Small-/Mid-Cap Monthly
It is not the strongest of the species that survive, or the most intelligent, but the one most responsive to change. Charles Darwin It is rational to invest international, given above-par growth prospects and below average valuations Investment thesis. We broadly advise investment in US small-/mid-cap firms with fundamental exposure to foreign markets, as we predict product demand outside the US will outpace domestic demand in coming months and surpass implied market expectations. Our study demonstrates that US firms generating more than 10% of sales abroad trade at a 15% average discount (vs a 12% average premium since 1978) to domestic-focused peers a setting that will likely revert toward the historic mean as benefits from a competitive US dollar exchange rate and rising global consumer health begin to materialize. We also predict a low interest rate setting will bolster capex among US firms into higher-growth regions, resulting in market share capture. Top 10 picks. We view our top ten picks for October as an ideal way to invest in US companies benefiting from foreign exposure. The picks comprise firms that hold a sustainable competitive advantage abroad, direct exposure to above-industry growth rates in target foreign markets, or a mixture of both. Additionally, the stocks, which mostly sit in the industrials or healthcare sector, trade at a discount to historic peer relative valuations despite above-average return outlooks. Our picks average nearly 30% upside to our analysts one-year forward target price and seem well poised for appreciation in coming months, in our view. Our top 10 picks outperformed the Russell 2000 and S&P 500 in ten/eleven of the last fourteen months, respectively, posting a rolling time-weighted monthly return of 3.2% since August 2009, relative to a 1.5% result for the Russell 2000 and 1.1% for the S&P 500.
Fig 1 Top 10 small-/mid-cap picks (US$)

Company
Interpublic Group Of Cos. Iron Mountain Inc. Global Payments Inc. Manpower Inc. McDermott International Inc. Mettler-Toledo International Reinsurance Grp of America Sonoco Products Co. Terex Corp. Websense Inc.
Market Current Target cap Ticker Rating price price (US$m)

IPG IRM GPN MAN MDR MTD RGA SON TEX WBSN OP OP OP OP OP OP OP OP OP OP $10.04 $22.20 $42.47 $49.33 $14.67 $124.19 $48.47 $33.71 $22.67 $18.15 $12.00 $35.00 $52.00 $67.00 $19.00 $133.00 $65.00 $39.00 $26.00 $24.00
GICS
Analyst
Phone
Email
tim.nollen@macquarie.com kevin.mcveigh@macquarie.com roger.smith@macquarie.com kevin.mcveigh@macquarie.com sameer.rathod@macquarie.com jon.groberg@macquarie.com mark.finkelstein@macquarie.com al.kabili@macquarie.com sameer.rathod@macquarie.com brad.zelnick@macquarie.com
$4,951.8 Media Tim Nollen (+44) 20 3037 4524 $4,497.7 Commercial Services & Supplies Kevin McVeigh (1 212) 231-6191 $3,347.2 IT Services Roger Smith (1 212) 231-8016 $4,087.1 Professional Services Kevin McVeigh (1 212) 231-6191 $3,356.1 Energy Equipment & Services Sameer Rathod, CFA (1 212) 231-2474 $4,135.5 Life Sciences Tools & Services Jon Groberg (1 212) 231-2612 $3,559.8 Insurance Mark Finkelstein (1 312) 660-9179 $3,421.4 Containers & Packaging Al Kabili (1 212) 231-2473 $2,452.3 Machinery Sameer Rathod, CFA (1 212) 231-2474 $800.5 Software Brad Zelnick (1 212) 231-2618
Priced as of 29 September, 2010 Source: Compustat, Macquarie Capital (USA), September 2010
Setting the stage the EM-DM split, economic cycle and market
US small-/mid-cap firms with international exposure tend to offer above-average growth but greater volatility Introduction. The split between developed markets (DM) and emerging markets (EM) held a steady path in September as still-vigorous EM growth, in countries such as Brazil and China, was more determined by domestic demand, while DM economies, such as the US and the UK, shifted away from construction and spending-led expansion towards capital expenditure and export-led growth. Our study reveals that most economists predict the US economy is poised for a tepid advance during the next six months, and foresee better growth outcomes in other parts of the world and a still-sensible global growth picture we agree. All in, we think that coming months will be dominated by a set of investor judgments relating to these areas. The US economy appears in the midst of a cyclical upturn, in our view, albeit a tepid one, that we think will further support growth in EM and other DM areas in coming periods. Mindful of this, we think that an investment in US firms with operations in foreign markets, particularly EM, exposes investors to generally higher growth characteristics than purely domestic players, while providing lower volatility and, in many cases, trustier financials than a direct investment into foreign markets. All told, we do not think the well-known investor trend to invest in stocks with foreign exposure is played out; in fact, we view this trend as timely and at the point of gaining positive traction in the current investment cycle. Investors should take notice.
1 October 2010 3
Macquarie Magnifier
We think rising US economic health will bode well for growth within virtually all EM and DM areas
The decoupling debate and the US business cycle. The growth witnessed among some EM economies, particularly China and India, during the past few years sparked an investor debate over whether these economies have mostly decoupled from the US and other DM. Despite the differing opinions, we think that both sides of the argument will agree that a healing US economy will ultimately reinforce growth in these regions and benefit the global economy a position that we think will transpire in coming periods. Mindful of this, we broadly do not think that the benefits of tapping overseas market growth, at least in the near term, will prove great enough to offshoot a US firms historical spot in the investment cycle. Thus, we advise investors to pick stocks likely to benefit from above-par foreign growth but to keep the historical investment cycle in mind.
Fig 2 Ideal sector rotation through an average economic cycle
Fig 3
The typical business and equity market cycle
Fig 4 Equity price rotation during an economic cycle
1 October 2010
Macquarie Magnifier
We maintain a broadly positive long-term view of the US economy and stock market
The US economy the rocky transition from recovery to expansion. Our research suggests that the US economy is in a cyclical upturn, albeit a tepid one, as the basket of 10 US leading indicators reflected further growth in September, manufacturer fundamentals denote expansion and inflation remains at multi-year lows. We also find that labor productivity recently declined post a period of rapid expansion, which coupled with our other findings suggests job creation. We do find some offsets; notably, continued proof that producer (PPI) prices are outpacing consumer (CPI) prices, which implies limited firm pricing power. We detail our findings in Figures 5, 6 and 7.
Fig 5 US leading indicators support a further rise in GDP
Source: Bureau of Economic Analysis (BEA), Macquarie Capital (USA), September 2010
Fig 6 Real wages, productivity and consumer spending
Fig 7
US credit, treasury yield and inflation spread
Source: BEA, Macquarie Capital (USA), September 2010
Source: BEA, Macquarie Capital (USA), September 2010
1 October 2010
Macquarie Magnifier
Falling market volatility and rising earnings outlooks imply that investor confidence is on the rise
A look at market volatility and fundamental expectations. Despite recent economic data postings that suggest the US recovery could prove weaker than initial readings suggest, we find market volatility declining toward historic levels and fundamental expectations on the rise. Indeed, we view this framework as positive for US stock performance in late 2010 and 2011. In Figures 8 and 10, we illustrate that low market volatility rings positive for US stock returns. Mindful of this and the upward trend in US analyst revisions, which we depict in Figures 9 and 11, we argue that investor confidence appears sturdy and already factors in a subpar economic recovery.
Fig 8
Russell 2000 vs VIX
Fig 9 US SMID # of Sales and EPS revisions - MoM
Source: Compustat, Macquarie Capital (USA), September 2010
Fig 10
S&P 500 vs VIX
Fig 11 S&P 500 Fwd Sales and EPS revisions - MoM
1 October 2010
Macquarie Magnifier
Our top picks largely reside in US industrials prominent exporters
Small cap stocks maintain a noteworthy performance lead over large caps. US small-cap stocks beat large caps again in September on a 6mo, 3yr and 5yr basis. We expect that this dominance will carry into late 2010/early 2011; however, we do note that a healing US economy should expand the operational growth of many US multi-nationals, which by-and-large comprise large-cap firms. Given that US small-caps offer lower EM exposure than large caps, this could bode well for leveling the playing field and lower the risk profiles of large-caps in a broad sense. In Figure 12, 13 and 14, we show equity returns by capitalization and sector.
Fig 12 US small-caps outshine large caps on a 6mo, 3yr and 5yr basis in September
Note: Returns as of 29 September, 2010 Source: Compustat, Macquarie Capital (USA), September 2010
Fig 13
S&P 500 versus 600 sector returns six months
Fig 14 S&P 500 versus 600 sector returns three year
1 October 2010
Macquarie Magnifier
Mobilize to globalize
No time for a growth paddle we think compelling investment opportunities now lie with US firms guiding a growth motor into international waters We think it is rational to invest international and the time to do so is present. As the world increasingly produces what Asia and EM consumes in coming periods, we argue that consumer demand for US products will flourish; particularly, if the US economy begins to gain steam and the US dollar remains at competitive levels. While we broadly advocate investment in small-/midcap firms with foreign exposure, we advise investors to seek firms possessing unique competitive and operational characteristics to limit downside risk and enhance appreciation potential. In this part of the report, you will find our research of the global economy and a sector-level fundamental and valuation analysis to support our theme and top picks for October. Indeed, we think our findings suggest now is an opportune time to enter international investment waters.
Key revelations from analysis

US healthcare, IT and consumer staples sector participants with foreign exposure appear best poised to outperform as a healing US economy augments rising demand overseas. Consensus growth projections for the foreign operations of US companies broadly suggest a drop in earnings power in 2011 these marks appear conservative given our GDP targets. Our analysis reveals that US firms generating more than 10% of sales abroad trade at a 15% discount (relative to a 12% average premium since 1978) to US-focused peers. A competitive US dollar and low-to-no domestic price inflation will prove positive for the US economy, as US goods become more appealing vs foreign substitutes at home and abroad. The US exports nearly 50% of products to China, Latin America & Canada, while exporting only 24% of products to Europe & Japan the ratio has shifted away from Europe over time. Investors should avoid firms with foreign operations that compete merely on price or where local firms possess higher operational leverage more than just foreign exposure is required.
We depict seven sectors in Figure 15 that offer exposure to foreign consumers. While our screens view three of these sectors as broadly ideal for investment, we find appealing picks in virtually every sector (i.e. our top picks largely comprise industrials). Mindful of this screen, we deem it appropriate to illustrate that firms with greater than 10% of sales outside the US tend to yield a significant relationship to GDP postings outside the US. While not entirely surprising, we find that the ideal time to purchase stock is when the market overcompensates for GDP risk we view this setting as present and advise investment before expectations move upwards.
Fig 15 Our picks appear well suited to appreciate...
Fig 16 ...as GDP rises outside the US in late 2010/2011
1 October 2010
Macquarie Magnifier
A broad view of growth expectations, trends and performance

Global GDP is on the rise and US exports denote growth two items favorable for investment in US firms with foreign exposure Lets begin with growth - GDP expectations suggest strong demand for US goods globally. We think a simple way to look at US exports and demand for US goods overseas is as a function of non-US GDP, plus shifts in the real exchange rate and non-oil imports (the last variable embodies the influence of round-trip trade on exports). Macquaries forecast for GDP through 2013 suggests little downward pressure on growth, which we view as positive for US firms with greater than 10% of sales abroad. Figure 17 illustrates historic GDP and our projections for GDP across most major markets. All told, we foresee a period of moderate growth through 2013.
Fig 17 Macquaries economics team foresees an uptick in average global GDP
Concerns with the impact of a soft European economy on US exports appear overdone. The share of US goods and services (G&S) exported to China, Latin America and Canada grew notably during the past two decades, largely due to faster growth among these regions versus other markets. The share of US goods exports going to Europe and Japan fell from 28% in 2007 to 24% in June 2010. Thus, the risk of lower US product demand in Europe has lessened.
Fig 18
Exports to China, Latin America & Canada Rise
Fig 19 Exports to Europe and Japan fall as % of total
Source: FactSet, FRB, Macquarie Capital (USA), September 2010
1 October 2010
Macquarie Magnifier
Low Consensus forecasts, coupled with recent stock underperformance, offer an ideal time to invest
Growth expectations appear poised to rise a likely share catalyst. Our analysis, which is based on historical foreign sales/income percentages, GDP growth and consensus estimates, reveals that Street expectations for the growth of US-based firms with foreign operations denotes a drop-off in 2011 versus 2010 that is much greater than the drop-off in expected GDP outside the US. While a pullback could prove likely given a robust rebound in some markets in 2010, we view the results as broadly conservative. In Figures 20 and 21, we show our assumed consensus growth expectations for foreign sales and income and the historical pattern.
Fig 20 US-based firm foreign sales growth by sector
Fig 21 US-based firm foreign income growth by sector
Source: FactSet Consensus, Macquarie Capital (USA), September 2010
Source: FactSet Consensus, Macquarie Capital (USA), September 2010
We do not think recent underperformance will persist. Our screens reveal that US companies generating more than 10% of sales abroad outperformed domestic-focused peers during the past decade we illustrate our finding in Figure 22. However, this group of stocks underperformed the market during the past year, likely due to concerns with Europe and the global economy. In our view, stock performance will likely return to the historical pattern in coming periods as the global economy gains steam and concerns with a drop-off in the foreign operations of US firms lessen.
Fig 22 Going global tends to yield outperformance...
Fig 23 ...but this has not been the case recently
1 October 2010
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Macquarie Magnifier
US firms with foreign sales exposure mostly trade at a discount to historic averages and domesticfocused peers
Valuations should expand for US firms with foreign sales/income in coming periods. We think valuations across most firms that target international markets overly factor in risk without taking a rational view of growth prospects. Our research reveals that valuations across most international US small-/mid-cap firms rest below relative averages, despite the strong possibility for above-market growth in 2011. In Figures 24-35, we detail various valuation metrics across the US small-/mid-cap energy sector and its six subsectors.
Fig 25 most sectors among US firms with foreign exposure
Fig 24 P/S ratio sits below average overall and across
Fig 26 EV/S ratio sits below average overall and across...
Fig 27 most sectors among US firms with foreign exposure
Fig 28 EV/EBITDA sits at the relative average overall but
Fig 29 below average across most sectors, per our estimates
1 October 2010
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Macquarie Magnifier
Fig 30 Fwd FY2 P/E sits below average overall and across...
Fig 31 most sectors among firms with foreign exposure
Fig 32 PEG ratio rests below average overall and across
Fig 34 Price/CF rests below average overall and across...
1 October 2010
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Macquarie Magnifier
A look at fundamental growth international versus domestic

US-firms with foreign exposure appear broadly poised to boost fundamentals Given our global macroeconomic outlook, a favorable US$ exchange rate environment and the enhanced ability of many firms to put low-cost capital to work, we view above-market sales and earnings growth as likely during the next two years for firms generating sales abroad; particularly, in many emerging markets. To gauge sectors likely to benefit from this development, we utilize a model that factors in sales (price/volume), margin, cashflow and ROIC factors, gauges consensus expectations, and compared the findings to metrics posted during prior economic upturns. In Figure 36, we illustrate the top fundamental and valuation drivers of our screens and provide a relative ranking of these metrics. Broadly, consumer staples, health care and IT top our list.
Fig 36 Our screens cover seven sectors comprising of US firms with international sales/income exposure
Continued expansion overseas is likely to continue across most sectors. Our evaluation of consensus growth expectations across firms that generate more than 10% of sales in/from foreign markets suggests continued expansion to target foreign customers. In Figure 37, we show that foreign sales increased as a percentage of total sales at a rapid pace across most industries during the past three decades a trend likely to continue. While operating income has been lumpy and not as steady, per Figure 38, we argue that operating profits will expand in coming periods. Furthermore, the major investor question, in our view, is not if firms will expand overseas but how quickly. Indeed, we are bullish on global growth.
Fig 37 Foreign sales as a % of total
Fig 38 Foreign Operating Income as % of total
1 October 2010
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Macquarie Magnifier
We anticipate a margin and ROA rebound abroad for US firms. Our analysis shows that the income margin and return on assets from US-firm foreign operations remains depressed on average a trend that we think will likely turn upwards as sales advance in coming periods. We show the breakdown of these two metrics across US companies that generate more than 10% of sales abroad in Figures 39 and 40 on both a historical basis and implied forward mean. Of note, we base the implied forward mean for the 20092011E on Consensus forecasts and implied returns. All in, we view most estimates as conservative and expect an uptick in coming periods.
Fig 39 Foreign Income margin
Fig 40 Foreign Income as a % of total is on the rise
Firms with foreign operations maintain above-average excess financial capacity. Our study shows that US-based firms with sales exposure abroad tend to maintain higher cash balances and lower overall debt balances relative to total capital than peers focused solely on the US market we display the findings in Figures 41 and 42. That said, the metrics currently reflect record levels of excess financial capacity. While we partially link higher relative financial strength to the risk of selling to more volatile foreign markets, we argue that a position of greater financial flexibility supports our argument that many firms can/will expand operations further into foreign markets. Indeed, this bodes well for capital deployment in coming periods.
Fig 41 Cash balances of firms with(out) foreign exposure
Fig 42 Debt/cap of firms with(out) foreign exposure
1 October 2010
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Macquarie Magnifier
A look at the US$, interest rates and inflation

We think a weak relative US dollar will enhance US product demand both domestically and abroad Recent rise in US dollar competitiveness a plus for US firm profits and market share. We view the US dollar as strong at home and competitive abroad, given its low relative position to other major foreign currencies and the low domestic price inflation currently present in the US. This setting will boost the dollar value of profits earned abroad and bolster demand for US goods both at home and abroad a positive scenario for US corporate market share growth and profits. In our view, virtually no price inflation in the US will also keep a lid on the US Fed Funds rate, as US policy makers seek to preserve a positive atmosphere for US product demand worldwide. We also predict this scenario will spur central banks outside the US to run easier monetary policies, which will also boost global liquidity and foster economic expansion on a global basis. In addition to a favorable US dollar exchange rate setting for US producers, many macro data points GDP stabilization, ISM above 50, expanding exports versus imports, improving overall US consumer health, and a low interest rate environment bode well in aggregate for US and global economic health and further shrinkage of the US trade deficit. Adding practically no US inflation to the mix provides us with confidence to urge investors to take notice. In Figures 43, 44, 45 and 46, we show the current state of the trade-weighted US dollar, interest rates and inflation.
Fig 43
Trade Weighted US$ vs. major currencies
Fig 44 YoY growth in trade weighted US$
Fig 45
US Fed funds rate vs real broad US$ index
Fig 46 US consumer inflation vs real broad US$ index
1 October 2010
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Macquarie Magnifier
We view US firm competitiveness overseas as positioned for expansion
Translation gains factor in quickly, but competitive position shifts take time to factor in. The market appears to adjust stock prices quickly and appropriately for changes in the value of companies overseas earnings. However, our research reveals that the market does not quickly adjust to the long-term changes in an industrys export competitive position until actual evidence of accelerating sales or earnings is near. Our analysis reveals that process can begin two years after the dollar begins to fall. Depending on the industry and the rate and length of the fall and subsequent rise in the dollar, these stocks can outperform for an average of 13 months after the trough of the dollar. We illustrate these findings in Figures 47 and 48.
Fig 47 Translation gains quickly factor into stock prices
Fig 48 Shifts in competitive position take roughly 12mo
US dollar weakness yields US exporters a competitive edge. In Figures 49 and 50, we show that import prices have increased as the dollar declined, while export volumes (and prices) have also jumped briskly since mid-2009. We, at least partly, view this trend as linked to a decline in the real exchange rate of the US$. At the same time, we find that currency appreciation in some of the faster growth EM regions has swung in the positive direction for trade; particularly, in terms of rising real household discretionary incomes and demand for US products.
Fig 49 Recent US$ weakness lifts import prices
Fig 50 ...and provides a volume boost for exports
1 October 2010
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Macquarie Magnifier
Commodity prices broadly reflect a negative correlation to US$ shifts. Despite the negative correlation, we do not predict higher commodity prices will pose a significant risk to US profits, as the rise in sales and product flow offsets greater input costs in most cases. The negative linkage between the US dollar and commodity prices is no secret and explained by the law of one price. In principle, commodities cost the same as the underlying supply and demand setting determines, considering the costs of production. These factors do not, in principal, shift with currency moves. We show the link between the US dollar and the GSCI commodity index in Figures 51 and 52.
Fig 51
Negative correlation - US$ vs Commodities
Fig 52 Commodities are holding their ground
All in, a competitive US dollar will bode well for a trade deficit decline and spur US profits. A competitive US$ exchange rate historically bodes well for our thesis that strong global growth will support US (net) exports and thus output (GDP). In Figure 53, we illustrate that a falling real broad effective exchange rate supported US trade deficit contraction in the late 1980s and early 1990s. We depict in Figure 54 that US corporate profits should expand as the US$ exchange competitiveness increases. All told, we predict trade deficit expansion and profit growth in 2011.
Fig 53
The dollar is lifting import prices and will likely...
Fig 54 ...provide a profit tailwind for US producers
1 October 2010
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Macquarie Magnifier
The economic backdrop - A look at trade, inventories and capex

The global economic setting firmly supports our pro-global thesis we advise investors to take notice Tailwinds gather in favor of exports, and US-firm foreign growth and profits. Despite the widening trade gap (imports-exports) during prior months, we predict an upward move in domestic production will contribute to a narrower trade gap. In our view, this setting bodes well for US-firms deriving sales outside the US. In Figures 55 and 56, we show the US trade gap and the recent weakness in exports versus imports. As we move further along in this section, we will show that rising manufacturer production (increasing demand), the restocking of inventories and the strategic deployment of capex during a period of healing global economic health will bode well for US-firm expansion into higher growth areas and US export volumes.
Fig 55 Imports surged versus exports in recent months
Fig 56 widening the trade gap for US goods and services
US manufacturer sentiment and consumer expectations appear largely bullish. We find that US manufacturing new export orders, overall new orders and the purchasing managers index (PMI) all denote expansion we illustrate this finding in Figure 57. In addition, we illustrate that consumer expectations appear largely on an upward trajectory globally in Figure 58. While we recognize that consumer healing in the US and, particularly Europe, have lagged other major markets worldwide, we still think the demand environment rings positive for US goods and service demand globally. We anticipate these metrics will denote improvement in 2011.
Fig 57 US manufacturing seems sturdy and consumer...
Fig 58 ...expectations are mostly on the rise globally
Source: Compustat, FRB, Macquarie Capital (USA), September 2010
1 October 2010
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Macquarie Magnifier
A look at manufacturing versus non-manufacturing (service) exports. Our analysis reveals that manufacturing exports expanded in recent periods, while services exports retreated. We argue that both should move in a positive direction in coming periods. We think two factors will boost US exports across both areas: greater demand for US exports among faster-growth EM economies and Canada, and a global capex upswing as firms begin to invest excess liquidity. Of note, we think the Russian drought and export ban will also provide a boost in 2010, but we argue that this will return to more historical levels in 2011. We show our findings in Figures 59 and 60.
Fig 59 Manufacturing exports denote expansion, while...
Fig 60 Non-Manufacturing exports have contracted
Inventories play an important role in import/export shifts. Our study reveals that swings in inventories, as US manufacturers restocked, intensified the latest import surge and dampened the recovery in exports items that we think will prove temporary as restocking levels off and US product demand grows overseas. In addition, our findings suggest that US retailers will likely be reluctant to increase inventories to historic levels until demand gains firm traction; however, retail inventories overseas appear ready to grow. We show our findings in Figures 61 and 62.
Fig 61 A look at inventories illustrates that...
Fig 62
...manufacturer restocking has begun
1 October 2010
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Macquarie Magnifier
A global capex revival appears ready to emerge. While a declining US dollar does not directly bode well for US firm capital spending abroad, we argue that flush corporate balance sheets and attractive growth opportunities overseas will largely offset this hindrance. Mindful of this, we think global capex will take three forms: 1) domestic investment among US firms to back an exportdriven expansion; 2) direct investment from foreign firms in the US a likely positive for the M&A setting; and 3) investment opportunities outside the US will pick up as operators seek to expand to capture growth and competitive stature. Given rising global GDP growth, strong US small-/midcap firm balance sheets and mounting capacity usage globally, we think a capex upturn is near.
Fig 63 Expanding global GDP will bode well for capex
Fig 64 US & Europe sit in capacity usage catch-up mode
Source: PWC estimates (2010-2050), Macquarie Capital (USA), Sept. 2010
Fig 65 Capital flows target higher growth areas a trend that we think will undoubtedly continue
1 October 2010
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Macquarie Magnifier
A quantitative view
The results from our October EMC2 quantitative screen portrays the US materials sector, specifically its chemicals and packaging & container sub-sectors, in a positive light a similar conclusion as for the second month in a row. The screen also takes a dire view of the US consumer discretionary and financial sector, due to excessive valuation. In our view, the outputs for October recommend an investment framework to play a cyclical economic upturn and low energy feedstock cost environment. In addition to our sector picks, we provide 20 long and short ideas from our quantitative screen of the Russell 2500 based on historical and relative value, market volatility and profit momentum indicators long-term gauges of firm viability and value.
Fig 66 Quantitative picks 20 long (overweight) ideas (US$)

Price 9/29/2010 $28.55 $51.87 $22.59 $46.13 $27.92 $48.71 $25.23 $26.83 $31.62 $15.96 $12.14 $15.88 $67.95 $19.87 $32.95 $33.71 $32.78 $45.56 $20.00 $73.89 Mkt Cap ($m) $4,603 $3,457 $3,593 $4,094 $4,488 $3,899 $3,536 $537 $2,406 $1,935 $538 $5,863 $4,906 $2,822 $4,373 $3,385 $3,463 $3,009 $978 $2,399 Volume 52week average (000s) $1,586 $493 $1,177 $756 $2,308 $556 $1,179 $149 $502 $1,724 $252 $3,399 $758 $799 $3,206 $414 $271 $187 $287 $435 EMC2 Score 21.4% 18.4% 18.1% 18.0% 17.7% 17.0% 17.0% 16.8% 16.7% 16.5% 16.5% 16.0% 16.0% 16.0% 15.6% 15.6% 15.3% 15.2% 15.2% 15.0% EMC2 Decile Rank (10=best) 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10
Symbol CCK SMG SEE ALB OI IFF NLC KOP SLGN SOA GLT SAI FMC BRO PTV SON TDS ATR FUL ATK
Company Name Crown Holdings Inc. Scotts Miracle-Gro Co. Sealed Air Corp. Albemarle Corp. Owens-Illinois Inc. International Flavors & Fragrances Inc. Nalco Holding Co. Koppers Holdings Inc. Silgan Holdings Inc. Solutia Inc. Glatfelter SAIC Inc. FMC Corp. Brown & Brown Inc. Pactiv Corp. Sonoco Products Co. Telephone & Data Systems Inc. AptarGroup Inc. H.B. Fuller Co. Alliant Techsystems Inc.
Sector Materials Materials Materials Materials Materials Materials Materials Materials Materials Materials Materials Information Technology Materials Financials Materials Materials Telecom Services Materials Materials Industrials
Sub- Industry Containers & Packaging Chemicals Containers & Packaging Chemicals Containers & Packaging Chemicals Chemicals Chemicals Containers & Packaging Chemicals Paper & Forest Products IT Services Chemicals Insurance Containers & Packaging Containers & Packaging Wireless Telecom Containers & Packaging Chemicals Aerospace & Defense
Rating Outperform NR Neutral NR Neutral NR NR NR Neutral NR NR NR NR Neutral Neutral Outperform NR NR NR NR
Source: Compustat, Macquarie Research, September 2010
Fig 67 Quantitative picks 20 short (underweight) ideas (US$)

Price 9/29/2010 $8.07 $3.71 $24.99 $6.56 $2.59 $2.40 $3.80 $8.94 $3.98 $1.68 $4.01 $13.35 $7.99 $6.80 $4.92 $9.27 $3.04 $14.30 $3.75 $9.96 Mkt Cap Sub- Industry ($m) Media $156 Thrifts & Mortgage Finance $574 Media $1,618 Pharmaceuticals $547 Media $110 Media $795 Media $161 Media $121 Pharmaceuticals $142 Thrifts & Mortgage Finance $186 Thrifts & Mortgage Finance $360 Commercial Banks $649 Biotechnology $477 Life Sciences Tools & Services $508 Semis & Semiconductor Equipment $232 Thrifts & Mortgage Finance $1,790 Pharmaceuticals $35 Semis & Semiconductor Equipment $1,321 Biotechnology $187 Media $1,707 Volume 52week average (000s) $16 $7,418 $400 $4,360 $336 $51 $68 $112 $2,781 $461 $24 $386 $328 $4,343 $2,114 $6,344 $37 $2,596 $381 $1,971 EMC2 Score -26.1% -23.7% -22.7% -22.1% -21.9% -21.7% -21.3% -21.3% -21.1% -20.9% -20.4% -20.2% -19.2% -19.0% -18.9% -18.7% -18.5% -18.4% -18.4% -18.4% EMC2 Decile Rank (10=best) 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Symbol WWON PMI CETV VVUS LEE CRWN PRM BTN SOMX DRL WSBF OFG PCYC SQNM ENER MTG AXN SPWRA ZIOP LYV
Company Name Westwood One Inc. PMI Group Inc. Central European Media Enterprises Ltd. VIVUS Inc. Lee Enterprises Inc. Crown Media Holdings Inc. (Cl A) PRIMEDIA Inc. Ballantyne Strong Inc. Somaxon Pharmaceuticals Inc. Doral Financial Corp. Waterstone Financial Inc. Oriental Financial Group Inc. Pharmacyclics Inc. Sequenom Inc. Energy Conversion Devices Inc. MGIC Investment Corp. Aoxing Pharmaceutical Co. Inc. SunPower Corp. (Cl A) ZIOPHARM Oncology Inc. Live Nation Entertainment Inc.
Sector Consumer Discretionary Financials Consumer Discretionary Health Care Consumer Discretionary Consumer Discretionary Consumer Discretionary Consumer Discretionary Health Care Financials Financials Financials Health Care Health Care Information Technology Financials Health Care Information Technology Health Care Consumer Discretionary
Rating NR Neutral NR NR NR NR NR NR NR NR NR NR NR NR Neutral Outperform NR Outperform NR NR
Source: Compustat, Macquarie Research, September 2010
1 October 2010
21
Macquarie Magnifier
Top ten US small-/mid-cap picks

Fig 68 Top 10 small-/mid-cap picks key financial metrics (US$)
Company Ticker Current Price Target Upside Market Cap EV/ P/E PEG Price To TP (US$m) EBITDA 2011E 2011E P/B 2011E ROE Non-US Foreign CF Net Net Debt/ Sales As % Assets As % Yield Debt/Cap EBITDA Of Total of Total Non-US ROA (5yr Average)
Interpublic Group Of Cos. Iron Mountain Inc. Global Payments Inc. Manpower Inc. McDermott International Inc. Mettler-Toledo International Inc. Reinsurance Group of America Inc. Sonoco Products Co. Terex Corp. Websense Inc.
IPG IRM GPN MAN MDR MTD RGA SON TEX WBSN
$10.04 $12.00 19.5% $22.20 $35.00 57.7% $42.47 $52.00 22.4% $49.33 $67.00 35.8% $14.67 $19.00 29.5% $124.19 $133.00 7.1% $33.71 $39.00 15.7% $48.47 $65.00 34.1% $22.67 $26.00 14.7% $18.15 $24.00 32.2% MEAN: 26.9%
$4,952 $4,498 $3,347 $4,087 $3,356 $4,135 $3,421 $3,560 $2,452 $800 $3,461
7.9x 9.0x 8.7x 12.7x 7.8x 12.4x 7.5x 13.9x 10.0x
18.1x 16.8x 13.7x 19.2x 12.4x 17.0x 6.8x 12.9x 26.4x 13.5x 15.7x
1.9x 0.9x 1.1x 1.7x 1.2x 1.4x 0.7x 1.9x 3.8x 1.2x 1.6x
2.5x 2.1x 3.9x 1.6x 1.7x 5.8x 0.8x 2.4x 1.3x 1.4x 2.3x
10.3% 8.1% 23.6% 5.0% 17.7% 27.9% 12.1% 14.4% 7.1% -6.0% 12.0%
6.7% 7.5% 8.0% 5.7% 21.6% 14.1% 3.0% 6.9% 10.7% 8.6% 9.3%
-0.5% 50.3% -12.6% 2.5% -25.2% 16.3% 23.1% 19.2% 3.0% -4.0% 7.2%
3.1x 3.5x 1.3x 2.0x 0.1x 0.9x 0.8x 1.2x -9.1x 1.3x 0.5x
44.6% 30.2% 37.2% 88.1% 54.4% 69.4% 39.3% 36.2% 68.0% 41.2% 50.9%
12.0% 27.9% 48.4% 82.7% 13.0% 59.7% 30.2% 22.8% 15.7% 12.0% 32.4%
9.4% 8.2% 9.5% 8.3% 15.2% 19.4% 3.4% 8.7% 19.7% 12.5% 11.4%
Note: Prices as of 29 September, 2010 Source: Compustat, Macquarie Capital (USA), September 2010
Fig 69
Top Ten Picks ROA and Gross Margin
Fig 70 Top Ten Picks Financial Leverage
Fig 71 Top Ten Picks Valuation
Fig 72 Russell 2000 vs. Top Ten Picks
1 October 2010
22
Macquarie Magnifier
UNITED STATES
GPN US
Price 29 Sep 10 12-month target 12-month TSR Valuation
- EV/EBITDA
Outperform US$42.47
US$ % US$ 52.00 +22.6 52.00
Global Payments
Positioned For Global Expansion
Company description
Global Payments Inc. is a provider of electronic payments transaction processing
GICS sector Software & Services Market cap US$m 3,385 30-day avg turnover US$m 14.9 Number shares on issue m 79.71 Investment fundamentals
Year end 31 May Sales revenue EBIT Reported profit Adjusted profit Gross cashflow CFPS CFPS growth PGCFPS EPS adj EPS adj growth PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2010A 2011E 2012E 2013E m 1,642.5 1,765.5 1,968.6 2,197.5 m 323.3 341.9 400.5 466.8 m 207.1 217.3 256.2 303.4 m 207.1 217.3 256.2 303.4 m 290.0 303.1 348.7 398.8 US$ 3.53 3.74 4.24 4.79 % 103.8 5.9 13.4 12.7 x 12.0 11.3 10.0 8.9 US$ 2.52 2.68 3.12 3.64 % 449.2 6.4 16.2 16.7 x 16.8 15.8 13.6 11.7 US$ 0.08 0.08 0.08 0.08 % 0.2 0.2 0.2 0.2 % 17.4 16.1 17.0 17.3 % 21.7 22.5 20.6 18.8 x 7.9 7.7 6.8 6.0 % -27.7 -40.8 -54.6 -64.2 x 4.1 3.2 2.5 2.0
services for consumers, merchants, ISOs, financial institutions, government agencies and multi-national corporations located throughout the United States, Canada, the United Kingdom, the Asia-Pacific region, the Czech Republic and the Russian Federation.
Investment thesis
Long term outlook remains attractive as we expect the international business to
represent a larger portion of earnings in the future. GPN has established a number of global relationships. GPN has made numerous steps to grow its international reach with the HSBC relationship in Asia, the UK acquisition and most recently in Russia. The transition to the G2 platform has the potential to turn divisional operations into a global platform that can leverage greater efficiencies.
Catalysts
Improved economic outlook stemming from improved consumer spending,
potential accretive acquisitions.
Key investment themes

G2 conversiontimeline is set. Management targeted going live with its G2
GPN US vs S&P 500, & rec history
roll-out in the U.S. in September and we expect an update during earnings. The company announced that the Canadian business will migrate to G2 by the end of fiscal 2012 and that the UK business will migrate in the middle of 2013. GPN remains confident that the new platform will provide operating leverage that will add to the companys competitive advantage.
China is seeing progress Beijing market approved. The company
Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
announced that HSBC has gained a similar approval in the Beijing card market for its Renminbi launch. The company expects to start offering acquiring services for China UnionPay (CUP) cards by the end of the summer. We are anticipating services to begin shortly. The announcement falls in the category of being a long term positive, but supports the view that GPNs Asia/Pacific revenue growth trajectory is sustainable for the next couple of years.
Source: FactSet, Macquarie Capital (USA), September 2010 (all figures in USD unless noted)
Valuation/risks
Our price target suggests a forward earnings multiple of 18.0x (based on 2011
Roger Smith 1 212 231 8016
calendar year EPS estimate of $2.89). Our price target is based on an EV/EBITDA multiple of 10.1x our 2011 EBITDA estimate. GPNs historical average is 22.3x forward earnings. We expect that the company will benefit from multiple expansion as increased confidence builds around top-line growth as well as the operating leverage from streamlining the platform.
Roger.Smith@macquarie.com
Risks include a decline in economic activity both in the US or abroad resulting in a
1 October 2010
slower consumer spending environment, as well as the potential for regulatory actions to result in a more competitive business model.
1 October 2010
23
Macquarie Magnifier
UNITED KINGDOM
IPG US
Outperform US$10.04
US$ % US$ 12.00 +19.5 11.77 Media 4,908 53.7 488.8
Interpublic Group
From value to growth
Company description
Interpublic is the fourth largest global advertising & marketing services company,
- DCF (WACC 11.6%, beta 1.3, ERP 8.3%, RFR 3.0%, TGR 3.0%)
GICS sector Market cap US$m 30-day avg turnover US$m Number shares on issue m Investment fundamentals
Year end 31 Dec Sales revenue EBIT Reported profit Adjusted profit Gross cashflow CFPS CFPS growth PGCFPS EPS adj EPS adj growth PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV
with agencies such as McCann Erickson, DraftFCB and Lowe-Deutsch. Although revenues are US-weighted (58% in 1H 10) IPG has a vibrant emerging markets business (20% of 1H 10) which is growing rapidly. IPG also has a strong digital marketing franchise with agencies such as MRM and R/GA accounting for ~20% of revenue.
Investment thesis
Moving past the turnaround story: after a lost decade, IPG has mostly fixed its
2009A 2010E 2011E 2012E m 6,027.6 6,255.9 6,499.2 6,829.1 m 341.3 550.3 626.1 740.2 m 93.6 228.1 298.3 367.7 m 93.6 228.1 298.3 367.7 m 373.8 456.6 527.6 602.5 US$ 0.73 0.88 1.02 1.16 % -37.8 20.5 16.1 14.2 x 13.8 11.4 9.9 8.6 US$ 0.18 0.44 0.58 0.71 % -65.1 140.4 31.4 23.3 x 55.1 22.9 17.4 14.1 US$ 0.00 0.00 0.00 0.00 % 0.0 0.0 0.0 0.0 % 2.8 4.5 5.0 5.6 % 3.8 9.2 11.4 12.5 x 8.0 6.0 5.4 4.7 % -21.6 -31.5 -43.7 -54.4 x 2.3 2.2 2.0 1.7
agencies and finally brought cost ratios down to manageable levels.

Top line performing more in line with peers. Organic growth in 2Q was +8.5%,
leading the peer group. This was flattered by its higher weighting to the US (+13.5%) and particularly soft comps, but net new business wins were positive after a long time, and we see momentum building from here.
Strong earnings potential. Management is confident in attaining operating
margins of 8% for full-year 2010, which is still 400-800bps below peers, but off a base of 5% last year, this leads to a more than doubling in EPS. We believe costs are aligned now with revenues such that IPG can eventually get back to a peer group level, implying a 20% earnings CAGR from 2010-14.
Net cash position can spur catalysts. We expect IPG to continue to replace its
IPG US vs S&P 500, & rec history
legacy hybrid securities, which should simplify the balance sheet and render EPS easier to forecast. IPG may also reinstate its dividend: a major vote of confidence.
Catalysts
3Q results late October/early November; any announcements of use of cash.

We believe IPGs days as a turnaround story are ending, yet the stock is still
priced at a valuation mismatch to peers. We expect strong results in coming quarters; the valuation gap should close as IPG is priced more as a growth stock.
Valuation/risks
IPG on PER still carries a turnaround premium multiple of 17x 2011E vs. peers at 11-
13x. But on a PEG ratio, IPG at 0.7x looks cheap vs. the peer average of 1.2x, and on EV/EBITDA IPG at 5.9x is cheap vs. peers at 7-8x. We value IPG using a DCF.
Tim Nollen 44 20 3037 4524 Angus Tweedie 44 20 3037 4099
Key risks include any economic slowdown, plus company-specific risks of

Tim.Nollen@macquarie.com Angus.Tweedie@macquarie.com
mitigating client losses and continuing to manage internal re-organization. EPS can also be difficult to forecast due to tax losses and dilutive securities.
1 October 2010
1 October 2010
24
Macquarie Magnifier
UNITED STATES
IRM US
- DCF (WACC 8.4%)
Outperform US$22.20
US$ % US$ 35.00 +58.8 34.63
Iron Mountain
Recent Weakness = Buying Opportunity
Company description
Based in Boston, MA, Iron Mountain is the global leader in information protection
GICS sector Commercial & Professional Services Market cap US$m 4,474 30-day avg turnover US$m 93.4 Number shares on issue m 201.5 Investment fundamentals
Year end 31 Dec Sales revenue EBIT Reported profit Adjusted profit Gross cashflow CFPS CFPS growth PGCFPS EPS adj EPS adj growth PER adj Total DPS Total DPS growth Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2009A 2010E 2011E 2012E m 3,013.6 3,150.0 3,340.0 3,575.0 m 540.5 628.2 691.5 801.5 m 220.9 199.7 288.5 353.3 m 215.9 220.7 288.5 353.3 m 471.9 505.0 599.5 660.3 US$ 2.31 2.47 2.94 3.23 % nmf 6.9 18.8 10.1 x 9.6 9.0 7.6 6.9 US$ 1.06 1.08 1.41 1.73 % nmf 2.2 30.9 22.4 x 21.0 20.6 15.7 12.8 US$ 0.00 0.25 0.25 0.25 % nmf nmf 0.0 0.0 % 0.0 1.1 1.1 1.1 % 7.9 9.2 9.9 10.8 % 10.1 10.0 12.2 13.4 x 8.5 7.7 7.1 6.5 % 131.0 118.2 93.2 65.3 x 2.1 2.0 1.8 1.6
and storage services for various types of media in North America, Europe, Latin America, and Asia Pacific. The company generates revenue across three segmentrecords management (approximately 72% of revenue), data protection (19%), and information destruction (9%).
Investment thesis
Risk-reward of about +60%/-10% coupled with recurring business model +
recent weakness drives Outperform. Over the last decade, leveraging its highly recurring internal revenue growth, Iron Mountain has become a $3 billion global leader in information protection and storage services. This transformation, coupled with an intense focus on margin expansion and capital efficiency, has enabled Iron Mountain to generate free cash flow that has been better-thanexpected and to begin to return capital to shareholders earlier-than-expected. Share repurchase and dividend should drive multiple expansion. We believe changes in Iron Mountains use of capital could attract investors that have invested in other services companies, including publicly-traded processors ADP and PAYX, given its recurring revenue and strong free cash flow. We also believe Iron Mountains ability to generate sustainable free cash flow has enabled it to not only return capital, but also invest both organically and inorganically. $150m share repurchase program (3% of float); 25c annual cash dividendpayable 4/15 to shareholders of record on 3/25.
Catalysts
Use recent weakness as a buying opportunity before 10/5 NYC investor day.
IRM US vs S&P 500, & rec history
We are reiterating our outperform rating based on what we consider to be an attractive opportunity to invest in the IRM stock, which is down almost 25% since Sep-09, underperforming S&P 500 by 2,900bps. This level is only modestly above its credit crisis low of $17.07 reached in Mar-2009. We believe the weakness creates an attractive entry point in front of its October 5th investor day. We also see meaningful upside toward our $35 price target and expect the shares to appreciate driven by what we expect will be solid preliminary 2011 internal revenue growth guidance at the investor day, likely in the low- to- mid-single-digit range.
Valuation/risks
US$35 DCF-based target price implies 10.0x estimated EV-to-EBITDA, versus the
Kevin McVeigh +1 212 231 6191
Kevin.McVeigh@macquarie.com
1 October 2010
current multiple of 7.0x, both of which are attractive relative to its ten-year average EV-to-EBITDA multiple of 14.5x and typical historical range of 10.0x-20.5x. Internal revenue growth fell to 3.0% in 2010E from 10.5% in 2007 because of weak core (85%) and complementary services (15%). We will focus on the pace of recovery. Iron Mountain has net debt of $2.8 billion, or 3.1x net-debt-to-EBITDA, below its range of 3.5-4.5x. We are comfortable with its debt, but will monitor this carefully. As the industry shifts more towards digital technologies, Iron Mountain needs to focus more on these types of services. This area will be even further scrutinized given the $112m acquisition of Mimosa that closed this past February.
1 October 2010
25
Macquarie Magnifier
UNITED STATES
MAN US
- DCF (WACC 10.2%)
Outperform US$49.33
US$ % US$ 67.00 +37.3 67.00
Manpower
More Upside as Macro Concerns Ease
Company description
Based in Milwaukee, WI, Manpower is a global staffing company that provides
GICS sector Commercial & Professional Services Market cap US$m 4,057 30-day avg turnover US$m 23.9 Number shares on issue m 82.24 Investment fundamentals
Year end 31 Dec Sales revenue EBIT Reported profit Adjusted profit Gross cashflow CFPS CFPS growth PGCFPS EPS adj EPS adj growth PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2009A 2010E 2011E 2012E m 16,039 17,821 20,379 23,736 m 112 290 384 593 m 61 120 210 338 m 70 120 210 338 m 169 230 343 471 US$ 2.15 2.80 4.09 5.58 % -64.3 30.1 46.0 36.6 x 22.9 17.6 12.1 8.8 US$ 0.89 1.47 2.50 4.01 % -81.1 64.2 70.5 60.1 x 55.2 33.6 19.7 12.3 US$ 0.74 0.71 0.71 0.72 % 1.5 1.4 1.4 1.5 % 1.7 4.6 5.7 8.1 % 2.8 4.6 7.7 11.6 x 18.8 10.2 7.9 5.6 % -10.1 -9.1 -5.9 -6.3 x 1.5 1.5 1.5 1.4
light industrial (50% of total revenue), clerical (10%), and professional staffing services as well permanent placement, outplacement, and outsourcing services with approximately 35% of its revenue derived from Other EMEA, 30% from France, 10% from Asia Pacific, 10% from the United States, 5% each from Other America and Italy, and 4% from Right Management, and 1% from Jefferson Wells.
Investment thesis
Recent macro uncertainty has created a buying opportunity. Given that the
company has effectively managed the EBIT runoff from its counter-cyclical outplacement business (3% of revenue, 60% of 2009 EBIT) as evidenced by its much better-than-expected Q2 results and that macro concerns about a doubledip have been easing, we believe this is an attractive level to own the MAN stock. At this level, we believe concerns about its European exposure are more than discounted in the stock.
Positioned to benefit from fundamental + secular shift in temporary help.
The severity of the last downturn, coupled with demographicsaging baby boomersshould drive the penetration rate of temporary/permanent workers above the prior peak of 2.0% in 2000 + 1.62% currently.
Catalysts
With history as a guide, MAN stock should continue rebounding as
MAN US vs S&P 500, & rec history
macro concerns ease. In the 2002 economic slowdown, GDP growth fell to 0.1% in 4Q02 from 3.5% in 1Q02, driving an almost 40% sell-off in the MAN stock from May through October of that year. As GDP reaccelerated, averaging 2.5% growth in 2003, the MAN stock rebounded 70%. Even with the recent bounce off the bottom, the MAN stock could return almost 35%+ as macro concerns ease, similar to 2003/04, we believe.
Valuation/risks
US$67 DCF-based target price implies 26.8x 2011E EPS of US$2.50. Our target
is based on our view that MAN should trade at a higher multiple in the early stage of a recovery, off cyclically lower earnings; consistent with 23.3x average in early stages of last two recoveries.
Despite positive secular growth trends, revenues and earnings tend to be cyclical.
In a weaker-than-expected economic recovery, it could be difficult for Manpower to achieve consensus earnings estimates.
The staffing industry has experienced pricing pressure. If the economy expands
below-trend for a long time, the industry may see continued pricing pressure.
Kevin McVeigh +1 212 231 6191 Kevin.McVeigh@macquarie.com
Following periods of macro weakness, the staffing industry has experienced
1 October 2010
margin pressure as a result of higher state unemployment taxes. This could be concerning if management is unable to pass it along to its clients.
1 October 2010
26
Macquarie Magnifier
UNITED STATES
MDR US
- DCF (WACC 19.0%)
Outperform US$14.67
US$ % US$ 19.00 +29.5 19.00 Energy 3,407 31.0 232.3
McDermott International
Offshore oil and gas play
Company description
McDermott International provides front-end engineering & design (FEED);
engineering, procurement, construction and installation (EPCI); fabrication; and maintenance services domestically and internationally to clients in the energy space.
Investment thesis
We find the offshore oil and gas market very attractive and think McDermott is
2009A 2010E 2011E 2012E m 6,193.1 2,530.2 3,018.8 3,337.3 m 514.5 347.7 377.3 417.2 m 389.9 283.7 299.2 331.4 m 387.0 263.9 283.2 311.4 m 547.3 431.1 459.2 491.4 US$ 2.34 1.84 1.96 2.10 % -2.9 -21.5 6.5 7.0 x 6.3 8.0 7.5 7.0 US$ 1.66 1.13 1.21 1.33 % -11.1 -32.1 7.3 10.0 x 8.9 13.0 12.1 11.0 US$ 0.00 0.00 0.00 0.00 % 0.0 0.0 0.0 0.0 % 10.9 9.0 11.3 11.4 % 24.6 15.4 14.9 13.6 x 4.2 5.7 5.3 4.9 % -48.9 -71.6 -53.1 -53.3 x 1.9 2.2 1.5 1.5
well positioned to take advantage of the growth. We think the company will be one of the first to benefit from an uptick in capex given its upstream oil and gas exposure. Despite backlog being down, we think new awards have inflected positively and think the second half of 2010 will be robust, though we fully acknowledge the lumpiness in awards. We expect margins to expand in 2010 as legacy zero-margin projects roll off in the first half.
Catalysts
Large contract award, oil and gas markets

Focus list expands to US$14bn. MDR reported a sharp increase in the value of
MDR US vs S&P 500, & rec history
projects on their focus list to US$14bn compared to last quarter of US$10.5bn. Although bids outstanding declined to US$4bn from US$7bn last quarter, the ~33% increase in the focus list is inline with a bullish second half of year.
Bullish on oil long term. Our commodities team continues to see higher
sustainable oil prices in the foreseeable future. Our oil vs. construction cost index shows that we are passing over a critical inflection point for attractive investment. That said, we think new awards will start to accelerate in the second half of 2010 and into 2011. We expect clients of E&C firms to lock in services on the back of an improving outlook for oil, natural gas, Canadian oil sands and other commodities. We think MDR will be one of the first to benefit from an uptick in capex, given its upstream oil and gas exposure. We like McDermott over the next few years, as the oil and gas space focuses on upstream vs. downstream.
Valuation/risks
Our US$19 target price is based on an adjusted target multiple of 15x our one-
year forward NTM EPS estimate of US$1.26.

Sameer Rathod, CFA +1 212 231 2474 Sameer.Rathod@macquarie.com Smitha Balasubramanian 1 212 231 2638 Smitha.Balasubramanian@macquarie.com
Risks include credit, prolonged weakness in oil prices, backlog
cancellation/adjustments, cost overruns and competition.
1 October 2010
1 October 2010
27
Macquarie Magnifier
UNITED STATES
MTD US
- PER
Outperform US$124.19
US$ % US$ 133.00 +7.1 133.00
Mettler-Toledo International
Still wind in the sails
Company description
Mettler-Toledo is the worlds largest supplier of weighing instruments, and has
GICS sector Pharmaceuticals, Biotechnology & Life Sciences Market cap US$m 4,149 30-day avg turnover US$m 16.9 Number shares on issue m 33.41 Investment fundamentals
Year end 31 Dec Sales revenue EBIT Reported profit Adjusted profit Gross cashflow CFPS CFPS growth PGCFPS EPS adj EPS adj growth PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2009A 2010E 2011E 2012E m 1,728.9 1,864.5 1,933.3 2,021.0 m 286.6 318.3 344.8 369.0 m 191.5 222.6 244.0 262.7 m 191.5 222.6 244.0 262.7 m 232.9 262.4 281.7 300.3 US$ 6.79 7.66 8.49 9.28 % -2.4 12.7 10.9 9.3 x 18.3 16.2 14.6 13.4 US$ 5.58 6.50 7.36 8.12 % -4.3 16.3 13.2 10.3 x 22.2 19.1 16.9 15.3 US$ 0.00 0.00 0.00 0.00 % 0.0 0.0 0.0 0.0 % 17.0 18.1 18.8 19.3 % 31.5 30.0 30.3 30.0 x 13.4 11.9 10.8 9.9 % 29.3 16.3 10.9 6.8 x 5.9 5.3 4.7 4.2
more than twice the market share of its nearest competitor. Its instruments are often used in critical applications, and they are highly precise some can measure down to one-millionth of a gram. The companys largest served markets are pharmaceutical (approximately 25% of sales), food & beverage processing (approximately 15%) and food retailing (approximately 15%). Mettler-Toledos customers are the blue-chip companies in each of these markets.
Investment thesis
Our Outperform rating on MTD and target price of US$133 is based on the stock
trading at a forward multiple of 18x our FY2011E earnings estimates, near the higher end of our target range for LSAT stocks, but in line with its five-year average. We think this target multiple is logical, given our view that MTDs earnings will continue to grow much faster than its peers.
Catalysts
Quarterly earnings results, corporate actions, and economic data.
Rapid growth and investment into Emerging markets such as China, where the company has ~20 years of operating experience. Emerging markets represent ~28% of total MTD revenues, and based on continued double-digit growth expectations for the remainder of 2010, EM should surpass ~30% by year-end. compete, although generally only control ~15-25% of any individual market; which leaves opportunity for continued market share gains, in our opinion.
MTD US vs S&P 500, & rec history
MTD holds a leading share position in ~75% of the markets in which they
Opportunity for increased anti-counterfeit screening from specific legislation within
the US Health Care reform bill that requires increased product inspection for counterfeit drugs. MTD acquired a company called CI Vision that has developed advanced visual inspection technology applicable to counterfeit screening.
Valuation/risks
Our target price of US$133 is based on the stock trading at a forward multiple of
Jon Groberg +1 212 231 2612 Dane Leone, CFA +1 212 231 6369
18x our FY2011E earnings estimate. Risks to our thesis include an unexpected slowdown in the global economic recovery, adverse FX movements between the Euro and Swiss Franc, and volatility in operations from increasing exposure to emerging markets.
Jon.Groberg@macquarie.com Dane.Leone@macquarie.com
1 October 2010
1 October 2010
28
Macquarie Magnifier
UNITED STATES
RGA US
- PER
Outperform US$48.47
US$ % US$ 65.00 +35.1 65.00 Insurance 3,546 24.3 73.16
Reinsurance Group of America Inc.

Undervalued mortality play
Company description
RGA is a leading global life reinsurer primarily reinsuring traditional mortality risk
Year end 31 Dec Sales revenue Reported profit Adjusted profit EPS rep EPS rep growth EPS adj EPS adj growth PER adj Total DPS Total div yield ROE P/BV
with smaller blocks of annuity and financial reinsurance. RGA recently expanded its capabilities with the purchase of ReliaStars group reinsurance business.
Investment thesis
We see RGA as one of the more fundamentally undervalued stocks in the life
2009A 2010E 2011E 2012E m 7,000.3 7,919.8 8,444.9 9,028.7 m 404.2 456.8 480.4 556.2 m 438.3 472.2 520.4 566.2 US$ 5.51 6.14 6.49 7.47 % 103.5 11.3 5.7 15.1 US$ 5.98 6.34 7.03 7.60 % -2.2 6.1 10.8 8.2 x 8.1 7.6 6.9 6.4 US$ 0.36 0.48 0.52 0.56 % 0.7 1.0 1.1 1.2 % 13.5 11.1 10.7 10.6 x 0.9 0.8 0.7 0.6
space. We believe at 6.9x 11E EPS and 0.9x BVPS ex FAS 115, the stock is attractively valued given ROEs in the 12% range, less equity and credit sensitivity than peers, strong core top-line growth in the high single digits, and the potential for earnings upside from ~$500m of deployable capital. Our $65 PT is just 9.0x our NTM estimates one year forward and 1.15x YE10E BVPS.
Catalysts
RGA has shown some higher than expected mortality in recent quarters. As
RGA US vs S&P 500, & rec history
mortality experience normalizes and investors regain confidence in the core earnings and growth profile of the business, multiples should expand. Further bulk deals / acquisitions could also provide catalysts for the stock.

Steady growth outlook. We believe RGA is well positioned to take advantage of
its market leading underwriting expertise and excess capital position to continue to grow the in-force book. We are projecting 15% premium growth in the US for 10, which includes a ~5-6% contribution from the ReliaStar acquisition, and double-digit, currency-adjusted growth internationally. We expect continued solid growth from both organic means and acquisitions.
Stable mortality-based earnings. While mortality can be volatile quarterly,
longer-term trends have been stable and slightly favorable. In a market where longer-term earnings and capital stability is valued, RGA is well positioned.
Earnings upside from deployable capital. RGA has an estimated $500m in
Mark Finkelstein 1 312 660 9179 Paul Sarran 1 312 660 9137 Jiyang Zhang +1 312 660 9028
Mark.Finkelstein@macquarie.com Paul.Sarran@macquarie.com Jiyang.Zhang@macquarie.com
redundant capital, and we believe a large portion could be readily deployed on additional block transactions. Assuming RGA was able to use $400m of the capital organically, this alone would likely add $0.40-$0.50 to EPS, which is not fully factored into current estimates.
Valuation/risks
Our US$65 price target is based on a PER methodology. Risks include large
1 October 2010
negative quarterly fluctuations in mortality, sustained deterioration in loss ratios or a resumption of declines in cession rates (in the US in particular).
1 October 2010
29
Macquarie Magnifier
UNITED STATES
SON US
Outperform US$33.71
US$ % US$ 39.00 +19.1 34.13 Materials 3,395 12.5 100.7
Sonoco Products Company

Sunny forecast ahead
Company description
Sonoco is a manufacturer of industrial and consumer packaging products as well
as a provider of packaging fulfilment services.

The company is the market share leader in the industrial tubes and cores market
in the United States, Europe, and Brazil. In consumer packaging, Sonocos portfolio breadth is unique in the industry, consisting of rigid/flexible plastic, composite can, and closure technologies.
2009A 2010E 2011E 2012E m 3,597.3 4,060.7 4,291.6 4,428.5 m 279.6 369.3 418.1 446.5 m 151.5 240.4 273.9 292.2 m 180.1 244.4 273.9 292.2 m 353.7 411.6 458.9 477.2 US$ 3.50 4.02 4.48 4.66 % -13.6 14.9 11.3 4.0 x 9.6 8.4 7.5 7.2 US$ 1.78 2.39 2.67 2.85 % -20.5 34.0 11.9 6.7 x 18.9 14.1 12.6 11.8 US$ 1.08 1.12 1.20 1.30 % 3.2 3.3 3.6 3.9 % 9.3 12.2 13.2 13.4 % 14.2 17.0 17.4 16.9 x 8.4 7.1 6.3 6.1 % 28.7 28.1 12.2 -1.8 x 2.5 2.3 2.1 1.9
Investment thesis
Significant operating leverage to ongoing cyclical volume recovery in the
industrial tubes and cores market. As volumes continue to recover, we forecast 35% incremental operating margins (versus current Tubes & Cores segment margins of ~6%).
Robust pipeline of new product initiatives in Consumer Packaging adds to
the momentum. New business opportunities in rigid plastics, additional opportunities for composite can conversions, as well as an improving macro should drive further volume growth in the consumer business.
Better cycle ahead as 2010 EPS is already on pace to match the prior peak.
We see a considerably better cycle ahead noting structural improvements as a result of cost reductions and an improved consumer packaging business that continues to successfully expand via new product introductions.
SON US vs S&P 500, & rec history
Catalysts
Volume improvement, margin expansion, and acquisitions.
In our view, valuation does not adequately reflect Sonocos earnings power. The current forward PER (next 12 months) is 13.5x our estimates, versus a historical average of ~15x as we believe investors continue to underestimate the earnings power of the company. M&A environment. Noting that the balance sheet is currently under-leveraged at 0.8x net debt to EBITDA, acquisitions remain the priority for use of FCF.
Significant financial flexibility for value-added acquisitions in an improving
Attractive FCF profile and 3.4% dividend yield.
Valuation/risks
Our US$39 target price is based on an equal-weighted average of our PER-,
Albert Kabili +1 212 231 2473
EV/EBITDA-, and DCF-based valuation methodologies.

Al.Kabili@macquarie.com
Key risks include slower-than-expected volume recovery, potential secular
1 October 2010
declines in paper end markets, and poor executions.
1 October 2010
30
Macquarie Magnifier
UNITED STATES
TEX US
- PER
Outperform US$22.67
US$ % US$ 26.00 +14.7 26.00
Terex Corporation
Genie in a bottle
Company description
Terex manufactures equipment for use in the construction, infrastructure,
GICS sector Capital Goods Market cap US$m 2,464 30-day avg turnover US$m 32.2 Number shares on issue m 108.7 Investment fundamentals
Year end 31 Dec Sales revenue EBIT Reported profit Adjusted profit Gross cashflow CFPS CFPS growth PGCFPS EPS adj EPS adj growth PER adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV m m m m m US$ % x US$ % x US$ % % % x % x 2009A 2010E 2011E 2012E 3,858.4 4,124.1 5,245.0 6,207.1 -401.7 -10.0 263.0 508.4 -340.2 482.2 95.8 273.6 -392.5 -105.5 95.8 273.6 -294.6 -11.6 195.5 391.6 -2.87 -0.11 1.80 3.60 nmf 96.3 nmf 100.3 nmf nmf 12.6 6.3 -3.83 -0.97 0.88 2.52 nmf 74.6 nmf 185.5 nmf nmf 25.7 9.0 0.00 0.00 0.00 0.00 0.0 0.0 0.0 0.0 -7.2 -0.2 4.3 7.6 -23.1 -5.5 4.3 11.5 -8.6 32.7 7.3 4.2 61.9 7.0 16.8 10.3 1.5 1.1 1.1 1.0
quarrying, recycling, transportation, refining, utility and maintenance industries. The company operates in four segments: Aerial Work Platforms, Construction, Cranes and Materials Processing. Terex has an estimated market share of 9% for construction machinery, behind Caterpillar and Komatsu.
Investment thesis
We think the aerial work platform and material processing businesses will be
near-term drivers to the story, as we see orders picking up in both segments while construction and cranes remain a drag. Although the macro picture remains uncertain, we think the company provides a compelling risk reward at current valuations.
Catalysts
Orders, economic news, acquisitions, commodity prices, rental data.

Aerial work platforms (AWP) to drive the story. In our view, orders in the AWP
TEX US vs S&P 500, & rec history
segment should pick up ~84% in 2011 compared to 2010 as leading indictors such as orderly liquidation values, utilization, fleet age, and rental rates all continue to move in the right direction, encouraging rental companies to increase their capex. We also think international orders will be a larger part of the mix as AWP becomes more relevant overseas driven by applicability and safety regulations. In our view, the pick up in orders, combined with the recent cost cuts should help boost profitability in 2011 and beyond.
Material processing business going strong; cranes and construction likely
to remain uneventful. We believe the early cycle nature combined with the larger aftermarket business should continue to help the segment perform well. The segment should continue to benefit from increasing demand in developing markets driven by infrastructure needs and strong global mining markets followed by early signs of a recovery in the US construction markets. We think both the crane and construction segments have reached sensible bottoms with backlogs bottoming in the second half of the year.
Valuation/risks
We use a 13.9x multiple on a one-year forward NTM earnings estimate of
Sameer Rathod, CFA +1 212 231 2474 Sameer.Rathod@macquarie.com Smitha Balasubramanian 1 212 231 2638 Smitha.Balasubramanian@macquarie.com
US$1.86 to arrive at our US$26 target price. This corresponds to a 9.2x multiple on a normalized 2011 earnings estimate of US$2.82, inexpensive compared to the mid-cycle normalized multiple range of 1012x.
Risks include economic indicators, stronger than expected crane market demand,
1 October 2010
utilization/rates, cost controls, acquisitions, credit constraints, raw materials costs
1 October 2010
31
Macquarie Magnifier
UNITED STATES
WBSN US
Outperform US$18.15
US$ % US$ 24.00 +32.2 24.16
Websense
Value with product cycle optionality
Company description
Websense develops web security and data loss solutions to help protect sensitive
GICS sector Software & Services Market cap US$m 771 30-day avg turnover US$m 10.6 Number shares on issue m 42.47 Investment fundamentals
Year end 31 Dec Sales revenue Reported profit Adjusted profit EPS adj EPS adj growth PER adj m m m US$ % x 2009A 2010E 2011E 2012E 330.9 -10.7 53.2 1.19 -7.9 15.3 333.7 22.0 51.7 1.19 -0.1 15.3 351.3 32.8 55.5 1.31 10.1 13.9 374.3 39.0 58.7 1.41 7.9 12.9
information from web-based, email-based and internal threats. The companys core products include Websense Security Gateway, a solution defending against malicious attacks using URL filtering and ThreatSeeker technology; Websense Filter, a policy and reporting platform; and Websense Data Security Suite, a data loss prevention solution to protect against data leaks by identifying and categorizing information. Fifty percent of the companys 2009 revenue was generated outside the United States.
Investment thesis
We believe the shares trade at a discount to the financial value of the companys
WBSN US vs NASDAQ, & rec history
recurring revenue stream alone. We believe this value will be ultimately realized by the market and can potentially be attractive to either a financial or strategic acquirer.
Catalysts
Near-term catalysts include 3Q10 earnings which we expect to be released
October 26th, 2010.

New products expand market opportunity. WSG Anywhere, based on the new
Triton architecture, enables unified management of web, data, and email security across hosted and on-premise deployment models. Channel feedback validates this is the most competitive offering from the company in years and we expect the product to increase Websenses market opportunity to US$3.3bn.
We believe the specter of consolidation will continue to provide upside to current
valuations in the software industry and that recurring subscription revenues, similar to traditional software maintenance, are a predictable annuity which can be readily valued. This provides us with a floor value of US$20/share and assumes absolutely no strategic value can be offered to an acquirer, no upside from new products beyond modest assumptions for the forward 12 months and no crossselling within the installed base.
Valuation/risks
We reiterate our Outperform rating and our US$24 target price is based on our DCF
analysis and implies 12.9x TTM EV/FCFE vs the peer group average of 15.5x.
Brad Zelnick 1 212 231 2618 Bhavin Shah 1 212 231 2619
Risks to our target price include a prolonged recession, failure to execute and
Brad.Zelnick@macquarie.com Bhavin.Shah@macquarie.com
increased competition from Blue Coat, McAfee, and Barracuda.
1 October 2010
1 October 2010
32
Macquarie Magnifier
Performance of prior top ten picks

Our top picks outperformed the Russell 2000 and S&P 500 in ten/eleven of the last fourteen months, respectively The Macquarie Magnifier serves as an idea generation tool for clients. The monthly report recommends undervalued, underfollowed companies with an unrecognized positive dynamic for change and continued operational performance. We provide a synopsis of the thematic and calculate the performance of our prior top ten picks below we base our recommendations on a one-year forward time horizon from the date of report issuance. Our top picks posted a 3.2% average time-weighted rolling monthly return from the date of recommendation, versus a 1.5% increase for the Russell 2000 and 1.1% boost for the S&P 500 on a comparable basis. Past performance is not a guarantee of future returns.
Wise to energize (September 2010)

In September, we advised investors to boost their energy. We argued that modest economic growth will boost fundamental prospects across the US small-/mid-cap energy sector in late 2010 and early 2011 a setting that should bolster investor sentiment and spur stock performance. To us, energy sector valuations, which sat at multi-year lows in August, overly factored in regulatory threats post the Gulf of Mexico (GOM) oil spill and the risk of excess energy supplies if economic conditions faltered. Our study implied that global energy demand had troughed and energy prices (i.e. crude, coal and natural gas) would likely sit near September levels for most of 2H10 before rising in 2011. We viewed earnings releases, economic data postings and the lifting of the GOM drilling moratorium as the next catalysts to spur our forecast.
Fig 73
Top 10 picks Wise to energize
Fig 74 Top 10 picks for September absolute return
Rock to restocking (August 2010)

In August, we predicted retail inventory restocking would spur fundamental growth and stock returns across many links of the US supply chain in 2H10 and early 2011. Our study revealed that real retail inventory levels relative to sales rest near a 30yr low, while manufacturing inventories sit above the historical mean on this basis. As a modest rise in consumer health renders greater retailer confidence in return prospects, we think retail inventories will ratchet upwards toward the trend-adjusted historic mean. We also think real retail inventory-to-sales levels will rise in relation to the real manufacturing ratio a trend that coincided with the outperformance of US product producers, distributers and certain financial stocks during the last six inventory-cycle upturns.
1 October 2010
33
Macquarie Magnifier
Fig 75
Top 10 picks a special occasion
Fig 76 Top 10 picks for August absolute return
A special occasion (July 2010)

In July, we issued the premise that stocks backed by positive earnings momentum, and abovepar ability to distribute excess cash to shareholders and discounted relative valuations will be the market in 2H10, before likely tax hikes on dividends and capital gains in 2011. Additionally, we view firms with these traits as well poised to issue a special dividend in 2H10 and repurchase stock attributes that we prefer more than the establishment/continuation of recurring dividend payouts in late 2010. Our analysis of stock returns, investor tax rates and dividend/repurchase yield movements implies that many stocks fail to factor in 2011 tax hikes and puts forth a bearish outlook for equities with above-average dividend yields in 2H10.
Fig 77
Top 10 picks a special occasion
Fig 78 Top 10 picks for July absolute return
The power of pricing (June 2010)

In June, we favored the stocks of firms with absolute or rising levels of pricing power and discount relative values versus peers and history. Our analysis of consumer (CPI) and producer (PPI) prices indicated that input/material costs were increasingly outpacing consumer prices a setting that we view as likely to persist into 2H10 and squeeze corporate fundamentals. With few firms able to lift prices or adjust operations to offset these costs, we view firms with an above-average ability to pass along or benefit from rising input costs as best positioned to uphold or lift margins. We think, and history implies, that the shares of firms possessing these traits will beat the broader market if our fundamental outlook materializes.
1 October 2010
34
Macquarie Magnifier
Fig 79
Top 10 picks the power of pricing
Fig 80 Top 10 picks for June absolute return
Take off from work (May 2010)

In May, we argued economic and corporate fundamentals suggest the worst lies behind the US labor market. We predicted mounting product demand and corporate return prospects would add stature and breadth to the nascent US job market recovery. Mindful of this, US small-/mid-cap stocks with an above-par relationship to US payroll shifts, such as staffing firms, apartment/office REITs and workers comp. insurers, outperformed the Russell 2500 Index as US job metrics healed post the last six recessions. We predicted another repetition of this trend as positive US employment metrics actualize in coming periods.
Fig 81
Top 10 picks take off from work
Fig 82 Top 10 picks for May absolute return
Theres value in value (April 2010)

In April, we advised investors to keep it simple. Our research revealed that low relative value stocks backed by positive corporate fundamental momentum beat the market over time with less risk. Historically, the outperformance gap expands as the economy enters the mid-to-late stages of recovery. We viewed evidence of rising US economic health and mounting return prospects as positive for corporate profit growth and risk shrinkage in coming periods. In our view, this scenario will hoist value stock returns, which mostly underperformed since 2005, above the overall market. Our outlook resembles market activity pos the last six recessions; investors should pay heed.
1 October 2010
35
Macquarie Magnifier
Fig 83
Top 10 picks value stock portfolio
Fig 84 Top 10 picks for April absolute return
Return of the capex phoenix (March 2010)

In March, we argued that capital goods and services stocks were well poised for appreciation in coming periods, given our forecast for an upturn in US capital spending across a rising number of industries. We based this thesis on mounting evidence of cyclical and secular factors that usually spur capital investment: such as a rise in corporate profits and sentiment, boosting capacity usage, expanding balance sheet flexibility, a favorable US currency setting, the low cost of capital and a budding US corporate ROIC outlook. We recommended that investors take notice capital goods and services stocks tend to advance before a capital spending pickup.
Fig 85
Top 10 picks return of the capex phoenix
Fig 86 Top 10 picks for March absolute return
Ahead of the curve (February 2010)

In February, we argued that US fixed income market indicators ring positive for the sustainability of the US economic recovery and cyclical and financial sector performance. Our analysis revealed that a positive, steepening US Treasury yield curve (ten-yearthree month) and falling credit spreads (Moodys BAA-AAA) coincided with the upturn in economic health post the last three recessions. Our analysis revealed cyclical and financial sector outperformance during periods following the alignment of these factors. In our view, the market was set for a similar act our confidence in this view only heightened when we added low inflation, which the US Fed thinks will keep a lid on Fed funds rate hikes, and the low cost of debt to the mix.
1 October 2010 36
Macquarie Magnifier
Fig 87
Top ten picks positive fixed income findings
Fig 88 Top ten picks for February absolute return
Source: Compustat, Macquarie Capital (USA), May 2010
An ace in the hole (January 2010)

In January, we argued that the deployment of capital from underleveraged balance sheets would bolster US small-/mid-cap shareholder returns in coming periods. Our analysis revealed that recessionary conditions and a greater overall aversion to risk during the past two years resulted in cash hoarding and major balance sheet restructure US small-/mid-cap cash holdings dwelled at a 40-year high relative to total assets, and financial leverage ratios sat well below the historical average. Adding this to our analysis of low interest rates and our forecast for greater cashflow in 2010, our research revealed many US small-/mid-cap firms well poised to invest in positive NPV projects, chiefly M&A, and/or return capital to shareholders.
Fig 89
Top ten picks excess financial capacity
Fig 90 Top ten picks for January absolute return
1 October 2010
37
Macquarie Magnifier
Did you say leverage? (December 2009)

In December, we argued that greater operating leverage would spearhead earnings growth in 2010 as the recovery in US economic conditions translates into a step-up in corporate revenue. With this in mind, we sourced ten picks from the US consumer, healthcare and industrials sectors market segments that we think are prone to reap significant benefits from operating efficiency enhancements taken in 2009 as revenue expands in 2010. We found the companies to trade at a discount to the respective sector historical averages and, in our view, factor in consensus earnings forecasts that, in some cases, exclude margin growth and will likely be exceeded in coming periods. We recommended that investors purchase stock before our outlook materializes.
Fig 91
Top 10 picks operating leverage
Fig 92 Top 10 picks for December absolute return
Garner strength from weakness (November 2009)

In November, we argued that the US dollar was strong at home and competitive abroad a positive scenario for the US economy and for companies that generate in excess of 10% of sales abroad or compete with foreign producers that serve more than 10% of the US market. With this in mind, we sourced our top picks from the US consumer, technology, healthcare and industrials sectors. We found these companies boast compelling growth profiles and returns on capital but underappreciated value many of our top picks traded at the low end of their historical valuation range despite evidence of improving macro conditions and core fundamentals.
Fig 93
Top 10 picks playing a weak US dollar
Fig 94 Top 10 picks for November absolute return
1 October 2010
38
Macquarie Magnifier
A smokestack comeback (October 2009)

In October, we argued that industrials sector participants trade at an undeserved discount to historical valuation levels most notably, the aerospace, machinery, packaging, industrials REITs, engineering and construction providers that dominated our top ten list despite the earnings leverage, cost-save sustainability and cyclical positioning that we think favored a marked turnaround in the group. We advised that investors accumulate shares ahead of the fundamental betterment and uptrend in investor sentiment that we envisioned.
Fig 95
Top ten picks industrials portfolio
Fig 96 Top ten for October absolute return
Return of the consumer (September 2009)

In September, we argued that recent macro-economic data boded well for an upturn in US consumer health in coming periods. We, therefore, warmed to early cycle companies, as our top 10 picks resided within the US gaming & leisure, wireless communication and consumer REIT industries. In our view, investors had largely overlooked these companies during the rally from market lows in 2009. On the whole, we viewed our top ten picks as companies that reflected attractive growth profiles and returns on capital but underappreciated value traits that would likely gain stature among investors as our fundamental forecast materialized.
Fig 97
Top ten picks consumer portfolio
Fig 98 Top ten picks for September absolute return
1 October 2010
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Macquarie Magnifier
Its time to visit infrastructure (August 2009)

In August 2009, we maintained somewhat of a defensive posture, as we recommended infrastructure companies that generate above-mean ROIC, offer moderate to low financial risk and benefit from a ten-year forward industry-level growth profile in the mid- to high-single digits. In addition, we liked that these companies benefit from highly predictable cashflow streams that limit downside risk, given that financial risk remains in check. We view US infrastructure plays as companies with defensive demand/return profiles and, at the time, attractive relative valuations qualities viewed as positive for relative outperformance to the general market.
Fig 99
Top ten picks infrastructure portfolio
Fig 100 Top ten picks for August absolute return
1 October 2010
40
Macquarie Magnifier
Appendix 1: US sub-sector view

Foreign US Small-/-Mid-Cap Averages GICS - Subsector 10101010 Oil & Gas Drilling Median Weighted Average Weighted Median 10101020 Oil & Gas Equipment & Services Median Weighted Average Weighted Median 10102020 Oil & Gas Exploration & Production Median Weighted Average Weighted Median 10102030 Oil & Gas Refining & Marketing Median Weighted Average Weighted Median 10102040 Oil & Gas Storage & Transportation Median Weighted Average Weighted Median 10102050 Coal & Consumable Fuels Median Weighted Average Weighted Median 15101010 Commodity Chemicals Median Weighted Average Weighted Median 15101020 Diversified Chemicals Median Weighted Average Weighted Median 15101030 Fertilizers & Agricultural Chemicals Median Weighted Average Weighted Median 15101050 Specialty Chemicals Median Weighted Average Weighted Median 15102010 Construction Materials Median Weighted Average Weighted Median 15103010 Metal & Glass Containers Median Weighted Average Weighted Median 15103020 Paper Packaging Median Weighted Average Weighted Median 15104010 Aluminum Median Weighted Average Weighted Median 15104020 Diversified Metals & Mining Median Weighted Average Weighted Median 15104050 Steel Median Weighted Average Weighted Median 15105010 Forest Products Median Weighted Average Weighted Median 15105020 Paper Products Median Weighted Average Weighted Median 20101010 Aerospace & Defense Median Weighted Average Weighted Median 20102010 Building Products Median Weighted Average Weighted Median 20103010 Construction & Engineering Median Weighted Average Weighted Median 20104010 Electrical Components & Equipment Median Weighted Average Weighted Median Inc % Total Income 41.6 85.9 96.0 19.2 38.6 19.9 0.0 -21.9 0.0 43.7 48.1 87.3 -0.2 -0.1 0.0 0.0 0.0 0.0 8.2 -2.8 8.2 0.0 0.0 0.0 25.3 31.9 23.3 0.0 0.0 0.0 23.7 54.6 73.4 3.2 13.2 3.2 16.2 18.7 31.6 22.2 27.1 47.9 8.2 2.6 0.0 21.2 27.5 42.4 24.7 28.3 30.1 0.0 19.3 29.9 0.4 7.6 0.7 12.7 25.6 32.2 8.8 23.9 23.7 5Yr Avg Foreign Inc % Tot Inc 62.1 73.2 62.1 9.5 27.3 13.0 0.0 -2.0 0.0 39.8 43.9 79.7 49.7 25.4 0.0 40.3 50.6 40.3 22.1 31.2 22.1 0.0 0.0 0.0 46.3 64.6 79.1 4.6 9.5 4.6 11.8 11.8 11.8 24.7 28.4 43.6 0.0 0.0 0.0 17.1 22.2 34.3 -38.7 -0.4 19.9 15.6 26.1 31.1 0.0 0.2 0.0 7.9 26.2 15.9 9.4 17.0 11.7 Foreign Income Margin 25.7 30.3 25.7 12.1 14.4 12.1 -43.2 -68.0 -28.7 2.2 2.2 2.2 9.2 9.2 9.2 4.2 4.0 4.2 4.9 4.9 5.0 5.4 8.6 11.4 6.3 6.3 6.1 -5.1 -6.0 -10.8 5.2 6.2 10.2 1.2 3.2 4.5 -17.6 -17.6 -17.6 4.7 5.8 6.3 7.1 8.1 9.6 0.1 3.6 0.1 2.9 6.3 2.4 8.6 11.3 8.6 5Yr Avg Foreign Income Margin 30.7 24.8 18.1 11.3 14.0 11.3 -7.5 -7.2 -6.4 1.2 1.2 1.2 129.6 129.6 129.6 5.8 7.8 5.8 6.2 6.3 6.3 8.4 10.3 12.0 4.9 4.8 4.4 9.5 9.5 9.5 6.4 7.5 11.9 -7.8 -7.8 -7.8 -2.1 0.9 2.5 10.8 10.4 9.3 3.1 4.9 3.1 8.9 12.0 8.9 1 Year Growth Foreign Income -11.1 -11.8 -11.6 0.0 1.2 0.0 0.0 0.0 0.0 -3.9 -4.3 -7.9 -50.0 -25.6 0.0 0.0 0.0 0.0 -15.3 8.7 47.1 0.0 0.0 0.0 -28.4 -18.6 -22.2 0.0 0.0 0.0 -47.3 -39.2 -24.1 0.0 18.7 0.0 -94.5 -94.5 -94.5 -38.7 -33.6 -12.5 -41.3 -22.1 0.0 0.0 0.0 0.0 320.3 320.3 320.3 0.0 -4.7 0.0 -24.6 -70.0 -93.8 0.0 48.1 59.3 -11.8 -19.1 -17.9 5 Year Growth Foreign Income 8.4 18.1 8.4 46.3 46.9 41.4 0.0 0.0 0.0 15.1 16.6 30.2 -41.3 -21.2 0.0 3.6 3.6 3.6 3.9 7.3 9.4 0.0 0.0 0.0 -0.9 5.0 6.3 7.6 7.0 7.6 -10.9 -7.6 6.2 -10.6 -5.7 0.0 0.0 0.0 0.0 -13.6 -13.6 -13.6 0.0 3.6 0.0 0.0 -15.5 -27.7 12.4 19.1 24.8 18.5 23.2 25.3 Foreign Sales % Total Sales 72.3 70.3 96.9 30.6 38.7 36.8 0.0 9.4 0.0 27.7 30.5 55.4 0.0 0.0 0.0 0.0 0.0 0.0 42.2 42.2 42.2 23.7 44.2 37.3 16.4 10.5 16.4 51.3 54.5 60.0 0.0 0.0 0.0 42.2 49.1 70.1 5.5 17.1 5.5 26.0 27.8 37.1 35.6 35.6 35.6 17.1 16.1 5.7 16.7 21.6 33.4 21.5 30.6 21.5 30.7 33.1 34.5 2.5 17.0 27.4 14.8 33.6 22.1 34.5 34.2 48.9 5Yr Avg Foreign Sales % T Sales 86.8 84.9 86.8 29.4 38.7 32.3 0.0 4.8 0.0 27.7 30.5 55.4 26.4 13.5 0.0 43.9 43.9 43.9 28.3 37.6 30.3 16.9 16.9 16.9 45.0 50.8 61.8 0.0 0.0 0.0 33.5 44.8 49.8 4.5 17.1 4.5 21.1 21.7 24.7 32.7 31.1 32.7 18.0 18.1 7.4 16.0 20.7 32.0 26.3 34.1 42.9 27.0 32.4 36.6 3.6 16.1 21.9 18.1 34.4 18.1 24.5 30.4 35.2 1 Year Growth Foreign Sales -11.2 -13.3 -22.4 -11.8 -9.8 -9.5 0.0 -7.7 0.0 -18.9 -20.8 -37.8 -50.0 -25.6 0.0 0.0 0.0 0.0 -4.3 -4.3 -4.3 -19.5 -7.1 -18.6 -2.8 -3.5 -5.6 -16.1 -13.7 -9.3 0.0 0.0 0.0 -19.4 -13.6 -14.2 -2.9 -7.8 -2.9 -41.6 -41.1 -38.5 -21.9 -18.6 -21.9 -47.6 -29.1 -20.8 1.0 1.3 2.0 -19.1 -40.2 -18.6 0.2 69.3 0.0 -8.0 -16.2 -8.0 -2.7 -7.0 -2.7 -15.8 -11.8 -15.8 5 Year Growth Foreign Sales 0.0 7.4 -0.4 17.4 15.0 17.4 0.0 15.0 0.0 7.1 7.9 14.3 -37.1 -19.0 0.0 2.7 2.7 2.7 10.6 13.3 13.9 4.2 4.2 4.2 4.9 8.0 9.1 0.0 0.0 0.0 11.6 18.9 15.4 2.2 2.4 2.2 11.0 14.2 31.0 8.7 16.3 8.7 0.3 1.4 0.0 -9.7 -12.5 -19.4 0.2 10.8 0.6 12.5 20.1 18.1 0.0 -11.4 2.3 20.0 20.1 20.9 12.7 12.3 14.0 Foreign Assets% Total Assets 34.8 58.6 76.8 14.2 24.6 21.4 0.0 8.4 0.0 32.9 36.3 65.8 0.0 0.0 0.0 0.0 0.0 0.0 14.5 14.5 14.5 13.5 17.2 13.5 0.0 0.0 0.0 23.1 43.0 26.4 0.0 0.0 0.0 21.6 26.2 35.5 0.5 9.9 0.5 25.8 29.7 50.2 10.0 18.1 10.0 1.6 3.5 0.4 7.9 10.3 15.9 51.1 52.5 72.6 2.6 15.2 5.4 2.4 5.8 6.6 1.5 4.5 2.1 3.2 6.0 3.7 Foreign Asset Turnover 0.5 0.4 0.3 1.2 1.3 1.2 0.2 0.2 0.2 5.5 5.5 5.5 0.3 0.3 0.3 2.8 2.8 2.8 2.3 2.5 2.3 2.1 1.9 1.2 2.1 2.0 2.0 4.5 3.8 1.9 6.9 5.9 0.4 1.8 5.8 1.8 10.5 23.9 5.4 1.0 1.0 1.0 0.9 1.0 0.9 3.4 3.2 2.0 2.3 4.8 3.0 12.9 33.4 20.9 4.8 6.1 5.3 Total Foreign Foreign Asset Currency Turnover Adjust 16.8 10.8 8.4 17.3 17.6 13.7 -19.2 -14.6 -6.6 11.7 11.7 11.7 3.0 3.0 3.0 6.2 7.6 6.2 9.8 11.8 9.8 16.1 15.7 20.2 29.1 24.5 11.7 1.8 0.9 -3.8 6.6 7.1 9.1 -12.2 1.3 10.7 -17.4 -17.4 -17.4 3.8 4.9 5.5 23.6 25.3 23.4 1.2 9.0 1.2 73.2 163.8 185.5 49.6 66.2 72.7 -0.1 -2.5 -5.5 0.9 2.7 2.0 0.0 4.9 0.0 -0.6 -0.6 -0.6 0.0 0.0 0.0 0.0 0.0 0.0 -8.4 -16.6 -17.0 -0.1 -0.1 -0.1 -0.6 -1.9 -1.4 0.0 0.0 0.0 -0.7 -0.7 -0.7 2.8 2.8 2.8 0.7 1.0 2.1 -0.1 -1.2 -0.2 6.7 8.7 13.4 0.2 0.2 0.0 -1.0 -6.0 -4.7 -0.7 -0.7 -0.7 0.0 -77.2 0.0 -0.1 -0.1 -0.2
1 October 2010
41
Macquarie Magnifier
Foreign US Small-/-Mid-Cap Averages GICS - Subsector Inc % Total Income
5Yr Avg Foreign Inc % Tot Inc 0.0 0.0 0.0 30.7 30.7 30.7 40.8 47.3 48.8 19.1 19.8 19.1 2.5 0.2 0.0 4.0 2.7 0.0 3.5 2.6 0.0 12.7 12.7 12.7 11.4 9.5 11.4 -25.5 0.2 49.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 84.3 82.1 84.3 0.0 0.0 0.0 45.5 45.5 45.5 0.0 0.0 0.0 43.3 43.3 43.3 Foreign Income Margin 13.2 13.2 13.2 4.3 3.9 10.3 4.7 -0.6 4.3 5.3 18.0 5.3 7.9 5.3 0.0 2.0 2.0 2.0 5.4 4.1 3.5 12.2 12.3 12.7 5.4 5.4 5.4 -2.6 -1.6 -1.5 7.8 7.8 7.8 4.3 5.3 5.4 0.0 0.0 0.0 4.2 4.2 4.2 9.0 7.4 4.9 0.0 0.0 0.0 48.0 48.0 48.0
5Yr Avg Foreign Income Margin 12.6 12.6 12.6 5.7 10.9 13.1 5.1 5.9 5.0 8.2 8.2 8.2 6.2 6.2 6.2 13.4 13.5 13.6 5.1 4.1 2.6 6.5 8.1 8.4 27.6 27.6 27.6
1 Year Growth Foreign Income 0.0 0.0 0.0 38.6 38.6 38.6 -18.1 5.8 -35.0 -30.6 13,357.6 -30.6 0.0 -5.3 0.0 0.9 0.6 0.0 -32.7 -23.8 0.0 -37.9 -39.1 -53.8 0.0 2.0 0.0 -35.0 -35.0 -35.0 -44.9 -26.1 0.0 0.0 -9.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.4 13.5 0.0 0.0 0.0 -31.2 -31.2 -31.2 0.0 0.0 0.0 -
5 Year Growth Foreign Income 0.0 0.0 0.0 6.8 6.8 6.8 25.2 24.1 31.2 5.7 14.2 5.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.0 11.0 6.0 -3.4 -2.0 0.0 0.0 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.9 -3.6 -3.9 0.0 0.0 0.0 -11.1 -11.1 -11.1 0.0 0.0 0.0 0.0 0.0 0.0 -2.4 -2.4 -2.4
Foreign Sales % Total Sales 0.0 0.0 0.0 21.0 23.0 27.2 40.2 43.7 35.1 39.8 41.2 39.8 13.2 8.0 13.2 5.1 7.5 5.1 4.6 8.7 0.0 49.5 46.0 49.5 8.1 8.1 3.1 44.3 38.8 12.0 28.1 55.6 56.3 7.2 11.8 7.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 41.6 41.6 41.6 0.0 1.7 0.0 65.4 65.9 72.2 5.6 5.6 5.6 38.8 38.8 38.8 7.8 13.0 15.5 0.0 0.2 0.0 21.1 21.1 21.1
5Yr Avg Foreign Sales % T Sales 0.0 0.0 0.0 21.9 24.2 29.1 38.0 43.5 50.7 38.0 40.9 38.0 11.9 10.6 11.7 2.7 6.3 2.0 5.3 3.8 0.0 46.9 46.9 45.9 8.5 9.4 5.0 39.7 35.2 13.0 32.2 55.4 46.9 3.3 9.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.9 0.0 39.7 58.1 65.0 2.6 2.6 2.6 9.7 9.2 9.1 0.0 0.0 0.0 20.8 20.8 20.8
1 Year Growth Foreign Sales 0.0 0.0 0.0 -3.6 -8.1 -17.4 -22.7 -15.5 -27.1 -21.8 -29.1 -18.4 -8.5 -10.5 0.0 -3.7 -5.4 -3.7 114.4 181.6 0.0 -26.0 -19.6 -26.0 -17.5 -19.0 -17.5 3.4 3.9 6.6 -28.8 -21.7 -31.3 0.0 -5.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -24.7 -24.7 -24.7 0.0 -5.7 0.0 -19.4 -18.9 -23.7 -72.7 -72.7 -72.7 346.5 613.1 688.1 0.0 0.0 0.0 -6.8 -6.8 -6.8
5 Year Growth Foreign Sales 0.0 0.0 0.0 -3.7 -5.9 -10.4 11.9 21.3 17.3 4.5 -2.1 4.7 2.3 1.2 0.0 -58.3 -28.5 -16.7 17.7 10.2 0.0 7.6 10.4 2.0 1.5 -0.6 0.0 1.3 2.0 5.7 0.7 11.6 0.9 6.1 6.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.8 0.0 8.0 10.5 13.0 7.9 7.9 7.9 -0.3 -6.6 -0.3 0.0 0.0 0.0 5.1 5.1 5.1
Foreign Assets% Total Assets 0.0 0.0 0.0 12.4 15.4 21.7 7.5 8.8 6.8 10.1 15.4 5.2 4.0 7.7 0.0 2.3 2.7 1.3 0.6 12.6 0.0 7.3 6.9 7.3 4.5 4.8 0.6 36.3 35.4 31.3 6.7 47.9 50.2 0.1 3.8 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 41.0 41.0 41.0 0.0 0.2 0.0 11.8 20.3 22.4 0.0 0.0 0.0 1.6 1.6 1.6 2.1 15.9 18.8 0.0 0.0 0.0 43.8 43.8 43.8
Foreign Asset Turnover 3.7 2.9 1.4 6.7 7.6 6.9 3.8 5.2 4.8 1.8 3.3 0.9 4.3 4.5 4.3 8.5 7.1 0.5 13.4 11.2 13.4 2.7 3.7 1.8 1.9 1.7 0.3 2.9 28.3 2.9 9.4 19.7 9.4 0.3 0.3 0.3 8.7 8.7 8.7 2.8 3.3 2.8 33.4 33.4 33.4 1.5 0.8 0.7 0.4 0.4 0.4
Total Foreign Foreign Asset Currency Turnover Adjust 79.9 79.9 79.9 7.6 49.7 72.5 6.8 -15.2 6.8 4.1 21.9 4.1 11.0 7.4 0.0 1.0 1.0 1.0 37.7 43.6 37.7 17.8 19.0 23.1 19.3 19.3 19.3 -4.0 -20.7 -4.3 511.7 511.7 511.7 11.0 14.7 15.3 138.6 138.6 138.6 30.3 30.3 30.3 17.9 17.9 17.9 -0.3 -1.4 0.4 0.0 -2.2 0.0 -0.4 -0.7 0.0 0.0 0.0 0.0 0.9 5.6 0.9 -0.1 -0.1 -0.1 -41.4 -41.4 -41.4 -0.5 -0.8 -0.8 0.1 0.4 0.6 0.0 0.0 0.0 2.1 2.1 2.1 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.0 -0.2 -0.2 -0.2 0.0 0.0 0.0 0.0 0.0 0.0 1.7 1.7 1.7
20104020 Heavy Electrical Equipment Median 0.0 Weighted Average 0.0 Weighted Median 0.0 20105010 Industrial Conglomerates Median 25.5 Weighted Average 25.5 Weighted Median 25.5 20106010 Construction & Farm Machinery & Heavy Trucks Median 31.5 Weighted Average 60.7 Weighted Median 31.3 20106020 Industrial Machinery Median 22.1 Weighted Average -3.1 Weighted Median 22.1 20107010 Trading Companies & Distributors Median 0.0 Weighted Average 7.3 Weighted Median 0.0 20201010 Commercial Printing Median 0.0 Weighted Average 6.1 Weighted Median 0.0 20201050 Environmental & Facilities Services Median 3.5 Weighted Average 2.5 Weighted Median 0.0 20201060 Office Services & Supplies Median 44.6 Weighted Average 39.4 Weighted Median 41.5 20201070 Diversified Support Services Median 7.7 Weighted Average 8.2 Weighted Median 7.7 20201080 Security & Alarm Services Median 75.9 Weighted Average 75.9 Weighted Median 75.9 20202010 Human Resource & Employment Services Median -143.9 Weighted Average -282.8 Weighted Median -143.9 20202020 Research & Consulting Services Median 0.0 Weighted Average 0.7 Weighted Median 0.0 20301010 Air Freight & Logistics Median 0.0 Weighted Average 0.0 Weighted Median 0.0 20302010 Airlines Median 0.0 Weighted Average 0.0 Weighted Median 0.0 20303010 Marine Median 0.0 Weighted Average 0.0 Weighted Median 0.0 20304010 Railroads Median Weighted Average Weighted Median 20304020 Trucking Median 0.0 Weighted Average 0.0 Weighted Median 0.0 25101010 Auto Parts & Equipment Median 0.0 Weighted Average 105.2 Weighted Median 124.0 25102010 Automobile Manufacturers Median 0.0 Weighted Average 0.0 Weighted Median 0.0 25201010 Consumer Electronics Median 23.3 Weighted Average 23.3 Weighted Median 23.3 25201020 Home Furnishings Median 4.2 Weighted Average 6.6 Weighted Median 4.2 25201030 Homebuilding Median 0.0 Weighted Average 0.0 Weighted Median 0.0 25201040 Household Appliances Median 74.1 Weighted Average 74.1 Weighted Median 74.1
1 October 2010
42
Macquarie Magnifier
Foreign US Small-/-Mid-Cap Averages GICS - Subsector 25201050 Housewares & Specialties Median Weighted Average Weighted Median 25202010 Leisure Products Median Weighted Average Weighted Median 25203010 Apparel Accessories & Luxury Goods Median Weighted Average Weighted Median 25203020 Footwear Median Weighted Average Weighted Median 25301010 Casinos & Gaming Median Weighted Average Weighted Median 25301020 Hotels Resorts & Cruise Lines Median Weighted Average Weighted Median 25301030 Leisure Facilities Median Weighted Average Weighted Median 25301040 Restaurants Median Weighted Average Weighted Median 25302010 Education Services Median Weighted Average Weighted Median 25302020 Specialized Consumer Services Median Weighted Average Weighted Median 25401010 Advertising Median Weighted Average Weighted Median 25401030 Movies & Entertainment Median Weighted Average Weighted Median 25401040 Publishing Median Weighted Average Weighted Median 25501010 Distributors Median Weighted Average Weighted Median 25502010 Catalog Retail Median Weighted Average Weighted Median 25502020 Internet Retail Median Weighted Average Weighted Median 25503010 Department Stores Median Weighted Average Weighted Median 25503020 General Merchandise Stores Median Weighted Average Weighted Median 25504010 Apparel Retail Median Weighted Average Weighted Median 25504020 Computer & Electronics Retail Median Weighted Average Weighted Median 25504030 Home Improvement Retail Median Weighted Average Weighted Median 25504040 Specialty Stores Median Weighted Average Weighted Median 25504050 Automotive Retail Median Weighted Average Weighted Median Inc % Total Income 0.0 52.7 83.3 0.0 0.2 2.1 36.3 59.7 56.2 7.7 -34.1 15.3 0.0 36.1 20.5 4.5 6.8 9.0 0.0 0.0 0.0 0.0 8.9 0.0 0.0 0.0 0.0 11.2 24.3 11.2 0.0 1.8 0.0 16.6 36.9 51.6 87.6 8.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.3 0.0 0.0 0.0 0.0 0.0 11.0 0.0 0.0 0.1 0.0
5Yr Avg Foreign Inc % Tot Inc 0.0 53.7 92.4 1.4 3.1 0.0 28.3 62.0 64.2 0.0 7.2 0.0 0.0 7.6 14.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.4 0.0 0.0 0.0 0.0 8.3 32.4 10.6 0.0 0.0 0.0 17.0 34.5 47.8 40.8 3.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.0 0.0 0.0 0.0 0.0 0.0 165.6 0.0 0.0 0.0 0.0 Foreign Income Margin 7.3 12.6 16.7 5.2 3.0 1.6 10.5 13.2 12.2 12.9 11.8 16.7 20.9 22.4 25.5 14.2 14.2 14.2 5.2 13.4 17.8 5.9 9.5 17.2 9.3 9.3 9.3 11.6 13.4 16.0 9.8 9.8 9.8 6.8 8.7 6.8 3.1 3.1 3.1 3.5 3.5 3.5
5Yr Avg Foreign Income Margin 4.5 9.8 13.9 1.8 3.5 2.6 12.0 16.2 20.1 13.0 13.0 13.0 16.5 16.5 16.5 -23.9 -23.9 -23.9 10.7 14.1 18.2 10.2 11.9 14.4 4.3 4.3 4.3 13.0 13.8 20.1 308.6 129.0 2.6 -
1 Year Growth Foreign Income 15.8 24.9 31.7 -32.4 -35.1 -32.4 4.9 38.8 -22.1 37.6 129.0 75.2 0.0 57.5 24.0 -25.9 -39.0 -51.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -25.0 -14.2 -25.0 0.0 8.2 0.0 24.4 98.3 24.4 345.8 32.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -9.7 0.0 0.0 0.0 0.0 0.0 115.8 0.0 0.0 -0.9 0.0
5 Year Growth Foreign Income 4.0 6.3 8.0 -3.8 -13.4 -19.8 6.1 13.9 9.3 -13.9 -6.1 0.0 0.0 11.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.4 0.0 0.0 0.0 0.0 -3.2 -3.3 -6.5 0.0 0.0 0.0 0.0 2.3 3.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Foreign Sales % Total Sales 33.7 47.6 67.9 23.9 28.7 31.4 11.4 27.6 11.4 31.1 27.3 24.9 10.1 24.1 29.0 8.0 12.0 15.9 0.0 0.0 0.0 0.0 5.9 0.0 0.0 0.3 0.0 9.0 22.5 9.0 0.0 1.9 0.0 34.8 34.8 34.8 21.5 36.6 49.1 6.1 0.6 0.0 0.0 0.0 0.0 0.0 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.2 0.0 0.0 0.0 0.0 0.0 3.0 0.0 0.0 0.2 0.0
1 Year Growth Foreign Sales 0.4 -1.1 3.3 -14.8 -19.3 -14.8 -10.3 -4.7 -6.6 -11.9 0.1 -9.7 0.0 14.5 10.6 -2.6 -3.9 -5.2 0.0 0.0 0.0 0.0 35.3 0.0 0.0 2.9 0.0 0.0 -7.0 -1.6 0.0 -2.7 0.0 -3.3 -3.3 -3.3 3.3 3.6 4.3 -14.9 -1.4 0.0 0.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -16.9 -1.2 0.0 0.0 0.0 0.0 2.6 0.0 0.0 -0.1 0.0
5 Year Growth Foreign Sales -2.4 4.6 9.6 4.4 4.7 4.7 12.9 18.5 13.9 9.2 14.8 8.5 8.7 21.5 18.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -3.1 0.0 0.0 -0.5 0.0 7.8 6.8 2.5 0.0 1.8 0.0 13.4 13.4 13.4 1.1 11.1 17.2 -0.9 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -12.7 0.0 0.0 0.0 0.0 0.0 8.0 0.0 0.0 0.0 0.0
Foreign Assets% Total Assets 4.2 52.3 86.1 2.4 13.8 3.9 7.6 14.8 13.2 12.1 18.6 1.3 0.0 16.6 11.5 0.1 0.1 0.1 0.0 0.0 0.0 0.0 4.6 0.0 0.0 0.3 0.0 4.0 8.0 4.0 0.0 0.2 0.0 52.2 52.2 52.2 18.6 34.6 47.2 2.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.5 2.2 0.0 0.0 0.0 0.0 0.5 0.0 0.0 0.1 0.0
Foreign Asset Turnover 12.2 4.9 1.1 11.0 21.0 3.7 2.5 14.1 5.0 1.8 21.9 31.9 0.9 1.1 0.9 51.9 51.9 51.9 2.5 2.1 1.0 1.4 1.4 1.4 1.0 5.6 1.0 10.3 10.3 10.3 1.2 1.2 1.2 1.1 1.0 0.8 3.4 3.4 3.4 115.4 115.4 115.4 5.6 5.3 3.9 8.3 9.0 9.1 2.0 2.0 2.0
Total Foreign Foreign Asset Currency Turnover Adjust -7.3 7.7 19.2 12.9 94.7 5.8 21.6 136.2 106.1 21.3 23.2 21.3 26.5 25.6 23.6 737.0 737.0 737.0 0.1 12.2 18.6 33.4 26.7 10.0 96.1 96.1 96.1 11.3 11.7 12.2 33.6 33.6 33.6 54.0 52.1 74.9 28.2 28.2 28.2 6.9 6.9 6.9 5.9 8.8 13.4 -0.2 -0.3 -0.5 -0.3 0.2 -0.3 0.7 1.0 0.7 0.0 0.0 -0.2 -1.3 -1.3 -1.3 0.0 0.0 0.0 0.0 1.3 0.0 0.0 0.0 0.0 0.2 0.7 0.2 -5.7 -9.4 -10.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0
1 October 2010
43
Macquarie Magnifier
Foreign US Small-/-Mid-Cap Averages GICS - Subsector 25504060 Homefurnishing Retail Median Weighted Average Weighted Median 30101020 Food Distributors Median Weighted Average Weighted Median 30101030 Food Retail Median Weighted Average Weighted Median 30101040 Hypermarkets & Super Centers Median Weighted Average Weighted Median 30201010 Brewers Median Weighted Average Weighted Median 30201030 Soft Drinks Median Weighted Average Weighted Median 30202010 Agricultural Products Median Weighted Average Weighted Median 30202030 Packaged Foods & Meats Median Weighted Average Weighted Median 30203010 Tobacco Median Weighted Average Weighted Median 30301010 Household Products Median Weighted Average Weighted Median 30302010 Personal Products Median Weighted Average Weighted Median 35101010 Health Care Equipment Median Weighted Average Weighted Median 35101020 Health Care Supplies Median Weighted Average Weighted Median 35102010 Health Care Distributors Median Weighted Average Weighted Median 35102015 Health Care Services Median Weighted Average Weighted Median 35102020 Health Care Facilities Median Weighted Average Weighted Median 35102030 Managed Health Care Median Weighted Average Weighted Median 35103010 Health Care Technology Median Weighted Average Weighted Median 35201010 Biotechnology Median Weighted Average Weighted Median 35202010 Pharmaceuticals Median Weighted Average Weighted Median 35203010 Life Sciences Tools & Services Median Weighted Average Weighted Median 40101015 Regional Banks Median Weighted Average Weighted Median 40102010 Thrifts & Mortgage Finance Median Weighted Average Weighted Median Inc % Total Income 0.0 4.7 7.1 0.0 0.0 0.0 -0.6 -0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 96.7 96.7 96.7 0.0 -1.3 0.0 65.4 72.8 81.3 22.8 24.2 38.4 10.5 18.9 21.0 4.7 19.4 18.7 18.8 36.2 40.4 0.0 20.2 30.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.7 0.0 0.0 0.0 0.0 0.0 22.4 32.5 55.2 55.4 59.9 0.0 0.0 0.0 0.0 0.0 0.0
5Yr Avg Foreign Inc % Tot Inc 0.0 5.7 6.5 0.0 0.0 0.0 0.8 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 56.2 56.2 56.2 0.0 0.1 0.0 12.6 37.5 65.5 27.5 32.2 43.9 4.8 -68.5 8.6 29.0 38.4 29.0 0.0 13.6 20.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 35.1 39.1 37.1 42.0 40.6 0.0 0.0 0.0 0.0 0.0 0.0 Foreign Income Margin 0.0 0.0 0.0 -1.4 -1.4 -1.4 18.8 18.8 18.8 -3.6 -5.3 -3.6 7.7 8.6 9.5 13.1 10.2 13.1 7.0 7.0 7.0 2.8 10.2 8.3 16.0 30.4 18.1 5.5 5.5 5.5 32.3 31.6 25.2 15.4 16.2 18.1 -
5Yr Avg Foreign Income Margin 1.1 1.1 1.1 11.0 11.0 11.0 6.7 6.1 -0.2 3.4 5.0 6.8 13.5 12.8 13.5 4.7 10.0 6.4 16.4 18.8 21.7 3.9 3.9 3.9 21.2 20.7 16.5 14.8 13.8 14.8 -
1 Year Growth Foreign Income 0.0 0.2 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 187.0 187.0 187.0 0.0 0.0 0.0 81.4 100.8 122.7 -5.1 -19.1 -9.9 -34.2 -34.2 -34.2 0.0 21.2 19.7 12.2 25.0 -6.7 0.0 33.8 51.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -2.2 0.0 0.0 0.0 0.0 0.0 24.1 6.1 -1.8 5.7 9.4 0.0 0.0 0.0 0.0 0.0 0.0
5 Year Growth Foreign Income 0.0 4.4 6.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18.5 18.5 18.5 0.0 0.0 0.0 4.9 3.6 2.2 7.4 9.1 5.3 0.0 0.0 0.0 14.3 27.8 15.1 25.4 30.7 25.4 0.0 -4.3 -6.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.6 0.0 15.3 15.8 17.4 0.0 0.0 0.0 0.0 0.0 0.0
Foreign Sales % Total Sales 0.0 0.1 0.0 0.0 0.0 0.0 1.7 1.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 25.0 33.2 38.2 4.7 4.5 0.0 86.9 87.3 87.7 30.7 33.0 42.3 34.2 32.3 32.4 25.8 33.8 34.0 33.6 32.1 33.6 0.0 26.3 40.3 0.0 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15.9 20.7 49.7 58.2 49.7 0.0 0.0 0.0 0.0 0.0 0.0
5Yr Avg Foreign Sales % T Sales 0.1 1.2 1.7 0.0 0.0 0.0 2.4 2.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 43.6 43.6 43.6 0.0 3.7 0.0 83.3 83.1 82.8 29.9 35.3 38.8 38.8 37.1 37.0 25.7 35.6 34.9 28.1 35.6 42.9 0.0 22.9 35.1 0.0 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 19.3 26.2 48.4 52.2 49.2 0.0 0.0 0.0 0.0 0.0 0.0
1 Year Growth Foreign Sales -28.3 -80.1 -100.0 0.0 0.0 0.0 -12.3 -10.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -28.6 -17.7 -10.8 -1.7 -2.8 0.0 1.3 0.7 0.1 -10.3 -10.0 -10.5 -10.1 -2.8 4.5 0.0 0.9 0.8 13.4 -9.3 -1.7 0.0 4.0 6.2 0.0 -3.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.0 0.1 1.8 7.2 3.6 0.0 0.0 0.0 0.0 0.0 0.0
5 Year Growth Foreign Sales 0.0 -87.8 -100.0 0.0 0.0 0.0 -1.4 -1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.2 10.2 10.2 0.0 1.5 0.0 4.7 1.0 -3.3 7.7 9.0 5.2 3.3 0.7 6.5 14.0 14.2 18.5 18.7 13.4 14.8 0.0 27.2 41.7 0.0 1.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 7.1 2.6 11.0 13.2 11.1 0.0 0.0 0.0 0.0 0.0 0.0
Foreign Asset Turnover 0.6 0.6 0.6 3.8 3.8 3.8 0.8 0.8 1.0 9.7 8.2 6.6 1.7 3.6 1.7 2.1 2.1 3.3 6.7 8.6 5.6 1.8 7.0 1.9 3.1 3.1 3.1 21.2 21.2 21.2 1.4 1.5 2.2 4.0 5.0 1.0 0.1 0.1 0.1 -
Total Foreign Foreign Asset Currency Turnover Adjust 0.0 0.0 0.0 -5.4 -5.4 -5.4 -5.1 -4.8 -1.7 69.2 66.0 62.4 31.4 41.5 31.4 23.0 23.0 23.0 65.9 62.0 85.0 19.5 22.4 22.9 16.8 16.8 16.8 38.7 40.4 54.4 22.5 93.1 18.2 0.0 0.0 0.0 0.0 0.0 0.0 -6.0 -6.0 -6.0 0.0 1.4 0.0 4.1 0.3 -4.0 0.0 -0.1 0.0 -1.1 -1.9 -3.6 0.0 2.8 -0.4 0.0 2.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.2 0.0 0.0 -0.8 -1.5 -1.0 -1.9 -1.0 0.0 0.0 0.0 0.0 0.0 0.0
1 October 2010
44
Macquarie Magnifier
Foreign US Small-/-Mid-Cap Averages GICS - Subsector Inc % Total Income 13.7 10.6 0.0 0.0 2.3 0.0 0.0 0.0 0.0 0.0 -7.2 -3.0 0.0 4.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 0.0 37.2 37.1 36.6 0.0 1.3 2.5 201.7 326.9 403.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.5 0.0 0.0 0.0 0.0 3.6 12.8 15.7 0.0 15.7 6.0 0.0 35.0 26.8 24.2 105.8 40.8 30.8 13.2 30.8 -163.9 -60.0 43.3
5Yr Avg Foreign Inc % Tot Inc 15.6 12.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12.6 26.4 31.8 0.0 6.0 7.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 0.0 3.3 4.3 35.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.8 6.9 7.7 0.4 18.7 11.4 10.9 19.6 21.8 24.5 28.4 24.5 23.4 76.3 61.4 -0.2 32.9 65.7 Foreign Income Margin 43.3 43.3 43.3 -3.1 -21.4 -3.1 14.2 14.2 14.2 7.0 7.0 7.0 11.4 11.4 10.1 78.8 78.8 78.8 65.5 65.5 65.5 -9.1 -13.6 -18.2 10.2 1.5 15.2 3.1 5.8 10.0 13.1 5.1 17.2 16.9 20.6 20.6 2.2 8.4 11.3 -7.4 -13.3 -19.1
5Yr Avg Foreign Income Margin 50.9 50.9 50.9 26.8 25.4 24.4 9.2 9.2 9.2 12.6 12.6 12.6 11.0 10.9 9.0 5.8 4.3 3.3 4.6 5.9 5.1 25.9 28.3 32.0 16.5 14.6 13.9 11.7 27.7 41.0 2.3 1.6 0.8
1 Year Growth Foreign Income -37.5 -29.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -49.8 -83.8 21.3 35.8 42.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -12.7 0.0 6.3 6.5 11.9 0.0 2.8 5.3 -10.9 -17.7 -21.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 25.3 436.9 649.4 0.0 -1.9 -7.1 0.0 13.1 0.0 0.0 -0.4 0.0 -30.3 -19.9 -52.6 -
5 Year Growth Foreign Income 9.0 7.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -6.0 -10.2 0.0 5.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 14.3 14.5 19.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.7 0.0 0.0 9.4 18.6 23.3 21.6 23.3 0.0 15.3 0.0 8.8 5.5 -8.3 9.6 9.6 9.6
Foreign Sales % Total Sales 29.7 39.2 52.0 0.0 13.6 0.0 0.0 4.1 0.0 8.6 9.6 10.9 0.0 4.9 0.0 0.0 0.0 0.0 0.0 10.9 19.0 0.0 2.1 0.0 41.5 42.9 41.5 0.0 0.3 0.6 13.2 21.3 26.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.0 0.0 0.0 0.0 13.8 24.1 20.7 9.1 19.8 16.6 12.7 20.7 16.5 31.4 41.2 45.1 50.4 46.8 50.5 32.4 29.7 27.0
1 Year Growth Foreign Sales 0.0 -4.4 3.7 0.0 11.1 0.0 0.0 -9.6 0.0 -6.1 -12.8 -31.0 0.0 -2.8 0.0 0.0 0.0 0.0 0.0 5.1 8.9 0.0 -2.3 0.0 9.0 7.5 9.0 0.0 0.8 1.5 -8.1 -13.2 -16.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 25.4 0.0 0.0 0.0 0.0 0.0 12.4 19.7 -0.5 0.5 -1.7 0.0 63.5 0.0 -2.7 -1.8 0.0 10.4 17.4 11.2 -42.6 -46.9 -51.2
5 Year Growth Foreign Sales 17.4 15.0 18.7 0.0 0.0 0.0 0.0 3.3 0.0 3.2 5.2 6.4 0.0 2.7 0.0 0.0 0.0 0.0 0.0 5.1 9.0 0.0 0.0 0.0 3.2 6.7 3.2 0.0 -13.6 -25.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -4.0 0.0 10.7 49.7 73.5 8.0 11.4 7.3 10.3 9.0 10.4 8.7 11.9 8.7 20.5 22.2 26.0 -2.6 -5.7 -8.8
Foreign Asset Turnover 11.4 11.4 11.4 6.9 6.9 6.9 0.7 0.7 0.7 0.3 0.3 0.2 0.2 0.3 0.4 0.2 0.2 0.2 0.7 0.5 0.3 0.3 0.3 0.3 0.1 0.1 0.1 0.4 0.4 0.4 29.0 15.2 0.5 1.9 15.0 2.3 2.1 2.0 1.2 17.5 25.4 18.3 3.3 12.2 5.6 2.6 2.6 2.6
Total Foreign Foreign Asset Currency Turnover Adjust -0.6 -9.1 -0.6 -42.4 -3.6 5.3 2.0 2.0 2.0 3.9 3.9 2.9 3.9 3.9 3.9 -7.8 -7.8 -7.8 14.5 -15.2 7.8 14.2 119.7 62.2 36.0 39.6 36.0 361.9 395.3 423.1 19.4 40.7 63.2 11.1 11.1 11.1 0.2 0.3 0.3 0.2 0.2 0.2 0.0 0.0 0.0 0.4 0.7 0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -3.2 -4.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.4 0.0 -0.3 0.0 0.0 0.3 0.0 0.0 0.5 0.0 0.0 -0.4 -0.7 1.3 2.5 3.7
40201040 Specialized Finance Median Weighted Average Weighted Median 40202010 Consumer Finance Median Weighted Average Weighted Median 40203010 Asset Management & Custody Banks Median Weighted Average Weighted Median 40203020 Investment Banking & Brokerage Median Weighted Average Weighted Median 40301010 Insurance Brokers Median Weighted Average Weighted Median 40301020 Life & Health Insurance Median Weighted Average Weighted Median 40301030 Multi-line Insurance Median Weighted Average Weighted Median 40301040 Property & Casualty Insurance Median Weighted Average Weighted Median 40301050 Reinsurance Median Weighted Average Weighted Median 40402010 Diversified REITs Median Weighted Average Weighted Median 40402020 Industrial REITs Median Weighted Average Weighted Median 40402040 Office REITs Median Weighted Average Weighted Median 40402050 Residential REITs Median Weighted Average Weighted Median 40402060 Retail REITs Median Weighted Average Weighted Median 40402070 Specialized REITs Median Weighted Average Weighted Median 40403030 Real Estate Development Median Weighted Average Weighted Median 40403040 Real Estate Services Median Weighted Average Weighted Median 45101010 Internet Software & Services Median Weighted Average Weighted Median 45102010 IT Consulting & Other Services Median Weighted Average Weighted Median 45102020 Data Processing & Outsourced Services Median Weighted Average Weighted Median 45103010 Application Software Median Weighted Average Weighted Median 45103020 Systems Software Median Weighted Average Weighted Median 45103030 Home Entertainment Software Median Weighted Average Weighted Median
1 October 2010
45
Macquarie Magnifier
Foreign US Small-/-Mid-Cap Averages GICS - Subsector Inc % Total Income
5Yr Avg Foreign Inc % Tot Inc 4.8 0.1 7.4 30.8 47.8 59.6 118.1 112.6 74.7 40.3 68.7 42.1 1.2 7.1 -58.1 19.9 12.8 16.0 11.8 10.5 8.6 16.4 16.4 16.4 -1.5 11.3 -1.5 59.6 147.4 51.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Foreign Income Margin 0.5 -0.4 1.1 19.1 19.1 19.1 11.1 9.8 14.3 0.0 14.2 0.0 5.8 7.5 5.8 7.0 6.2 7.5 1.1 1.2 1.1 4.8 4.8 4.8 -4.1 -6.5 -4.1 6.9 7.0 6.9 8.6 8.6 8.6 -
5Yr Avg Foreign Income Margin 5.1 4.6 5.2 13.2 13.2 13.2 6.4 6.8 9.6 7.5 12.4 7.5 3.7 3.2 -0.9 2.9 1.7 0.1 0.7 0.7 0.7 5.1 5.1 5.1 3.1 2.3 1.2 8.9 11.7 14.1 -
1 Year Growth Foreign Income -17.0 -45.1 -65.1 -31.1 -14.3 -2.7 21.9 6.7 7.1 -20.7 -30.7 -20.7 -16.2 -9.7 -16.2 -13.2 -5.6 6.3 4.8 18.1 36.8 12.9 12.9 12.9 0.2 8.8 37.4 7.7 10,081.7 21.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -13.8 0.0 0.0 0.0 0.0 0.0 13.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -
5 Year Growth Foreign Income 3.0 13.4 18.3 13.9 13.9 13.9 5.8 8.3 26.0 -18.6 3.7 7.2 -6.4 -17.5 -27.9 22.0 27.4 33.9 6.9 8.1 6.8 1.2 1.2 1.2 17.4 8.4 17.4 7.6 7.1 2.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 8.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -
Foreign Sales % Total Sales 37.8 38.1 44.7 41.6 39.6 56.2 46.8 56.8 43.3 58.2 50.6 62.7 74.3 72.2 74.3 45.0 44.9 50.2 45.8 48.2 56.3 55.0 55.0 55.0 71.5 73.9 77.0 79.9 55.5 77.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 11.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -
5Yr Avg Foreign Sales % T Sales 36.4 35.8 40.8 41.8 39.9 56.9 45.5 57.9 45.5 62.6 52.2 65.6 79.0 74.5 79.0 47.4 47.5 53.4 46.9 45.6 52.3 52.0 52.0 52.0 68.4 71.9 77.0 70.3 65.0 67.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -
1 Year Growth Foreign Sales -11.8 -5.4 -7.7 -15.4 -15.1 -15.0 -32.1 -4.9 9.5 -23.5 -23.2 -17.7 -19.8 -22.8 -19.8 -13.7 -10.6 -17.2 -12.4 31,041.7 -8.2 -17.1 -17.1 -17.1 -22.0 13.5 -12.8 -9.1 -25.1 -10.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -3.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -
5 Year Growth Foreign Sales 11.1 19.6 18.9 1.9 0.1 0.0 -4.3 4.8 -3.6 4.8 0.3 0.2 -2.2 -1.0 -2.2 15.8 21.7 23.4 7.9 8.0 11.1 7.7 7.7 7.7 -0.4 2.6 3.7 3.7 -25.8 -2.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -22.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -
Foreign Assets% Total Assets 0.9 2.2 0.9 3.5 19.3 4.4 2.1 7.0 1.5 6.8 14.7 6.5 17.6 22.1 26.4 12.6 18.3 1.1 5.6 21.9 2.2 1.1 1.1 1.1 3.6 3.8 4.0 4.6 10.4 5.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.2
Foreign Asset Turnover 27.7 1,010.5 22.5 16.8 10.6 16.8 4.1 43.5 42.6 5.3 6.8 5.3 3.0 10.0 1.9 4.3 16.6 28.1 4.9 51.2 44.2 50.5 50.5 50.5 10.9 43.0 19.8 7.0 12.7 7.0 0.4 0.4 0.4 -
Total Foreign Foreign Asset Currency Turnover Adjust 10.7 21.4 65.5 12.4 12.4 12.4 365.1 635.3 697.8 0.0 79.3 0.0 15.7 219.4 15.7 19.7 22.9 12.3 9.9 42.4 4.6 240.5 240.5 240.5 -32.9 -124.1 -32.9 19.4 141.8 41.4 3.7 3.7 3.7 -1.0 -2.1 -1.1 -0.6 -0.8 -0.9 -0.1 0.7 0.0 -0.2 -0.5 -0.1 5.0 5.0 5.0 0.0 0.1 0.5 -0.2 3.2 -3.9 0.5 0.5 0.5 -0.7 -0.8 -0.1 0.0 -1.7 -0.2 0.0 0.0 0.0 0.5 0.8 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 0.0 1.0 1.0 1.0
45201020 Communications Equipment Median 0.6 Weighted Average -24.8 Weighted Median 2.5 45202010 Computer Hardware Median 47.3 Weighted Average 73.3 Weighted Median 91.4 45202020 Computer Storage & Peripherals Median 91.4 Weighted Average 297.0 Weighted Median 118.6 45203010 Electronic Equipment & Instruments Median 21.6 Weighted Average 103.5 Weighted Median 50.7 45203015 Electronic Components Median -49.7 Weighted Average -33.4 Weighted Median -49.7 45203020 Electronic Manufacturing Services Median 55.3 Weighted Average 69.6 Weighted Median 27.2 45203030 Technology Distributors Median 30.8 Weighted Average 39.1 Weighted Median 40.7 45204010 Office Electronics Median 26.5 Weighted Average 26.5 Weighted Median 26.5 45301010 Semiconductor Equipment Median 12.3 Weighted Average 20.0 Weighted Median 58.3 45301020 Semiconductors Median 59.4 Weighted Average 89.5 Weighted Median 23.4 50101010 Alternative Carriers Median 0.0 Weighted Average 0.0 Weighted Median 0.0 50101020 Integrated Telecommunication Services Median 0.0 Weighted Average 0.0 Weighted Median 0.0 50102010 Wireless Telecommunication Services Median 0.0 Weighted Average 3.4 Weighted Median 0.0 55101010 Electric Utilities Median 0.0 Weighted Average 0.0 Weighted Median 0.0 55102010 Gas Utilities Median 0.0 Weighted Average 1.5 Weighted Median 0.0 55103010 Multi-Utilities Median 0.0 Weighted Average 0.0 Weighted Median 0.0 55104010 Water Utilities Median 0.0 Weighted Average 0.0 Weighted Median 0.0 55105010 Independent Power Producers & Energy Traders Median Weighted Average Weighted Median -
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Appendix 2: Small-/mid-cap coverage

Company NeoPharm Inc. Pzena Investment Management Inc. NGP Capital Resources Co. TradeStation Group Inc. Hercules Technology Growth Capital Inc. Fifth Street Finance Corp. Fortress Investment Group L.L.C. (Cl A) BlackRock Kelso Capital Corp. Prospect Capital Corp. optionsXpress Holdings Inc. MF Global Ltd. Apollo Investment Corp. American Capital Ltd. Janus Capital Group Inc. Federated Investors Inc. AllianceBernstein Holding L.P. Ares Capital Corp. E*TRADE Financial Corp. Eaton Vance Corp. Affiliated Managers Group Inc. Legg Mason Inc. STR Holdings Inc. Intrepid Potash Inc. Southern Connecticut Bancorp Inc. Tennessee Commerce Bancorp Inc. Encore Bancshares Inc. Seacoast Banking Corp. of Florida Sun Bancorp Inc. (New Jersey) First Merchants Corp. CoBiz Financial Inc. United Community Banks Inc. Lakeland Bancorp Inc. Wilshire Bancorp Inc. Capital City Bank Group Inc. Heartland Financial USA Inc. Centerstate Banks Inc. Nara Bancorp Inc. First Busey Corp. Hudson Valley Holding Corp. Renasant Corp. WesBanco Inc. Boston Private Financial Holdings Inc. First Commonwealth Financial Corp. (Pennsylvania) Western Alliance Bancorp. Sterling Bancshares Inc. Texas Capital Bancshares Inc. PacWest Bancorp. Columbia Banking System Inc. Community Bank System Inc. Wilmington Trust Corp. CVB Financial Corp. PrivateBancorp Inc. Whitney Holding Corp. MB Financial Inc. First Financial Bankshares Inc. Park National Corp. F.N.B. Corp. Wintrust Financial Corp. Hancock Holding Co. Susquehanna Bancshares Inc. BancorpSouth Inc. Umpqua Holdings Corp. Trustmark Corp. Prosperity Bancshares Inc. Signature Bank Westamerica Bancorp SVB Financial Group Synovus Financial Corp. FirstMerit Corp. Bank of Hawaii Corp. Ticker NEO PZN NGPC TRAD HTGC FSC FIG BKCC PSEC OXPS MF AINV ACAS JNS FII AB ARCC ETFC EV AMG LM STRI IPI SSE TNCC EBTX SBCF SNBC FRME COBZ UCBI LBAI WIBC CCBG HTLF CSFL NARA BUSE HUVL RNST WSBC BPFH FCF WAL SBIB TCBI PACW COLB CBU WL CVBF PVTB WTNY MBFI FFIN PRK FNB WTFC HBHC SUSQ BXS UMPQ TRMK PRSP SBNY WABC SIVB SNV FMER BOH Rating Neutral Underperform Outperform Outperform Outperform Neutral Outperform Neutral Neutral Underperform Neutral Outperform Neutral Neutral Neutral Outperform Outperform Neutral Outperform Outperform Neutral Outperform Neutral Outperform Outperform Neutral Neutral Outperform Outperform Neutral Neutral Neutral Neutral Neutral Neutral Neutral Outperform Neutral Outperform Neutral Neutral Neutral Neutral Neutral Neutral Outperform Neutral Outperform Neutral Underperform Underperform Neutral Underperform Underperform Neutral Neutral Neutral Neutral Underperform Neutral Neutral Neutral Neutral Outperform Neutral Outperform Outperform Neutral Neutral Neutral GICs Sector Biotechnology Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Capital Markets Chemicals Chemicals Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks
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Company Associated Banc-Corp TCF Financial Corp. East West Bancorp Inc. First Horizon National Corp. City National Corp. Commerce Bancshares Inc. Cullen/Frost Bankers Inc. Zions Bancorp Marshall & Ilsley Corp. Huntington Bancshares Inc. Superior Uniform Group Inc. Sykes Enterprises Inc. EnerNOC Inc. Tetra Tech Inc. Geo Group Inc. Ritchie Bros. Auctioneers Inc. IESI-BFC Ltd. Corrections Corp. of America Iron Mountain Inc. EchoStar Corp. Granite Construction Inc. Chicago Bridge & Iron Co. N.V. Shaw Group Inc. Shaw Group Inc. AECOM Technology Corp. URS Corp. Foster Wheeler AG KBR Inc. Jacobs Engineering Group Inc. Cash America International Inc. AmeriCredit Corp. Graphic Packaging Holding Co. Silgan Holdings Inc. Sonoco Products Co. Bemis Co. Inc. Sealed Air Corp. Pactiv Corp. Owens-Illinois Inc. Crown Holdings Inc. H&R Block Inc. Asset Acceptance Capital Corp. CBOE Holdings Inc. Interactive Brokers Group Inc. Portfolio Recovery Associates Inc. KKR Financial Holdings LLC NASDAQ OMX Group Inc. (The) MSCI Inc. (Cl A) FairPoint Communications Inc. UIL Holdings Corp. Portland General Electric Co. Hawaiian Electric Industries Inc. Servotronics Inc. Broadwind Energy Inc. Baldor Electric Co. Babcock & Wilcox Co. Comverge Inc. Hollysys Automation Technologies Ltd. Itron Inc. Seahawk Drilling Inc. Allis-Chalmers Energy Inc. Hercules Offshore Inc. Superior Well Services Atwood Oceanics Inc. Patterson-UTI Energy Inc. Oceaneering International Inc. McDermott International Inc. Rowan Cos. Inc. Helmerich & Payne Inc. Ferrellgas Partners L.P. Cooper Cos. Gen-Probe Inc. Mindray Medical International Ltd. ADS Alere Inc.
Ticker ASBC TCB EWBC FHN CYN CBSH CFR ZION MI HBAN SGC SYKE ENOC TTEK GEO RBA BIN CXW IRM SATS GVA CBI SGR SHAW ACM URS FWLT KBR JEC CSH ACF GPK SLGN SON BMS SEE PTV OI CCK HRB AACC CBOE IBKR PRAA KFN NDAQ MSCI FRP UIL POR HE SVT BWEN BEZ BWC COMV HOLI ITRI HAWK ALY HERO SWSI ATW PTEN OII MDR RDC HP FGP COO GPRO MR ALR
Rating Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Underperform Neutral Outperform Neutral Outperform Neutral Outperform Neutral Outperform Outperform Outperform Underperform Neutral Outperform Outperform Neutral Neutral Neutral Outperform Outperform Neutral Neutral Neutral Outperform Neutral Outperform Neutral Neutral Neutral Neutral Outperform Neutral Underperform Outperform Neutral Outperform Outperform Outperform Neutral Outperform Outperform Outperform Neutral Underperform Outperform Neutral Neutral Outperform Outperform Underperform Neutral Neutral Underperform Neutral Outperform Underperform Outperform Outperform Neutral Neutral Outperform Outperform Underperform Outperform Outperform
GICs Sector Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Banks Commercial Services & Supplies Commercial Services & Supplies Commercial Services & Supplies Commercial Services & Supplies Commercial Services & Supplies Commercial Services & Supplies Commercial Services & Supplies Commercial Services & Supplies Commercial Services & Supplies Communications Equipment Construction & Engineering Construction & Engineering Construction & Engineering Construction & Engineering Construction & Engineering Construction & Engineering Construction & Engineering Construction & Engineering Construction & Engineering Consumer Finance Consumer Finance Containers & Packaging Containers & Packaging Containers & Packaging Containers & Packaging Containers & Packaging Containers & Packaging Containers & Packaging Containers & Packaging Diversified Consumer Services Diversified Financial Services Diversified Financial Services Diversified Financial Services Diversified Financial Services Diversified Financial Services Diversified Financial Services Diversified Financial Services Diversified Telecommunication Services Electric Utilities Electric Utilities Electric Utilities Electrical Equipment Electrical Equipment Electrical Equipment Electrical Equipment Electronic Equipment Instruments & Components Electronic Equipment Instruments & Components Electronic Equipment Instruments & Components Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Energy Equipment & Services Gas Utilities Health Care Equipment & Supplies Health Care Equipment & Supplies Health Care Equipment & Supplies Health Care Equipment & Supplies
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Company Beckman Coulter Inc. Gaming Partners International Corp. Isle of Capri Casinos Inc. Boyd Gaming Corp. Pinnacle Entertainment Inc. Ameristar Casinos Inc. Bally Technologies Inc. WMS Industries Inc. Penn National Gaming Inc. International Game Technology Dynegy Inc. RRI Energy Inc Ormat Technologies Inc. Mirant Corp. Crawford & Co. (Cl B) First Mercury Financial Corp. SeaBright Holdings Inc. NYMAGIC INC. Donegal Group Inc. (Cl A) Global Indemnity PLC OneBeacon Insurance Group Ltd. (Cl A) FPIC Insurance Group Inc. AMERISAFE Inc. National Interstate Corp. National Financial Partners Corp. Maiden Holdings Ltd. State Auto Financial Corp. Infinity Property & Casualty Corp. American Equity Investment Life Holding Co. Employers Holdings Inc. Navigators Group Inc. Horace Mann Educators Corp. Greenlight Capital Re Ltd. Cl A Flagstone Reinsurance Holdings SA AmTrust Financial Services Inc. Selective Insurance Group Inc. Harleysville Group Inc. Enstar Group Ltd. Tower Group Inc. Argo Group International Holdings Ltd. RLI Corp. Montpelier Re Holdings Ltd. Delphi Financial Group Inc. (Cl A) Symetra Financial Corp. CNO Financial Group Inc. Unitrin Inc. First American Financial Corp. Platinum Underwriters Holdings Ltd. StanCorp Financial Group Inc. Protective Life Corp. Endurance Specialty Holdings Ltd. The Hanover Insurance Group Inc. Mercury General Corp. Aspen Insurance Holdings Ltd. Alterra Capital Holdings Ltd. Validus Holdings Ltd. White Mountains Insurance Group Ltd. Arthur J. Gallagher & Co. Allied World Assurance Co. Holdings Ltd. Brown & Brown Inc. Erie Indemnity Co. (Cl A) HCC Insurance Holdings Inc. RenaissanceRe Holdings Ltd. TransAtlantic Holdings Inc. Assured Guaranty Ltd. American Financial Group Inc. Markel Corp. Reinsurance Group of America Inc. Fidelity National Financial Inc. AXIS Capital Holdings Ltd. W.R. Berkley Corp. Arch Capital Group Ltd. Assurant Inc.
Ticker BEC PSON ISLE BYD PNK ASCA BYI WMS PENN IGT DYN RRI ORA MIR CRDB FMR SBX NYM DGICA GBLI OB FPIC AMSF NATL NFP MHLD STFC IPCC AEL EIG NAVG HMN GLRE FSR AFSI SIGI HGIC ESGR TWGP AGII RLI MRH DFG SYA CNO UTR FAF PTP SFG PL ENH THG MCY AHL ALTE VR WTM AJG AWH BRO ERIE HCC RNR TRH AGO AFG MKL RGA FNF AXS WRB ACGL AIZ
Rating Underperform Outperform Neutral Underperform Outperform Neutral Neutral Outperform Neutral Outperform Neutral Neutral Neutral Neutral Outperform Outperform Neutral Outperform Neutral Neutral Neutral Neutral Outperform Outperform Neutral Outperform Neutral Neutral Outperform Outperform Outperform Neutral Neutral Neutral Outperform Neutral Neutral Outperform Neutral Outperform Neutral Neutral Neutral Neutral Neutral Neutral Neutral Outperform Neutral Neutral Neutral Outperform Neutral Outperform Outperform Outperform Neutral Outperform Outperform Neutral Neutral Outperform Neutral Neutral Neutral Outperform Neutral Outperform Outperform Outperform Outperform Outperform Neutral
GICs Sector Health Care Equipment & Supplies Hotels Restaurants & Leisure Hotels Restaurants & Leisure Hotels Restaurants & Leisure Hotels Restaurants & Leisure Hotels Restaurants & Leisure Hotels Restaurants & Leisure Hotels Restaurants & Leisure Hotels Restaurants & Leisure Hotels Restaurants & Leisure Independent Power Producers & Energy Traders Independent Power Producers & Energy Traders Independent Power Producers & Energy Traders Independent Power Producers & Energy Traders Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance Insurance
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Company Torchmark Corp. Cincinnati Financial Corp. Everest Re Group Ltd. DealerTrack Holdings Inc. SINA Corp. Information Services Group Inc. Integral Systems Inc. Teletech Holdings Inc. Convergys Corp. CoreLogic, Inc. VeriFone Systems Inc. Total System Services Inc. Lender Processing Services Inc. Global Payments Inc. Alliance Data Systems Corp. Affymetrix Inc. PerkinElmer Inc. Mettler-Toledo International Inc. Energy Recovery Inc. Manitowoc Co. Manitowoc Co. Terex Corp. Pall Corp. Carmike Cinemas Inc. AirMedia Group Inc. ADS VisionChina Media Inc. ADS Regal Entertainment Group Cinemark Holdings Inc. DreamWorks Animation SKG Inc. (Cl A) Focus Media Holding Ltd. ADS DISH Network Corp. (Cl A) Interpublic Group Of Cos. Hemis Corp. ADF Group Inc. Hecla Mining Co. NovaGold Resources Inc. Walter Energy, Inc. TECO Energy Inc. Alliant Energy Corp. BMB Munai Inc. Serica Energy PLC Delta Petroleum Corp. Hyperdynamics Corp. Alon USA Energy Inc. BPZ Resources Inc. Western Refining Inc. James River Coal Co. Goodrich Petroleum Corp. Ivanhoe Energy Inc. NuVista Energy Ltd. Patriot Coal Corp. Energy XXI (Bermuda) Ltd. Rosetta Resources Inc. Frontier Oil Corp. Holly Corp. Gran Tierra Energy Inc. Bill Barrett Corp. Tesoro Corp. Brigham Exploration Co. Quicksilver Resources Inc. SM Energy Co. Cabot Oil & Gas Corp. Massey Energy Co. Forest Oil Corp. Plains Exploration & Production Co. Arch Coal Inc. Sunoco Inc. Petrohawk Energy Corp. Whiting Petroleum Corp. Alpha Natural Resources Inc. Wausau Paper Corp. Medicis Pharmaceutical Corp. Heidrick & Struggles International Inc.
Ticker TMK CINF RE TRAK SINA III ISYS TTEC CVG CLGX PAY TSS LPS GPN ADS AFFX PKI MTD ERII MTW MTW TEX PLL CKEC AMCN VISN RGC CNK DWA FMCN DISH IPG HMSO DRX HL NG WLT TE LNT KAZ SQZ DPTR HDY ALJ BPZ WNR JRCC GDP IVAN NVA PCX EXXI ROSE FTO HOC GTE BBG TSO BEXP KWK SM COG MEE FST PXP ACI SUN HK WLL ANR WPP MRX HSII
Rating Outperform Neutral Outperform Outperform Outperform Outperform Outperform Neutral Neutral Neutral Neutral Neutral Outperform Outperform Neutral Neutral Neutral Outperform Neutral Neutral Neutral Outperform Outperform Outperform Neutral Outperform Outperform Outperform Outperform Outperform Neutral Outperform Neutral Underperform Neutral Outperform Outperform Neutral Outperform Outperform Neutral Neutral Outperform Underperform Outperform Outperform Outperform Neutral Outperform Neutral Neutral Outperform Neutral Neutral Outperform Outperform Outperform Outperform Outperform Neutral Neutral Neutral Neutral Outperform Neutral Outperform Outperform Neutral Outperform Outperform Neutral Outperform Neutral
GICs Sector Insurance Insurance Insurance Internet Software & Services Internet Software & Services IT Services IT Services IT Services IT Services IT Services IT Services IT Services IT Services IT Services IT Services Life Sciences Tools & Services Life Sciences Tools & Services Life Sciences Tools & Services Machinery Machinery Machinery Machinery Machinery Media Media Media Media Media Media Media Media Media Metals & Mining Metals & Mining Metals & Mining Metals & Mining Metals & Mining Multi-Utilities Multi-Utilities Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Oil Gas & Consumable Fuels Paper & Forest Products Pharmaceuticals Professional Services
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Company Kforce Inc. TrueBlue Inc. Resources Connection Inc. Korn/Ferry International FTI Consulting Inc. Robert Half International Inc. Verisk Analytics Inc. (Cl A) Manpower Inc. Armour Residential REIT Inc. New York Mortgage Trust Inc. Newcastle Investment Corp. CapLease Inc. First Industrial Realty Trust Inc. Education Realty Trust Inc. Glimcher Realty Trust Pennsylvania Real Estate Investment Trust Inland Real Estate Corp. Acadia Realty Trust Capstead Mortgage Corp. U-Store-It-Trust Anworth Mortgage Asset Corp. DCT Industrial Trust Inc. EastGroup Properties Inc. Sovran Self Storage Inc. Redwood Trust Inc. Hatteras Financial Corp. American Capital Agency Corp Extra Space Storage Inc. Dupont Fabros Technology Inc. Equity One Inc. CBL & Associates Properties Inc. Tanger Factory Outlet Centers Inc. Mid-America Apartment Communities Inc. American Campus Communities Inc. Home Properties Inc. Douglas Emmett Inc. MFA Financial Inc. Corporate Office Properties Trust Highwoods Properties Inc. BioMed Realty Trust Inc. Taubman Centers Inc. Apartment Investment & Management Co. Weingarten Realty Investors BRE Properties Inc. BRE Properties Inc. Developers Diversified Realty Corp. Duke Realty Corp. Camden Property Trust Regency Centers Corp. Essex Property Trust Inc. UDR Inc. Liberty Property Trust AMB Property Corp. SL Green Realty Corp. Werner Enterprises Inc. Knight Transportation Inc. Con-Way Inc. J.B. Hunt Transport Services Inc. Evergreen Solar Inc. China Sunergy Co. Ltd. ADS Energy Conversion Devices Inc. Canadian Solar Inc. Solarfun Power Holdings Co. Ltd. ADS SunPower Corp. (Cl A) JA Solar Holdings Co. Ltd. ADS Suntech Power Holdings Co. Ltd. ADS Yingli Green Energy Holding Co. Ltd. ADS Trina Solar Ltd. ADS National Semiconductor Corp. Advanced Micro Devices Inc. CDC Software Corp. ADS CDC Corp. Cl A Websense Inc.
Ticker KFRC TBI RECN KFY FCN RHI VRSK MAN ARR NYMT NCT LSE FR EDR GRT PEI IRC AKR CMO YSI ANH DCT EGP SSS RWT HTS AGNC EXR DFT EQY CBL SKT MAA ACC HME DEI MFA OFC HIW BMR TCO AIV WRI BRE BRE DDR DRE CPT REG ESS UDR LRY AMB SLG WERN KNX CNW JBHT ESLR CSUN ENER CSIQ SOLF SPWRA JASO STP YGE TSL NSM AMD CDCS CHINA WBSN
Rating Outperform Neutral Outperform Neutral Neutral Outperform Neutral Outperform Neutral Outperform Outperform Neutral Outperform Outperform Neutral Neutral Outperform Outperform Outperform Outperform Outperform Outperform Neutral Underperform Outperform Outperform Outperform Outperform Outperform Outperform Outperform Outperform Outperform Outperform Outperform Outperform Neutral Neutral Neutral Outperform Neutral Neutral Underperform Outperform Neutral Neutral Outperform Neutral Underperform Neutral Neutral Neutral Outperform Neutral Neutral Neutral Neutral Neutral Underperform Neutral Neutral Neutral Outperform Outperform Outperform Neutral Neutral Outperform Underperform Underperform Outperform Neutral Outperform
GICs Sector Professional Services Professional Services Professional Services Professional Services Professional Services Professional Services Professional Services Professional Services Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Real Estate Investment Trusts (REITs) Road & Rail Road & Rail Road & Rail Road & Rail Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Semiconductors & Semiconductor Equipment Software Software Software
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Company Novell Inc. TIBCO Software Inc. Hhgregg Inc. Penske Automotive Group Inc. Tractor Supply Co. Gildan Activewear Inc. Flushing Financial Corp. Dime Community Bancshares PMI Group Inc. Radian Group Inc. Astoria Financial Corp. MGIC Investment Corp. First Niagara Financial Group Inc. Macquarie Infrastructure Co. LLC Aqua America Inc. American Water Works Co. Source: Macquarie Securities (USA), September 2010
Ticker NOVL TIBX HGG PAG TSCO GIL FFIC DCOM PMI RDN AF MTG FNFG MIC WTR AWK
Rating Outperform Neutral Underperform Outperform Underperform Neutral Outperform Neutral Neutral Outperform Neutral Outperform Neutral Outperform Neutral Outperform
GICs Sector Software Software Specialty Retail Specialty Retail Specialty Retail Textiles Apparel & Luxury Goods Thrifts & Mortgage Finance Thrifts & Mortgage Finance Thrifts & Mortgage Finance Thrifts & Mortgage Finance Thrifts & Mortgage Finance Thrifts & Mortgage Finance Thrifts & Mortgage Finance Transportation Infrastructure Water Utilities Water Utilities
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Appendix 3: Quant EMC2-USE model

This section provides a brief overview of our quant EMC2-USE model methodology. For a more in-depth discussion on model methodology and back tests, please refer to our EMC2-USE equity alpha model in our report, Introducing EMC2 US equity alpha model (15 November 2008). There are a few distinguishing features of our research. First, we try to add value in every step of the modeling process, from data integration, factor research, and alpha modeling, to performance attribution. Second, we try to be innovative, by searching for new data sources, new signals, and new ways to build models. Third, we construct our model based on an artificial intelligence framework, with the model being dynamic; we select factors and weights every month for inclusion in the model based on the macroeconomic environment. Fourth, the EMC2 model is a balance of signals from six main categories: value, growth, momentum, analyst sentiment, quality, and trading. Lastly, we strive to avoid data mining and look-ahead bias by emphasizing pure out-of-sample back testing. Our EMC2 model is very different from most published multifactor models. In most multifactor models, analysts specify a set of factors to include in the model beforehand and then back test these factors using historical data. In our opinion, this simple approach has problems. First, the model tends to be static. There is no systematic way to adjust the factors in the model. More important, this simple approach suffers from a look-ahead bias. At the time when the analysts specify the factors, they already know which factors worked and which did not in the past. The natural tendency, therefore, is to select factors based on their prior knowledge. Even though we can back test historical data in an out-of-sample manner, the factors being selected already incorporate knowledge that was not available at that point in time in history. Instead of back testing the data across a set of pre-specified factors, we back test our methodology or a set of decision rules according to varying methodologies. If the methodology or decision rules produce desirable results, we would probably have much higher confidence that the same methodology or decision rules will continue to work in the future. We base our EMC2 model on an artificial intelligence system (see diagram on following page). We specify the rules governing decisions, and the model selects factors, assigns weights, and ranks the stocks. Because we specify only the rules and let the model select the factors instead of selecting them ourselves, look-ahead biases substantially decline.
Four basic decision rules in the system

Factors have to add value as single factors before their addition to the factor pre-processing
algorithm.
Factors cannot be highly correlated before we perform the multivariate panel regression. Given
that we base our model on a regression framework, we strive to avoid multi-collinearity. The other popular model-building technique is to optimize IC based on a set of factors. Again, in this approach, analysts should look for uncorrelated factors to diversify their factor positions.
Factors cannot be redundant. We want to build smaller and more parsimonious models. The weights applied to the factors should be dependent on the macroeconomic environment.
In every step of the model-building process, the data remains separated. Our models only use data that are available at the time of construction. For the period from May 1987 to November 1991, we performed an exploratory analysis to understand the nature of the equity market. For the period from December 1991 to December 1996, we use in-sample data to construct the first EMC2 model, according to the following steps.
All factors available as of December 1996 include their single factor performance. The first factor pre-processing algorithm selects factors with high efficacy and removes highly
correlated factors.
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We perform a factor pre-processing algorithm to remove highly correlated factors. The factor
pre-processing algorithm is a modified cluster analysis, adjusted for the time series nature of our study.
We perform a multivariate panel regression to estimate an over-fitted model. We use the second factor selection algorithm to select the most parsimonious model with the
best in-sample fit.

We built three dynamic models to forecast factor payoffs for the next period. We combine stock exposures to each factor and the forecast factor payoffs to forecast the
excess returns of each stock for the next period (eg, May 1997).
At the end of each month (eg, May 1997), we calculated a series of performance measures for
our model built at the beginning of the month, including long-short spread, raw IC, rank IC, sector-neutral IC and performance within each sector and size category. We repeat the process every month from May 1997 through May 2008. We refit the model, reselect factors, re-estimate factor payoffs, re-forecast stock returns, and re-construct 10 decile portfolios every month. We then calculated the actual linked rates of return to the decile portfolios after ranking the data. From May 1997 to the present, we reserve all monthly data for true out-of-sample back tests. We base all subsequent reinvestment from May 1997 to the current month on data and models created using information available up to the beginning of those new portfolio formation dates. That is, the portfolio simulation illustrates the value add from the EMC2 model in a pure out-ofsample, forward-looking sense. It does not reflect the performance of one unchanging model estimated at the end of the period (in-sample test).
Fig 101 EMC2 model methodology

Multivariate Panel Regression Factor Preprocessing
Factor Selection Algorithm
Proprietary database
Learning sample (Feb 1987Nov 1991)
In sample (Dec 1991Dec 1996)
Factor Insights (FI)
Out-of-sample Back Testing & Production System (January 1997 to Current)
Factor Return Estimation
Performance Measurement & Attribution Stock Return Forecasting
Factor Style Timing
Source: Bloomberg, Compustat, IBES, S&P, TSX, Macquarie Capital (USA), September 2010
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Six alpha categories

We divide all fundamental, quantitative and market alpha variables into six categories: value, growth, momentum, analyst sentiment, quality, and trading (see Figure 102). Each category is further broken down into 24 subcategories.
Fig 102 Classification of alpha-generating factors

Category Value Sub-category
Absolute Value Historical Relative Value Sector/Industry Relative Value Valuation Trend Long-term Growth Short-term Growth Growth Trend Price Momentum Earnings Surprise Earnings Revision Cash Flow Revision Sales Revision Recommendation Revision Target Price Revision Profitability Earnings Stability Dividend Sustainability Balance Sheet Ratio Earnings Quality
U.S.
46 36 36 0 16 77 0 50 8 79 60 57 22 0 78 20 6 41 17 3 5 5 11 43 716
Canada
52 15 32 3 7 70 11 56 3 104 81 0 23 31 33 12 20 25 9 3 6 6 9 3 614
Growth
Factor Insights
Value
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Momentum
Analyst Sentiment
Quality
Size Liquidity Trading Short Position Risk High Frequency Macquarie North American Quant Research Factor Library
Source: Bloomberg, Compustat, IBES, S&P, TSX, Macquarie Capital (USA), September 2010
Value investing is a time-tested foundation of active stock selection. Value factors compare a stocks price with its intrinsic value and buy stocks that are relatively cheap, using either multiples or yields. We derive these factors based on the assumption that investors form modest but realistic expectations for value stocks but are often overly optimistic about the prospects of glamour stocks. We calculate four subcategories of value factors: absolute value, historical relative value, sector relative value, and valuation trend.
Growth
We measure a company's performance, in one way, by analyzing how fast the company grew earnings, cashflow, and sales in prior periods. We calculate three subcategories of growth factors: long-term growth, short-term growth, and growth trend.
Momentum
Our research has shown that momentum is a powerful alpha driver. Academic research suggests that investors are slow to react to the release of investment-relevant information, especially when the implications are complex or ambiguous. As investors gradually understand the implications of this information, prices might trend upward following good news and downward following bad news, thereby exhibiting momentum or positive serial correlation. More important, momentum helps identify stocks in a value trap by distinguishing between cheap stocks that are likely to remain cheap, and cheap stocks that appear undervalued by the market.
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Analyst sentiment
Analyst sentiment factors capture the views of sell-side research analysts. Analysts generally form conservative views in that they revise their views gradually; therefore, a revision in one direction often follows similar revisions in the same direction (ie, positive serial correlation). In addition, the market tends to under react to revisions. In recent years, earnings revision signals have been heavily arbitraged, and the profitability of acting purely on earnings revisions has been declining in most countries.
Quality
Quality factors assess the health of a companys business and the ability of its management to add value. We measure the quality of a companys operations by calculating five subcategories.
Trading
Similar to price momentum factors, market activities produce trading-related factors. This category includes size factors (eg, price, market capitalization, and revenue), liquidity, short interest, risk (beta or volatility), and several technical indicators.
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Contributing analysts
Fig 103 Macquarie contributing analysts
Analyst Cooley May, CFA Angela Zhang Al Kabili Bhavin Shah Brad Zelnick Dane Leone Jon Groberg Kevin McVeigh Roger Smith Sameer Rathod, CFA Smitha Balasubramanian Tim Nollen Phone 212 231 2586 212 231 0655 212 231 2473 212 231 2619 212 231 2618 212 231 6369 212 231 2482 303 952 2751 212 231 8016 212 231 2474 212 231 2638 303 952 2753 Email cooley.may@macquarie.com angela.zhang@macquarie.com al.kabili@macquarie.com bhavin.shah@macquarie.com brad.zelnick@macquarie.com dane.leone@macquarie.com jon.groberg@macquarie.com kevin.mcveigh@macquarie.com roger.smith@macquarie.com sameer.rathod@macquarie.com smitha.balasubramanian@macquarie.com tim.nollen@macquarie.com GICS Chemicals, Jails & Small Cap Strategy Chemicals, Jails & Small Cap Strategy Containers & Packaging Software Software Life Sciences Tools & Services Life Sciences Tools & Services Commercial Services & Supplies Capital Markets Construction, Engineering & Machinery Construction, Engineering & Machinery Media
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Macquarie (USA) Research Important disclosures:

Recommendation definitions
Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return
Macquarie Magnifier
Volatility index definition*
This is calculated from the volatility of historical price movements. Very highhighest risk Stock should be expected to move up or down 60100% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4060% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3040% in a year. Lowmedium stock should be expected to move up or down at least 2530% in a year. Low stock should be expected to move up or down at least 1525% in a year. * Applicable to Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations
Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).
Recommendation proportions For quarter ending 30 June 2010

Outperform Neutral Underperform AU/NZ 50.55% 35.16% 14.29% Asia 64.29% 17.15% 18.56% RSA 54.41% 38.24% 7.35% USA 45.63% 47.91% 6.46% CA 65.08% 30.69% 4.23% EUR 50.26% (for US coverage by MCUSA, 4.58% of stocks covered are investment banking clients) 35.16% (for US coverage by MCUSA, 5.56% of stocks covered are investment banking clients) 14.58% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)
Company Specific Disclosures: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Dime Community's equity securities. The analyst principally responsible for the preparation of this research report or a member of the analyst's immediate household holds a long position in the equity securities of Redwood Trust, Inc. On May 27, 2009, Macquarie Group managed or co-managed a public offering of securities on behalf of Redwood Trust. Within the last 12 months, Macquarie Group has received compensation for investment advisory services from Redwood Trust. Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of WMS Industries' equity securities. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Analyst Certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94 122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Securities Ltd and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie First South Securities (Pty) Limited; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Ltd and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. 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International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Clients should contact analysts at, and execute transactions through, a Macquarie Group entity in their home jurisdiction unless governing law permits otherwise. 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Research
Heads of Equity Research
John OConnell (Global Co Head) David Rickards (Global Co Head) Mark Little (US) Stephen Harris (Canada) (612) 8232 7544 (44 20) 3037 4399 (1 212) 231 2577 (1 416) 848 3655
Financials
Asset Managers/Financial Technology
Roger Smith (New York) (1 212) 231 8016 (1 212) 231 8046 (1 212) 231 8047 (1 212) 231 8065 (1 212) 231 8052 (1 416) 848 3687 (1 212) 231 0663 (1 212) 231 0662 (1 312) 660 9179 (1 312) 660 9137 (1 416) 848 3687
TMET
Telecommunications
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Banks/Trust Banks
Albert Savastano (New York) Thomas Alonso (New York) Jonathan Elmi (New York) Bill Young (New York) Sumit Malhotra (Toronto) Stephen Scinicariello (New York) John Moran (New York)
Business Services
Kevin McVeigh (New York)
Consumer Discretionary & Healthcare

Life Sciences & Technology
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Cable & Satellite

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Media
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Medical Devices
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Semiconductors
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Life Insurance
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Gaming & Leisure

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Software & IT Hardware

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Retailing
David Pupo (Toronto)
Market Structure
Edward Ditmire (Head of Diversified Financials) Chris Ross (New York) (1 212) 231 8076 (1 212) 231 8033 (1 212) 231 8034 (1 212) 231 8063 (1 212) 231 8063
Solar & Clean Technology

Kelly Dougherty (New York)
Consumer Staples and Agriculture

David Pupo (Toronto) (1 416) 848 3505
Technology
Glenn Jamieson (Toronto)
Mortgage & Consumer Finance

Bill Carcache (New York) Matthew Howlett (New York)
Energy
International Integrated
Jason Gammel (New York) (1 212) 231 2633 (1 303) 952 2751 (1 303) 952 2753 (1 303) 952 2752 (1 303) 952 2757 (1 403) 539 8544 (1 403) 539 8530 (1 403) 539 8544 (1 403) 539 4349 (1 403) 539 8544 (1 403) 539 8542 (1 403) 539 8529 (1 403) 303 8655 (1 403) 539 4355
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Angie Storozynski (Head of US Utilities & Alternative Energy) Gavin Tam (New York) Andrew Weisel (New York) Matthew Akman (Toronto) Stephen Harris (Toronto) (1 212) 231 2569 (1 212) 231 2579 (1 212) 231 1159 (1 416) 848 3510 (1 416) 848 3655
Mortgage REITs
Matthew Howlett (New York)
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Joe Magner (Denver)
Property & Casualty Insurance

William Yankus (Head of US Insurance) (West Hartford) Adam Klauber (Chicago) Amit Kumar (New York) Caroline Steers (New York) (1 860) 380 2003 (1 312) 660 9187 (1 212) 231 8013 (1 212) 231 8048
US Oilfield Services & Drilling

Waqar Syed (Head of US Energy) Ryan McCormick (Denver)
Commodities & Precious Metals

Metals & Mining
Jim Lennon (London) Max Layton (London) Kona Haque (London) (44 20) 3037 4271 (44 20) 3037 4273 (44 20) 3037 4334 (1 212) 231 2485
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Chi Chow (Denver) Chris Feltin (Calgary) Scott Treadwell (Calgary)
Industrials
Air Freight & Surface Transportation
Scott Flower (New York) Sameer Rathod (New York) (1 212) 231 2537 (1 212) 231 2474 (1 212) 231 2473 (1 416) 628 3934
Canadian Oil Sands/Heavy Oil Producers Canadian Oilfield Services & Drilling Canadian Independents
Chris Feltin (Calgary) Chris Theal (Calgary)
Oil & gas

Jan Stuart (New York)
Construction and Engineering/Machinery Containers & Packaging

Al Kabili (New York)
Economics and Strategy

Stephen Harris (Toronto) Jan Stuart (Global Oil Economist) Cooley May (Small Cap Strategist) Rebecca Hiscock-Croft (US Economist)) (1 416) 848 3655 (1 212) 231 2485 (1 212) 231 2586 (1 212) 231 6115
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Chris Feltin (Calgary) Cristina Lopez (Calgary) David Popowich (Calgary) Leon Knight (Calgary) Ray Kwan (Calgary)
Infrastructure Services
Avi Dalfen (Toronto)
International/Canadian Oil & Gas Producers
Materials
Global Metals & Mining
Curt Woodworth (New York) Pierre Vaillancourt (Toronto) Tony Lesiak (Toronto) Duncan McKeen (Montral) Michael Gray (Vancouver) (1 212) 231 2482 (1 416) 848 3647 (1 416) 848 3594 (1 514) 925 2856 (1 604) 639 6372
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UNITED STATES

Top ten small-/mid-cap picks

Top ten US small-/mid-cap picks (below US$5bn market cap)

Source: Macquarie Capital (USA), September 2010

The quantitative view

Top US small-/mid-cap long ideas from EMC2 quant screen

Cooley May, CFA +1 212 231 2586

Source: Macquarie Research, September 2010

Macquarie (USA) Research

Introduction and event calendar

Macquarie (USA) Research

Fig 1 Top 10 small-/mid-cap picks (US$)

Market Current Target cap Ticker Rating price price (US$m)

Macquarie (USA) Research

Fig 2 Ideal sector rotation through an average economic cycle

Source: Macquarie Capital (USA), September 2010

The typical business and equity market cycle

Fig 4 Equity price rotation during an economic cycle

Source: Macquarie Capital (USA), September 2010

Source: Macquarie Capital (USA), September 2010

Macquarie (USA) Research

Fig 5 US leading indicators support a further rise in GDP

Fig 6 Real wages, productivity and consumer spending

US credit, treasury yield and inflation spread

Source: BEA, Macquarie Capital (USA), September 2010

Source: BEA, Macquarie Capital (USA), September 2010

Macquarie (USA) Research

Russell 2000 vs VIX

Fig 9 US SMID # of Sales and EPS revisions - MoM

Source: Compustat, Macquarie Capital (USA), September 2010

Source: Compustat, Macquarie Capital (USA), September 2010

S&P 500 vs VIX

Fig 11 S&P 500 Fwd Sales and EPS revisions - MoM

Source: Compustat, Macquarie Capital (USA), September 2010

Source: Compustat, Macquarie Capital (USA), September 2010

Macquarie (USA) Research

Our top picks largely reside in US industrials prominent exporters

S&P 500 versus 600 sector returns six months

Fig 14 S&P 500 versus 600 sector returns three year

Source: Compustat, Macquarie Capital (USA), September 2010

Source: Compustat, Macquarie Capital (USA), September 2010

Macquarie (USA) Research

Key revelations from analysis

Fig 15 Our picks appear well suited to appreciate...

Fig 16 ...as GDP rises outside the US in late 2010/2011

Source: Compustat, Macquarie Capital (USA), September 2010

Source: Compustat, Macquarie Capital (USA), September 2010

Macquarie (USA) Research

A broad view of growth expectations, trends and performance

Fig 17 Macquaries economics team foresees an uptick in average global GDP

Source: Compustat, Macquarie Capital (USA), September 2010

Exports to China, Latin America & Canada Rise

Fig 19 Exports to Europe and Japan fall as % of total

Source: FactSet, FRB, Macquarie Capital (USA), September 2010

Source: FactSet, FRB, Macquarie Capital (USA), September 2010

Macquarie (USA) Research

Fig 20 US-based firm foreign sales growth by sector

Fig 21 US-based firm foreign income growth by sector

Source: FactSet Consensus, Macquarie Capital (USA), September 2010

Source: FactSet Consensus, Macquarie Capital (USA), September 2010

Fig 22 Going global tends to yield outperformance...

Fig 23 ...but this has not been the case recently

Source: Compustat, Macquarie Capital (USA), September 2010