Trends within the Financials sector are often topics of heated debate, and for good reason—not only is it the largest sector in most broad equity indexes globally, but it revolves around one of the things most hold very dear: money. Money is transferred, multiplied, protected and placed at risk in the Financials sector. The sector is considered the lifeblood of the global economy—and while a properly working Financials sector can be a boon, its going haywire can have unfortunate consequences.
Many of this sector’s products and services are relatively simple, like making a cash deposit at a bank or using a charge card for your morning cup of coffee. And many are quite complex, like making a leveraged bet in a synthetic collateralized debt obligation. Financial innovation has transformed the sector from its simple roots into an incredibly complex system—so complex that, at times, it can engender great fear.
Globally, governments are well aware of the complexity and importance of the Financials sector, making it one of the world’s most highly regulated sectors. From central banks to financial services authorities to consumer protection agencies—the government’s hand in the Financials sector is a core concern, capable of promoting prosperity or driving disaster in the sector and economy as a whole.
This book’s intention is not to provide detailed instruction on complex financial structures’ construction, focus on the 2008 financial panic (as many other books attempt to do) or discuss in detail the impact of myriad proposed and existing regulations, but rather to help readers make better decisions about when to over- or underweight the sector (or the industry positioning within) as part of an overall portfolio strategy. Moreover, we attempt to demystify many of the sector’s complexities and allow for a better understanding of trends. The aim is not to provide definitive answers, but to help readers learn to think critically about this and, indeed, any other sector.
The Financials sector is quite a bit more diverse than many who are new to analysis might assume. However, at a very high level, there are some overarching defining characteristics. First and foremost, it is, as of this writing, the world’s largest sector. In addition, the sector tends to be:
The Financials sector is the largest in most global and country-specific benchmarks simply because it represents more companies with more assets, income, equity and sales than any other sector.
In terms of assets and shareholder equity—two main components of any company’s balance sheet—the Financials sector accounts for $89 trillion in assets and nearly $7 trillion in equity.1 That’s 72% of assets of all firms in the MSCI All Country World Index and 32% of all shareholder equity (see Table 1.1).2 Simply put, the Financials sector dwarfs all others.
Source: Thomson Reuters; MSCI, Inc.,3 as of 12/31/2010.
MSCI ACWI Sector | Assets | Equity |
Financials | 72% | 32% |
Industrials | 5% | 9% |
Consumer Discretionary | 4% | 9% |
Energy | 4% | 14% |
Utilities | 3% | 6% |
Materials | 3% | 8% |
Telecommunication Services | 2% | 6% |
Consumer Staples | 2% | 6% |
Information Technology | 2% | 6% |
Health Care | 2% | 5% |
Using the income statement to value a company is a common technique. Often, a company will be valued based on a multiple of its total sales or net income. When it comes to Financials sector firms, both measurements are often used. Each illustrates the sector’s size, but to a lesser degree than assets or equity (as shown in Table 1.2).
Source: Thomson Reuters; MSCI, Inc.,4 as of 12/31/2010.
MSCI ACWI Sector | Sales | Income |
Financials | 17% | 22% |
Energy | 16% | 16% |
Industrials | 13% | 10% |
Materials | 13% | 10% |
Consumer Staples | 11% | 8% |
Consumer Discretionary | 7% | 8% |
Health Care | 6% | 8% |
Information Technology | 6% | 7% |
Telecommunication Services | 6% | 6% |
Utilities | 5% | 5% |
Comparing the balance sheets and income statements of companies within the broad market, the Financials sector’s large weight seems reasonable. In fact, with the sector accounting for 22% of net income and 32% of equity, it is easy to understand why the Financials sector plays such a prominent role in most broad equity market indexes.5
Source: Thomson Reuters; ICB Classifications; S&P 500 Index from 12/31/1990 to 12/31/2011.
The Financials sector tends to be more volatile on average than others yet also tracks closely with broader markets. From 12/31/1974 to 12/31/2011 (a period for which we have good sector data), the Financials sector returned a 9.6% annualized average compared to the S&P 500’s 11.5%.6
Don’t take that to mean Financials is a below-average sector. No—all well-constructed categories of stocks should yield similar returns over very long time periods. There’s no fundamental reason one category should be any better or worse than any other—though they will all go through periods of leading or lagging. For example, from 12/31/1974 to 12/31/2007 (before 2008’s financial crisis), the sector was in line with the S&P 500. Its poorer relative average return now is due to the pretty steep Financials sector-led bear market in the late 2000s.
A relative return index is an easy way to plot the trend of two data series’ relative performance over time. In Figure 1.1, the gray line represents the value of the S&P 500 Financials index divided by the value of the S&P 500 index, while the arrows show general directional trends. As the Financials index outperforms the S&P 500 index, the line moves higher, and vice versa.
Source: Global Financial Data, Inc.; S&P 500 Financials Sector versus S&P 500 Index from 12/31/2004 to 12/31/2011.
Most major stints of relative under- or outperformance have been event driven—meaning some major, largely unanticipated event shocked the system some way and changed the sector’s relative trajectory. (Again, see Figure 1.1.) After fairly in-line performance from the 1970s to mid-1980s, the sector underperformed through the early 1990s as the Savings & Loan (S&L) crisis (as well as multiple sector-specific issues) weighed on it. Outperformance from the early 1990s to the late 1990s was tied to attractive valuations, innovation and a generally stable economic environment. Long Term Capital Management, the Asian Contagion and the tech/Internet boom drove Financials sector underperformance into 2000—until the “new economy” blew up and Financials performed well since the sector was relatively insulated from the Internet debacle. Investors moved to value investing, and real estate trends buoyed bank credit quality. In the late 2000s, however, the sector vastly underperformed tied to increased losses from souring mortgage loans, which intensified as a financial panic arose.
Globally, the trend is similar except for a stark difference during the late 1980s and early 1990s: While US Financials was plagued with domestic issues such as the S&L crisis and bad oil sector loans, foreign Financials was not. As a result, foreign Financials outperformed during the late 1980s. Conversely, as domestic Financials recovered in the early 1990s, foreign Financials was pressured as US financial companies re-emerged on the global scene and competition increased. Trends between US and foreign Financials in the 1970s, early 1980s and from the mid-1990s to early 2000s are similar, but since foreign Financials did not suffer through the late 1980s, it has outperformed domestic Financials since 1974.
While sector returns over long periods of time are similar, each sector does vary in its return volatility. One common measure of volatility is standard deviation.
The Financials sector globally and domestically has the second highest standard deviation of returns over time, just behind the Information Technology sector (see Figure 1.2). Even stripping out the unusually high volatility associated with 2008’s financial panic and the subsequent sovereign debt crisis, Financials still remains the second most volatile sector by this measure.
Source: Global Financial Data, Inc.; Thomson Reuters; MSCI World Sector Indexes and S&P 500 Sector Indexes, Rolling 12-Month Returns from 12/31/1974 to 12/31/2011.
So, Financials is typically more volatile than the market average—but that doesn’t mean it widely deviates from the broad market direction. Remember, a rising tide lifts most boats. When broad markets rise, so do Financials—usually. And when markets fall, so do Financials—most of the time. However, because of Financials’ exposure to capital markets–related functions—like asset management, brokerage and investment banking—and its high leverage, which amplifies gains and losses, it tends to be sensitive to overall market trends (i.e., it has a relatively high beta).
The S&P 500 Financials sector has a beta of 1.10, and the MSCI World Financials Index has a beta of 1.18, relative to the respective broad market indexes, since 1974.7 This makes it the highest beta sector globally and third highest domestically. (See Table 1.4.) Typically, a higher historical beta is indicative of a sector that is more economically sensitive over time—sectors like Technology, Financials and Consumer Discretionary fit the bill. A beta greater than 1 tells us the sector typically goes up more than the market in up markets and down more in down markets—but this relationship is not static, as you can see in Figure 1.3.
Source: Global Financial Data, Inc.; Thomson Reuters from 12/31/1974 to 12/31/2011.
MSCI World | S&P 500 | |
Financials | 1.18 | 1.10 |
Information Technology | 1.13 | 1.35 |
Industrials | 1.05 | 1.04 |
Consumer Discretionary | 1.03 | 1.11 |
Telecom | 0.80 | 0.86 |
Utilities | 0.79 | 0.62 |
Health Care | 0.76 | 0.85 |
Energy | 0.72 | 0.71 |
Consumer Staples | 0.69 | 0.67 |
Source: Global Financial Data, Inc., 36-month rolling correlation and beta from 12/31/1947 to 12/31/2011.
The Financials sector is also highly correlated to the broader market. (See Table 1.5.) This is not so surprising since at 20% to 30% of most broad market indexes, it contributes a large portion to broad market returns.
Source: Global Financial Data, Inc.; Thomson Reuters, as of 12/31/2010.
MSCI World | S&P 500 | |
Industrials | 0.93 | 0.92 |
Consumer Discretionary | 0.93 | 0.87 |
Financials | 0.90 | 0.82 |
Materials | 0.83 | 0.77 |
Utilities | 0.76 | 0.64 |
Consumer Staples | 0.73 | 0.65 |
Health Care | 0.73 | 0.72 |
Information Technology | 0.73 | 0.80 |
Telecom | 0.72 | 0.71 |
Energy | 0.67 | 0.65 |
As with other sectors, the Financials sector beta and broader market correlation ebb and flow over time. Sometimes, like during the 2008 credit panic, the sector’s beta is higher than normal. And other times, like the early 2000s Technology-led bear market, beta was lower as Financials considerably outperformed in an overall falling market. The correlation of the sector is usually highly positive, but again, it varies over time, just like the other sectors. Figure 1.3 shows Financials correlation and beta to the S&P 500 rising and falling over time.
Financials firms tend to be more value oriented than growth. Table 1.6 shows the composition (by sector market cap) of common growth or value indexes. Financials is much more prevalent in the value index. Additionally, when looking at how much of each sector is considered value (by market cap), only Utilities and Telecom are more value-centric. Conversely (and not surprisingly), Tech is the most growth-oriented sector. As a result of Financials’ value-ish nature, the sector has a 30% weight in the MSCI ACWI Value index but just 9% in the Growth index.8
Source: Thomson Reuters, as of 12/31/2011.
MSCI AC Sector | Value | Growth |
Financials | 30% | 9% |
Energy | 15% | 8% |
Health Care | 10% | 8% |
Industrials | 8% | 13% |
Telecommunication Services | 7% | 2% |
Materials | 6% | 9% |
Consumer Discretionary | 6% | 15% |
Utilities | 6% | 1% |
Consumer Staples | 6% | 15% |
Information Technology | 5% | 20% |
Like all major categories, value and growth trade leadership in irregular cycles. From 1979 to 2005, there were four distinct growth cycles and three prolonged value cycles, with many shorter cycles within the longer cycles. Since Financials is more value than growth, Financials typically underperforms during growth cycles and outperforms during value cycles. Figure 1.4 shows periods when growth (gray area) or value (white area) is generally outperforming the broader market. Note how Financials’ relative performance tends to act similarly to, though not exactly like, the value/growth index.
Source: Thomson Reuters; Russell 3000 Index from 01/31/1979 to 12/31/2011.
More than firms in any other sector, Financials firms tend to be highly leveraged—meaning they have a lot of liabilities on their books relative to equity. (See Table 1.7.) A simple way to measure leverage is to examine a basic assets-to-equity ratio (assets/equity). Because its firms are so leveraged, changes in asset values have a much larger impact on the Financials sector than on any other.
Source: Thomson Reuters; MSCI, Inc.,9 as of 12/31/2011.
Leverage Ratio | |
Financials | 13.8 |
Banks | 17.0 |
Insurance | 11.5 |
Real Estate | 2.4 |
Diversified Financials | 12.9 |
Industrials | 3.5 |
Utilities | 3.4 |
Consumer Discretionary | 3.0 |
Telecommunication Services | 2.6 |
Consumer Staples | 2.5 |
Materials | 2.2 |
Health Care | 2.2 |
Information Technology | 2.1 |
Energy | 2.0 |
Among Financials sector sub-industries, Banks are the most leveraged based on a basic assets/equity ratio. However, bank leverage is wildly complex, and though a basic leverage ratio can be used for simple comparison purposes, it does not show the whole picture. Many other types of leverage ratios are utilized in the group, which can lower the stated leverage if asset values are altered by risk-weighting certain assets or accounting for collateral. (More on this in Chapter 2.)
All sectors are sensitive to interest rate trends in some way. However, since Financials firms are, by definition, heavily exposed to financial assets and are typically leveraged to boot, interest rate trends tend to be more important.
From 1990 to 2010, Financials sector income growth had an R-squared of 0.62 to the 10-year US Treasury bond yield, while collectively, non-Financials sectors had an R-squared of 0.40. Additionally, relative to the US Federal Funds Target Rate (short-term interest rate) over the same period, the Financials sector’s income growth had a 0.31 R-squared versus 0.10 in non-Financials sectors.10
In the stock market, the 10-year yield has a similar impact—most of the time. Since 1970, the Financials sector’s relative performance has been highly negatively correlated to the 10-year yield except during certain stressed periods—the credit panic, recession and recovery of the late 2000s, the Asian Contagion in the late 1990s and the extraordinarily high interest rates of the early 1980s. (See Figure 1.5.)
Source: Global Financial Data, Inc.; S&P 500 Financials and S&P 500 Indexes; Federal Reserve 10-Year US Treasury Yield from December 1975 to December 2011.
Companies within the Financials sector are impacted by interest rates in many ways. Since interest rates simply represent the cost of borrowing, higher interest rates make borrowing more expensive, while lower interest rates make borrowing cheaper and promote loan growth. Insurance companies prefer higher interest rates so their investment portfolios earn more interest income. Real estate companies find higher interest rates troublesome because they can pressure real estate portfolio values, while investment banks and brokers prefer higher rates to capture higher spreads.
Since the sector is dominated by lenders, trends therein drive the sector’s relationship with interest rates for the most part, and Financials stocks tend to do a bit better when interest rates are falling as investors anticipate greater profits from greater volumes. Conversely, Financials stocks tend to underperform in rising interest rate environments. (We will go into more detail on how interest rates impact the various industries in subsequent chapters.)
Since 1970, there have been 10 distinct periods of rising interest rates (see Table 1.8). US Financials underperformed in all but four, with average annual underperformance (relative to the S&P 500) of −2.9%.11 Falling interest rates are typically less bad for Financials over time—Financials underperform by −0.4%12 which isn’t immaterial, but much of the underperformance can be attributed to poor relative performance leading up to and following the 2008 financial panic. Nothing is absolute in investing—Financials can outperform in a rising or falling interest rate environment. And, with underperformance in only 6 out of 10 periods, we can say interest rate trends are important, but many other factors also impact the sector over time.
Source: Global Financial Data, Inc., from 12/31/1970 to 12/31/2011.
Most sectors tend to favor either bull or bear markets more markedly, but the history for Financials is mixed. In that sense, Financials can’t be clearly labeled as either cyclical (i.e., does better in a bull) or defensive (i.e., does better in a bear), despite the sector’s cyclical underpinnings.
For many other sectors, getting a broad market call right can go a long way toward knowing whether a sector will perform reasonably well—but that may not work for Financials. Over longer periods, Financials’ relative performance in both bulls and bears works out to be similar (see Tables 1.9 and 1.10, which show bull and bear markets since 1972 and relative Financials performance), but that similar relative performance comes with some major deviations. For example, Financials strongly outperformed during the great 1990s bull market. The 1990s bull market followed extreme stresses in the previous decade that were driven by geographical and sector-specific issues: Mutual savings banks in the Northeast, S&Ls nationally, agricultural banks in the Midwest, oil patch banks in the Southwest and real estate loans in coastal states—all of these hammered Financials. As these issues passed, the Financials sector was attractively valued and ripe to take advantage of a growing economy, falling interest rates and stable inflation.
Source: Global Financial Data, Inc.; S&P 500 Indexes, from 12/31/1971 to 12/31/2011.
Source: Global Financial Data, Inc.; S&P 500 Indexes, from 12/31/1971 to 12/31/2011.
Then, Financials badly lagged in a 2007–2009 bear market caused primarily by issues specific to the Financials sector. Essentially, Financials’ performance and market cycles do not go hand in hand, and unless you can forecast an exception—perhaps a banking crisis—it is best not to allow the market cycle to dictate your relative Financials weighting.
When it comes to economic cycles, it is a similar story—getting a broad macroeconomic call correct likely won’t be enough to reliably predict forward-looking Financials outperformance. During the seven economic expansions since 1970 (see Tables 1.11 and 1.12), Financials underperformed four times. However, average annualized performance overall through the expansions was just shy of the S&P 500 because return dispersion was material in a few periods. Of note, Financials greatly underperformed during the long 1980s expansion, thanks in no small part to the S&L crisis. Then, Financials vastly outperformed in the 1990s expansion.
Source: Global Financial Data, Inc.; National Bureau of Economic Research; S&P 500 Indexes Total Return from 1970 to 2011.
Source: Global Financial Data, Inc.; National Bureau of Economic Research; S&P 500 Indexes Total Return from 1970 to 2011.
During economic recessions, the sector underperforms on average, but absent the dislocations in the 2007–2009 period, performance about matches the broader market. As with market cycles, these data illustrate relative performance is often driven by one-off events like a financial panic or crisis.
Because the financial system is the backbone of most economies, Financials is one of the (if not the) most highly regulated sectors in the world. Understanding how the sector is regulated and why are key to making better forward-looking forecasts. (We cover regulation in more depth in Chapters 2 through 5.)
Financials core regulators/overseers include:
Decisions made by these (and similar) entities can greatly impact the sector. Whether tightening consumer protections (which could reduce profitability) or mandating higher capitalization levels (which could cause a painful round of dilution), regulators impact investors. However, changes are inevitable, and investors can’t much control future regulation—so investors shouldn’t dwell on “bad” regulation. And wishing regulation were implemented differently is mostly fruitless. Rather, investors should attempt to decipher regulation and how new or existing rules likely impact Financials stocks’ future profitability. Also, regulation often punishes some at the benefit of others—what’s known as “regulatory arbitrage”—so correctly determining the likely winners and positioning portfolios accordingly can add relative value.
The Financials sector is unique among most other sectors because a major driver is trends within capital markets. What’s good for capital markets is usually good for Financials firms. For example, is the aggregate economy increasing its borrowing? Do investors have more assets to be saved, managed, hedged, brokered or exchanged? Are higher asset values driving increased need for insurance? Are higher real estate values allowing for higher rents? These questions need to be answered when considering positioning within the Financials sector, and we will discuss these further as they relate to the various industry groups in subsequent chapters.
The Financials sector is fairly diverse, so understanding its industry groups and sub-industries is important to overall sector analysis. A useful way to understand how the sector breaks down is looking at the industry-standard GICS.
The Global Industry Classification Standard (GICS) is a widely accepted framework for classifying companies into groups based on similarities. The GICS structure consists of 10 sectors, 24 industry groups, 68 industries and 154 sub-industries. This structure offers four levels of hierarchy:
According to GICS, the Financials sector consists of 4 industry groups, 8 industries and 26 sub-industries. The sector is one of the broadest with the most representative companies in the GICS framework, and it contains the second largest number of sub-industries, trailing the Consumer Discretionary sector. Following are the industry groups and corresponding industries for the sector.
Industry Group: Banks
Industry Group: Diversified Financials
Industry Group: Insurance
Industry Group: Real Estate
Chapters 2, 3, 4 and 5 delve deeper into the industry groups, but before moving on, it’s important to understand what the Financials sector looks like globally, how it fits into a broader benchmark and how its industries fit into a broader Financials benchmark.
First, what’s a benchmark? What does it do, and why is it necessary? Simply, a benchmark is your guide for building a stock portfolio. It’s a point of reference—a standard for measurement and evaluation and the investor’s road map for building a stock portfolio. You can use any well-constructed index—like the MSCI World or S&P 500, for example—as a benchmark. This is just as true for a sector as it is for the broader stock market. And by studying the index’s composition, you can assign expected risk and return to make underweight and overweight decisions for each category. (We’ll talk more about benchmarks in Chapter 6.)
So what does the Financials investment universe look like? It depends on the benchmark. Table 1.13 shows 5 float-adjusted (i.e., excluding shares held by the government) market capitalization-weighted equity indexes, with the weight of each of the 10 market sectors. The MSCI World includes only developed countries and the EAFE only developed foreign countries. The MSCI EM and the S&P 500 are specific to Emerging Markets and the US, respectively, while the Russell 2000 is a small-capitalization US index.
Source: Thomson Reuters; MSCI, Inc.,13 as of 12/31/2011.
Besides being the largest sector in most broad indexes, the Financials sector is also the largest sector in 19 of the 45 countries in the MSCI ACWI. Table 1.14 shows the Financials weight within each country in the MSCI ACWI. Generally, the larger the weight a sector is in a country, the more important it is to the country’s economy. For example, Financials’ health is highly important to countries like Hong Kong, Turkey, Singapore and Morocco, where the sector accounts for 45% or more of their market capitalizations.14
Source: Thomson Reuters; MSCI, Inc.,15 as of 12/31/2011.
MSCI AC World Index | |
Hong Kong | 61% |
Turkey | 49% |
Singapore | 46% |
Morocco | 45% |
Australia | 44% |
Poland | 43% |
Austria | 42% |
Colombia | 42% |
Spain | 41% |
Egypt | 40% |
Hungary | 37% |
China | 36% |
Peru | 35% |
Thailand | 35% |
Philippines | 35% |
Greece | 33% |
Canada | 32% |
Malaysia | 31% |
Italy | 31% |
Indonesia | 30% |
India | 26% |
South Africa | 26% |
Sweden | 25% |
Brazil | 25% |
Czech Republic | 24% |
Netherlands | 19% |
Switzerland | 18% |
UK | 18% |
Japan | 18% |
Chile | 17% |
Germany | 17% |
Russia | 15% |
Taiwan | 15% |
Finland | 15% |
France | 15% |
Belgium | 14% |
Norway | 14% |
Korea | 14% |
US | 14% |
Israel | 14% |
Denmark | 11% |
Portugal | 8% |
Mexico | 7% |
Ireland | 0% |
The Financials sector accounts for substantially more assets than any other sector in the world, but it also accounts for more liabilities than any other sector. In 2011, the MSCI ACWI Financials sector had $95 trillion in liabilities. This is over four times the amount of all the other sectors’ liabilities combined.16 A large component of these liabilities is publicly traded debt instruments—bonds.
The global bond market’s estimated value in 2011 was $98.7 trillion ($34 trillion domestic, $65 trillion foreign).17 This market’s scope and scale make it challenging to completely dissect, but the Bank of America Merrill Lynch Global Broad Market Index does a pretty good job (see Table 1.15). This index attempts to mimic the performance of publicly issued investment-grade debt in major bond markets globally and is a widely used fixed income benchmark.
Source: Bank of America Merrill Lynch, as of 12/31/2011.
Sector | Weight |
Sovereign | 54% |
Securitized/Collateralized | 17% |
Quasi & Foreign Government | 12% |
Corporate—Total | 17% |
Corporate—Financials | 7% |
Banking | 6% |
Financial Services | 1% |
Insurance | 1% |
Corporate—Industrials | 8% |
Automotive | 0% |
Basic Industry | 1% |
Capital Goods | 1% |
Consumer Cyclical | 1% |
Consumer Non-Cyclical | 1% |
Energy | 2% |
Health Care | 1% |
Media | 0% |
Real Estate | 0% |
Services | 1% |
Technology & Electronics | 0% |
Telecommunications | 1% |
Corporate—Utility | 2% |
Unlike equity indexes, corporate bond indexes are typically grouped into three sectors rather than the 10 GICS sectors: Financials, Industrials and Utilities. When measured this way, the Financials component of the corporate bond market accounts for 44%, Industrials for 45% and Utilities for 11%.
However, when rearranged into GICS sectors, the Financials sector’s dominance in the corporate bond market is clear. It accounts for 41% of investment grade corporate bonds—nearly four times the size of the next-largest sector (Utilities).18
Being the largest sector in the bond market means nothing in itself, but it further illustrates the sector’s scale. It also highlights how sensitive the sector is to trends in the bond market. Bonds are simply another way companies raise capital—the more leveraged a company is, the more impactful trends in debt markets are.
Sectors, just like the broader market, have their own benchmarks, and each industry constitutes a portion of the overall Financials benchmark. Also like the broader market, investors can overweight and underweight different categories based on their expected risk and return characteristics. Table 1.16 illustrates the Financials sector industry group weights in five main benchmarks.
Source: Thomson Reuters; MSCI, Inc., 19 as of 12/31/2011.
Banks are typically the largest industry group in the Financials sector, but in the US, weights are impacted by banks that are not banks (see Chapter 2) and by the US-centric and small nature of REITs (see Chapter 5).
Notes
1. Thomson Reuters; MSCI World Index, as of 12/31/2011.
2. Ibid.
3. MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.
4. Ibid.
5. Thomson Reuters; MSCI World Index, as of 12/31/2010.
6. Thomson Reuters; Global Financial Data, Inc., from 12/31/1974 to 12/31/2011.
7. Thomson Reuters, from 12/31/1974 to 12/31/2011.
8. Thomson Reuters, as of 12/31/2011.
9. See note 3.
10. Global Financial Data, Inc.; US Federal Reserve, from 12/31/1989 to 12/31/2010.
11. Thomson Reuters, from 12/31/1969 to 12/31/2011.
12. Ibid.
13. See note 3.
14. See note 8.
15. See note 3.
16. See note 8.
17. Bank for International Settlements, “Securities Statistics and Syndicated Loans” (12/31/2011), www.bis.org/statistics/secstats.htm (accessed 03/27/2012).
18. Bank of America Merrill Lynch, as of 12/31/2011.
19. See note 3.