Table 7: European Sectors — Summary of investment case and risks Sector Index Delta ee (Ticker) Weight % (bp) iY HealthCare aggard despite Republican clean sweep reducing legislative risks, valuations close to 2010-12 lows at trough of patent cliff but sector team o/w +150 — expect 11% EPS CAGR 2018-2021 supporting 17/18x PE (currently on 13x 2018), catalysts from new products set to be announced in 2017. (SXDP Index) Risks: rising bond yields continues, pipelines fail to realise, strong growth leads to risk-on rally led by value/ rotation out of quality. Oil & Gas orecast Brent to average ~$61/bbl in 2017 on supportive demand backdrop (EM), OPEC reduction, supply destruction causing rebalance Ow Oil team modeling 8%-17% upside from crude rally meaning FCF covers ~6% DY and EPS to improve (revisions 2nd best in market (SXEP Index) g P y g P Risks: OPEC fails to cut supply pushing rebalancing out, strong dollar and protectionism curtail global demand and EM growth. Media arket laggard and de-rated presenting favourable entry points, optionality to improving EU consumer confidence even if UK consumer set to (SXMP OW +100 be squeezed next year, historically outperforms when dollar’ PMIs/ inflation rising, positioning now underweight in FMS. Index) Risks: UK growth/ EU consumer confidence drop quickly, investors prefer cheaper cyclicals if we see another leg to risk-on rally. Utilities Big underperformer in reflation rotation given defensive yield characteristics now oversold, consistent underweight in FMS but fundamental Ow +100 —putlook positive with cyclical/ earnings improvement from higher power prices/ CSPP/ changing sector composition. (SX6P Index) Risks: lack of differentiation from investors in rising yields continues, commodity prices roll, regulatory risk increases. Autos & Parts MW Bull case: Margins supported by strong EU/ China sales, lease growth in US, valuations at multi-year lows, positioning neutral, cyclical beta (SXAP Index) Bear case: Future car ra