From: Ens, Amanda <[email protected]> Sent: Monday, November 14, 2016 5:05 PM To: jeffrey E.; Richard Kahn Subject: RE: Financials trade for Monday We continue to see buyers of XLF today. Funds are underweight financials in all regions, valuations are reasonable, earnings are improving and financials tend to outperform when bond yields rise. Vol is higher today — refreshed pricing below. Buy an XLF 17March2017 call spread: Buy the 105% call / sell a 110% call with a 115% at-expiry knock-in Total premium: 1.86% Global Positioning in Stocks: Nigel Tupper notes the 4000 funds in our "Positioning in Stocks" analysis are more underweight Financials, on average, than any other sector and are underweight this sector in all regions of the world chttp://rsch.baml.com/r?q=jRLQWvxU!lKzOfQftl0uhA&e=amanda.ens%40baml.com&h=Pcgvlg> . If earnings continue to improve and yield rise, which is often the case in an upturn in our Global Wave, then the unloved Financials sector has the potential to continue to outperform. Global Quant Panorama: "Bearish on Bonds" stocks (which tend to move in the opposite direction to bond yields) tend to outperform our "Bullish On Bonds" when bond yields rise chttp://rsch.baml.com/r7q=zsm1hvaX5olm6avQytEolg&e=amanda.ens%40baml.com&h.--LPjw> . The sectors that tend to perform best as bond yields rise are Energy, Tech, Materials, Banks, and Diversified Financials. Of these sectors, the laggards this year have been Banks and Diversified Financials. With a PE of 15.9x and a PB of 2.0x, Global valuations are reasonable. Also, Risk is near all-time lows in terms of PE in most regions. Now that macro and earnings data have triggered the beginning of a rotation, Value becomes very relevant. From: Ens, Amanda Sent: Friday, November 11, 2016 4:04 PM To: 'jeffrey E.'; 'Richard Kahn' Subject: Financials trade for Monday EFTA_R1_01923230 EFTA02670129