June 6, 2016
Europe
Strategy Matters
Portfolio Strategy Research
Five questions on Brexit and equities As the EU referendum approaches, the topic of Brexit risk remains a focus for investors. We look at how UK equities have priced in Brexit risk by answering some of the most frequent questions we are asked. UK domestic stocks declined in the beginning of the year as the date was set and investors started to digest Brexit risks. By late May, domestic stocks had rallied and recovered about half of their relative underperformance. But uncertainty persists and in recent weeks they have underperformed again. We look at valuation, fund flows, and exposure across Europe. Q: How has Brexit risk been priced?
Sharon Bell, CFA
We've seen large oscillations in the performance of UK domestic companies, with declines in the first 3-4 months of the year followed by a sharp rebound to recover half of their previous underperformance in late April/May. But with the opinion polls remaining volatile and relatively close, these names have dropped again in the last couple of weeks.
+44(20)7552-1341
[email protected] Goldman Sachs International
Q: Is there value in UK domestic stocks and mid-caps?
Christian Mueller-Glissmann, CFA
Yes, although much less so than in April given the rebound in these names, but a 12% discount to the UK market on a 12mth fwd P/E basis still looks inexpensive given our economists’ forecast of underlying UK growth; of course, much depends on the outcome of the referendum. Assuming a vote to remain, there is value but the discount for these stocks is unlikely to close before the referendum.
Peter Oppenheimer +44(20)7552-5782
[email protected] Goldman Sachs International
+44(20)7774-1714
[email protected] Goldman Sachs International
Ian Wright +44(20)7774-2600
[email protected] Goldman Sachs International
Lilia lehlé Peytavin
Q: Is the recent weakness in US flows into European equities a function of Brexit risks? We think a large part is; we find US flows in particular are very sensitive to shifts in risk (rather than, say, earnings or valuation) and outflows have correlated strongly with an index of UK policy uncertainty.
+44(20)7774-8340
[email protected] Goldman Sachs International
Jim McGovern (801) 741-5572
[email protected] Goldman, Sachs & Co.
Q: If the vote is to exit, would sterling cushion big caps when exporters could be hit by a lack of trade agreements? With 80% of sales outside the UK, FTSE 100 companies have c.55% of their assets outside the UK; many of these companies are less exporters than global companies that are listed in the UK.
Q: What is the exposure of the rest of Europe? If there is Brexit, we think the exposure is large; all of the major European indices are highly negatively correlated to UK risks. The DAX has 9% of its sales direct to the UK and this compares, for example, to 10% to China. Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc.
Global Investment Research
June 6, 2016
Europe
Five questions on Brexit and equities Q: How has Brexit risk been priced? UK mid-caps (FTSE 250) and domestic names in general underperformed the UK market from January to mid-April as investors started to digest Brexit risks. At one point our domestic basket (GSSTUKDE) was down 8% versus the market. We find companies that are both domestic and have a high beta of earnings to UK investment spend are the most sensitive to pricing Brexit risks; our screen of these companies underperformed by 14% at its worst for the year. See Exhibit 1 below for the performance of these groups. Since mid-April the performance of these UK-exposed companies has been very sensitive to news flow, especially with each new opinion poll, particularly those showing an extreme or slightly surprising result. There remains a large amount of volatility in the polls themselves and substantial uncertainty as well given the high proportion of respondents that are undecided. For a discussion of the opinion polls and the uncertainties surrounding them, see Europe's outlook: Unspectacular growth and subdued inflation, as fiscal policy moves towards centre-stage (May 27, 2016). For example, the Ipsos Mori poll in mid-May pointed to an 18-point lead for ‘remain’ and this coincided with a sharp rebound in the UK domestic names from relative lows in mid-April. At one point these stocks had retraced more than half of their ytd decline in a matter of three or four weeks. But the ICM phone poll on May 29 pointed to a lead for ‘exit’; the first phone poll to do so. And the UK domestic stocks have underperformed again since then (indeed they started to underperform again slightly prior to this). Exhibit 1: Mid-caps and UK Domestic stock performance Relative performance to the UK market 104
EU referendum date set
102
Ipsos Mori Poll indicating an 18pt lead for Remain is published
100 98 96 94 92 90 88 86 Sep-15
FTSE 250 UK domestic (GSSTUKDE) UK domestic + Investment-sensitive screen Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Source: Datastream, Goldman Sachs Global Investment Research
Goldman Sachs Global Investment Research
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Europe
Q: Is there value in domestic stocks and mid-caps? Yes, although this has diminished since mid-April, we think the value gap is unlikely to close materially further before the referendum given the continued uncertainty with respect to the opinion polls. The underperformance this year to date has pushed domestic-facing names to a discount versus the broader UK market. As shown below, the discount on a forward P/E basis reached almost 20% at the end of April. This discount has diminished in recent weeks and now stands at closer to 12% versus the FTSE All-Share. Exhibit 2: Stocks with UK domestic exposure (GSSTUKDE) are at a discount to the UK market 12m forward P/E discount/premium (%) 25 20 15 10 Average
5 0 -5 -10
UK Domestic Exposure vs. FTSE All-Share (12m fwd PE Prem/Disc)
-15 -20 Jan-12
Nov-12
Sep-13
Jul-14
May-15
Mar-16
Source: Datastream, I/B/E/S, Goldman Sachs Global Investment Research
Of course Brexit risks or uncertainty are not the only variables driving this performance:
The FTSE 100 has benefited from the sharp turn in oil prices; none of our basket of domestic names has significant oil exposure whereas Oil is c.13% of the FTSE 100 market cap.
China economic growth picked up in 1Q16; by definition GSSTUKDE has no exposure to this improvement, whereas many of the large caps names do.
Last, domestic economic growth has slowed; our Current Activity Indicator (CAI) for the UK indicates growth of around +2.2% annualised in May, having slowed from +2.8% annualised growth in January. Of course, some of this could be delays in investment or other spending given the uncertainty surrounding the referendum vote.
Whatever the reason, the underperformance of mid-caps and UK domestic-focused companies has coincided very closely with the softening of UK economic activity. In our view how these names do from here will depend very much on the domestic economic outlook.
Goldman Sachs Global Investment Research
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June 6, 2016
Europe
Our economists looked at the economic impact of Brexit in European Economics Analyst: Brexit: The uncertainty shock of leaving the EU, March 4, 2016. They looked at the impact of uncertainty shocks in the past and their analysis points to a hit to industrial production of between 0.5 pp and 2.5 pp. The lower end of this range assumes a rise in uncertainty of similar magnitude to that around the time of the Scottish referendum (they regard this as too modest a benchmark) and the higher end assumes that the rise in uncertainty is similar to the Lehman’s crisis (this may be too harsh). The recent performance of the FTSE 250 versus the FTSE 100 is plotted in Exhibit 3, with UK IP growth; the deceleration in the FTSE 250’s relative performance has been marked since the middle of last year and is probably already discounting a modest IP recession in the UK. Should we see a vote to remain in the EU, we would expect relief for the mid-caps and especially for the UK domestic names. We also think the current 10% P/E discount for UK domestic stocks is attractive, although we think this is unlikely to narrow ahead of the vote. Should there be a vote to exit the EU, in practice we think the BoE would ease policy quite substantially, with the emphasis likely through “credit easing” policies. See European Economics Daily: UK - Credit easing as a robust BoE policy response to Brexit, May 26, 2016.
Exhibit 3: FTSE 250 underperformance is already indicative of a mild IP recession in the UK FTSE 250 versus FTSE 100 is closely linked to domestic output 40
FTSE 250 vs. FTSE 100 (Yoy)
UK Manufacturing PMI (RHS)
70 65
30
60
20
55
10
50 0
45
-10
40
-20
35
-30
30 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: Datastream, Goldman Sachs Global Investment Research
Goldman Sachs Global Investment Research
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Europe
Q: Is the recent weakness in flows into European equities a function of Brexit risks? We think Brexit risks are having a large impact on flows into European equities. Of course, this is difficult to judge definitively, but we do find that flows from US investors into European equities (measured by AMG/Lipper mutual fund data which includes ETFs) are very sensitive to policy uncertainty. The first chart below (Exhibit 4) shows monthly flows into Europe from US investors with the six-month change in the European Economic Policy Uncertainty index (EPU). The two are highly negatively correlated. That said, in the last few months outflows from European funds have been large compared with the degree of policy uncertainty measured in this index. But looking at the second chart below (Exhibit 5), which shows specifically the UK Policy Uncertainty index which has increased much further in recent months, the outflows from US investors seem to have coincided closely with this shift. Over the longer run, we think UK Policy Uncertainty specifically is less strong an indicator for US flows than the aggregate European uncertainty. For example, UK Policy Uncertainty and flows from US investors were poorly correlated in 2012-2015 when US investors were more focused elsewhere in Europe. Should the referendum outcome be to remain in the EU, we expect to see policy uncertainty conditions in the UK lessen, and this would be consistent with a modest pickup in flows into Europe.
Exhibit 4: US flows into European equity funds correlate with policy uncertainty... AMG/Lipper data is 4-week sums (US$ bn), latest data point is 4-weeks to May 25, 2016 Flows into European funds from US investors
4
-150
Europe Policy Uncertainty index 6-month change (RHS, inverted)
3
-100
2
-50
1
0
0 50
-1 -2
100
Policy uncertainty rising
-3
150
-4
200 06
07
08
09
10
11
12
13
14
15
16
Source: “Measuring Economic Policy Uncertainty” by Scott R. Baker, Nicholas Bloom and Steven J. Davis atwww.PolicyUncertainty.com, AMG/Lipper, Goldman Sachs Global Investment Research.
Goldman Sachs Global Investment Research
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Exhibit 5: …and more recent a rise in UK Policy Uncertainty has coincided with a sharp outflow by US investors AMG/Lipper data is 4-week sums (US$ bn), latest data point is 4-weeks to May 25, 2016 4 3 2
Flows into European funds from US investors
-300
UK Policy Uncertainty index 6-month change (RHS, inverted)
-200 -100
1
0
0 100
-1
200
-2
Policy uncertainty rising
-3
300
-4
400 06
07
08
09
10
11
12
13
14
15
16
Source: “Measuring Economic Policy Uncertainty” by Scott R. Baker, Nicholas Bloom and Steven J. Davis atwww.PolicyUncertainty.com, AMG/Lipper, Goldman Sachs Global Investment Research.
Q: If the vote is to exit, would sterling cushion big caps when exporters could be hit by lack of trade agreements? We receive many questions on this point. We estimate 80% of FTSE 100 sales are outside the UK. Also, while it's difficult to be confident of this figure, we estimate that c.55% of FTSE 100 company assets are also outside the UK. (We calculate this by aggregating bottom-up by company. For some companies, the data is outdated or not available, hence the figure carries uncertainty.) In other words, many of these companies are not exporters so much as simply UK-listed companies that operate elsewhere. We do think that a fall in sterling would provide a large cushion for the performance of these stocks. Our FX team estimates that a vote to leave the EU would see sterling weaken by 15%-20% in trade-weighted terms. This would likely provide a large offset to the largecap names. Indeed, that has been evident this year. Sterling fell sharply from the end of last year as investors focused on both Brexit risks and the weaker UK data prints. This weakness in has partially reversed from mid-April as Brexit fears have receded. So far, the relative performance of the UK market (in local currency) vs Europe has been highly negatively correlated with sterling as shown in Exhibit 6. We have seen no evidence so far that large-cap domestic UK stocks are being sold-off in anticipation that a 'lack of trade agreements' will be negative for their business. Meanwhile, as described above, UK domestic stocks have seen sharp oscillations in share price performance driven in part by views on Brexit risk. Certainly, the market seems to be pricing this risk as a hit to domestic growth – probably based on the potential for a slowdown in investment spend – rather than a lack of ability of large-cap stocks to continue to do international business.
Goldman Sachs Global Investment Research
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June 6, 2016
Europe
Exhibit 6: All about the GBP: UK equities versus Europe are closely tied to sterling 105
82
UK Market ex Resources vs. SXXE
103
BOE Sterling TWI (RHS, inverted)
84
101 86
99 97
88
95
90
93
92
91 94
89 87 Jan-14
96 Jul-14
Jan-15
Jul-15
Jan-16
Source: Datastream, Goldman Sachs Global Investment Research
Indeed, the FTSE 100 has been an outperformer; in local currency terms it is the best performing market in Europe this year to date, outperforming for example the DAX by over 6% in total returns. And, even in euro terms, it is the second-best performing European market – after the CAC 40. However, not so the FTSE 250, which is the second-worst performer of the major European indices; the MIB being the worst performer. For the FTSE 100, the fall in sterling and rise in oil prices are substantial offsets to Brexit risks. Of course, there is a difference between the risk of a UK exit from the EU and this actually occurring, and it's possible the FTSE 100 stocks would move to a discount vs Europe as investors apply a higher risk premium to UK assets. As shown below (Exhibit 7) around 50% of UK equities are owned by investors outside the UK. Exhibit 7: Non-UK investors own half of the UK market Ownership breakdown of listed UK equities 100% 90%
Rest of the world
80% 70% 60% Households
50% 40% Domestic insurance and pension funds
30% 20%
Public non-financial institutions
10% 0% 1997
Government
1999
2001
2003
2005
Monetary institutions
2007
2009
2011
Other financial intermediaries
2013
2015
Source: Haver, Goldman Sachs Global Investment Research
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But we cannot be certain about this. Despite all the turbulence around the UK leaving ERM in 1992, we did not see a clear discount for UK stocks. And the FTSE 100 and FTSE 250 outperformed vs Europe strongly afterwards. We went through this example in UK: The market, valuation ...and Brexit, January 20, 2016, and acknowledge it does not work as a perfect parallel. The big difference is that the UK economy was in recession in late 1991/early 1992, whereas by 1993, growth had recovered. The falling pound combined with sharp falls in interest rates helped (interest rates had risen to 15% prior to ERM exit in an attempt to defend the pound). In the event of an exit from the EU today, we could potentially see the opposite – the UK going from the strong economic growth of the past few years to a slowdown induced by the risks and concerns relating to EU exit, with the opportunity for policy stimulus not being as significant as in 1992.
Exhibit 8: The UK’s exit from the ERM was a good entry point for investment in UK equities 150 FTSE 100 140
S&P FTSE 100 in USD
130 120 110 100 90 80 Jan-90
Sep 1992 UK exits ERM Jul-90
Jan-91
Jul-91
Jan-92
Jul-92
Jan-93
Jul-93
Source: Datastream, Goldman Sachs Global Investment Research
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Q: What is the exposure of the rest of Europe? The rest of Europe is hardly immune to Brexit risks and the policy and political uncertainty this creates. As shown below (Exhibit 9) the most sensitive indices to UK policy uncertainty are FT Small Caps and the FTSE 250, but beyond this the DAX and CAC are very negatively correlated to UK policy risks.
Exhibit 9: UK small and mid-caps are most negatively correlated to UK uncertainty; but so are DAX and CAC (based on monthly performance since 2010) 0.00 -0.05 -0.10 -0.15 -0.20 -0.20
-0.25 -0.30 -0.31
-0.35
-0.34
-0.40
FT Small FTSE cap 250
-0.28
-0.27
-0.25
-0.24
Correlation of index performance with changes in 'UK policy uncertainty'
-0.40
-0.45
-0.28
-0.24
CAC
DAX
FTSE 100
Euro STOXX STOXX 50
SMI
MIB
IBEX
Source: “Measuring Economic Policy Uncertainty” by Scott R. Baker, Nicholas Bloom and Steven J. Davis atwww.PolicyUncertainty.com, Datastream, Goldman Sachs Global Investment Research
The direct sales exposures to the UK are shown in Exhibit 10 for the DAX and CAC 40 companies in aggregate. For the DAX, the exposure is not immaterial, it is notable that DAX exposure to the UK is very similar to its exposure to China, and of course if sterling falls, this would mean German and French companies would be less competitive with their UK counterparts as well as potentially suffering in terms of weaker UK domestic demand for their UK-based sales. Still we would argue these direct exposures pale in comparison to the impact on uncertainty and politics throughout Europe. Exhibit 10: DAX and CAC exposures to the UK and China are about the same Aggregated bottom-up company data, 2015
DAX CAC 40
UK Sales exposure 9% 4%
China Sales exposure 10% 5%
Source: Datastream, Bloomberg, Goldman Sachs Global Investment Research
Goldman Sachs Global Investment Research
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Appendix 1: Constituents of UK Domestic Exposure (GSSTUKDE) UK DOMESTIC EXPOSURE (GSSTUKDE) Company name Banks Lloyds Banking Group
Financial Services Provident Financial British Land
Basket weights
3.3% 3.3% 3.3%
13.3% 3.3% 3.3% 3.3% 3.3%
Media ITV plc Sky Plc
3.3% 3.3% 3.3% 3.3% 3.3% 3.3%
13.3% 3.3% 3.3% 3.3% 3.3%
Land Securities J Sainsbury Morrison (Wm) Next Marks & Spencer
Telecommunications
3.3% 3.3% 3.3% 3.3% 3.3%
10.0%
Median
15.9 20.7
7.6 0.8
100% 100%
4.6 7.0 5.3 5.2
13.2 14.0 13.1 12.7
1.5 7.3 1.3 2.0
100% 96% 83% 80%
5.2 4.8 13.8 5.6
13.0 25.1 11.3 18.0
1.9 4.2 2.0 9.2
100% 100% 92% 89%
8.6 16.1
11.9 16.3
5.0 4.1
80% 67%
5.8 4.5 6.3 6.2
9.8 8.1 10.7 10.7
1.4 2.1 2.3 2.1
100% 100% 100% 98%
9.2
25.0
0.8
100%
4.7 4.4 8.0 5.8
12.2 18.5 12.0 11.2
0.8 1.1 13.6 1.7
100% 100% 98% 87%
42.9
14.2
4.7
78%
7.6 1.4 2.7
16.7 19.3 12.5
2.8 2.9 2.2
100% 92% 89%
3.5 15.5 6.5 5.3
20.8 13.2 20.5 22.4
2.5 3.0 2.5 6.1
97% 98% 100% 92%
5.8
13.2
2.2
98%
3.3%
Travel & Leisure
Pennon SSE Plc United Utilities Severn Trent
4.2 7.6
13.3%
3.3%
Utilities
97%
3.3%
BT Group Whitbread Ladbrokes William Hill
1.1
6.7%
Barratt Developments Berkeley Group Holdings Persimmon Taylor Wimpey
Retail
9.3
13.3%
Personal & Household Goods
Real Estate
50.0
NTM P/B UK Sales Exposure
6.7%
Travis Perkins Capita Plc Royal Mail Group Babcock International Direct Line Group St. James's Place plc Legal & General Group Admiral Group
NTM P/E
3.3%
Industrial Goods & Services
Insurance
Market cap GBP Bn
3.3% 3.3% 3.3%
13.3% 3.3% 3.3% 3.3% 3.3%
Notes: Market cap based on share prices as at June 3, 2016; NTM P/E and P/B based on I/B/E/S consensus; sales exposure based on company data for 2014; Source: Company data, Datastream, I/B/E/S, Goldman Sachs Global Investment Research
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Appendix 2: Constituents of UK investment-sensitive screen Name Travis Perkins Bovis Homes Group Persimmon Intu Properties Barratt Developments Bellway Berkeley Group Redrow Great Portland Estates Land Securities Group Shaftesbury Go-Ahead Group Greene King Wetherspoon (Jd) British Land Taylor Wimpey Next Legal & General William Hill Ted Baker Bt Group Hammerson Royal Bank Of Scotland Easyjet Kingfisher Average
Sector
UK Sales Exposure
Industrial Suppliers Home Construction Home Construction Retail REITs Home Construction Home Construction Home Construction Home Construction Industrial & Office REITs Industrial & Office REITs Retail REITs Travel & Tourism Restaurants & Bars Restaurants & Bars Retail REITs Home Construction Apparel Retailers Life Insurance Gambling Clothing & Accessories Fixed Line Telecommunications Retail REITs Banks Airlines Home Improvement Retailers
100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 99% 98% 98% 93% 90% 76% 69% 63% 61% 46% 42% 89%
Beta of Earnings to UK Investment 1.6 7.2 5.4 2.6 7.2 5.9 3.9 6.4 5.4 2.8 9.2 2.4 1.8 1.8 4.3 7.4 1.9 4.8 2.5 3.0 3.2 6.0 6.1 5.0 3.9 4.5
Notes: Sales exposure based on company data for 2014; betas are derived by regressing gross fixed capital formation against earnings growth for FTSE 350 companies over 1990 to 2014. The screen includes betas above the 50th percentile. Source: Company data, Datastream, FactSet, Goldman Sachs Global Investment Research
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or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return. Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman
Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.
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General disclosures This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment. Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division. Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC (http://www.sipc.org). Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and principal trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, principal trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. The analysts named in this report may have from time to time discussed with our clients, including Goldman Sachs salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analyst's published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analyst's fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research. The views attributed to third party presenters at Goldman Sachs arranged conferences, including individuals from other parts of Goldman Sachs, do not necessarily reflect those of Global Investment Research and are not an official view of Goldman Sachs. Any third party referenced herein, including any salespeople, traders and other professionals or members of their household, may have positions in the products mentioned that are inconsistent with the views expressed by analysts named in this report. Goldman Sachs Global Investment Research
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This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents which are available from Goldman Sachs sales representatives or at http://www.theocc.com/about/publications/character-risks.jsp. Transaction costs may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our research by third party aggregators. For research, models or other data available on a particular security, please contact your sales representative or go to http://360.gs.com. Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY 10282. © 2016 Goldman Sachs. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc.
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