January - Early Edition - CI Investments

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Signature Market RoundupFinancialsJohn HadwenVice-President,Portfolio Managementand Portfolio ManagerWe felt strongly that U.S. banks were well positioned for2010 with strong capital positions, sufficient credit reserves,and a view that credit costs would trend lower. Regulatoryrisks represented a concern but undemanding valuationsseemingly provided room to absorb punitive taxes and highercapital requirements. Our positioning served us extremelywell in the first quarter of the year, as the market began torecognize significant credit improvement and capital strengthin the sector.In April 2010, however, things took a turn for the worse, asthe SEC filed a complaint against Goldman Sachs. Thisdevelopment and the subsequent rhetoric contributed tothe passage of a Financial Reform Bill with higher capitalrequirements and tough restrictions related to proprietarytrading, hedge funds, private equity funds, debit interchange,and derivatives activities. The bill’s design was quitedamaging for the financial sector with direct revenue hitsand added structural costs. There is also concern that thenew Consumer Financial Protection Agency presents anunpredictable new risk.Outside of the U.S., industry and regulators were focused onthe design and implementation of the Basel III internationalbanking standards. It was well recognized that the quantityand quality of bank capital would be trending higher, butto what degree and timeline? The final capital structure forbanks will have significant impact on leverage and thus returnon equity and valuation. The Basel proposals entertainedchallenging (perhaps ridiculous) liquidity requirements andasset/liability matching that could make certain traditionalbanking services uneconomic. This confusion resulted insignificant debate about future bank valuation. In addition,regulators and politicians pushed the capital debate to a newlevel with the view that new measures were needed to protectgovernments from future bank bailout expenses.The sovereign debt crisis added to the sector’s woes in 2010,given that any losses on Portuguese, Irish, Greek and Spanishgovernment bonds would have a significant impact.Over the past two years, regulatory changes and potentialregulatory changes have had a much greater impact on bankvaluations. This ongoing uncertainty has depressed investorconfidence in the sector, which is why it remains significantlyundervalued on a global basis. We expect global financialequities to perform well in 2011 as sector earnings, dividendsand capital levels continue to recover.12 WINTER 2011 EARLY EDITION PERSPECTIVE AS AT DECEMBER 31, 2010
Signature Market RoundupHealth careTechnology, media & telecommunicationsRui CardosoVice-President,Portfolio Managementand Portfolio ManagerThe health care sector continued to lag the overall marketin closing out 2010 and it finished the year as the worstperformer among the S&P 500 industry groups, as moreeconomically sensitive sectors outperformed. Despite alate-year rally, medical device companies were the weakestsub-group in the health care universe because of fears of lowerhealth care utilization and pricing pressures from hospitaland insurance groups in the U.S. and fears of reimbursementcuts in Europe. Pharmaceutical stocks fared better, but stilllagged the market, while drug distributors and life sciencetool companies were the best-performing groups.Looking into 2011, we maintain a positive outlook for thesector due to historically low valuation levels, reducedheadline risk related to health care reform, and improvingprospects stemming from maturing drug pipelines for bigpharma. We expect that investors will increasingly focus onthe sector’s emerging markets exposure and its high dividendyields provide added income potential for patient investorswaiting for valuation levels to normalize.Malcolm WhiteVice-President,Portfolio Managementand Portfolio ManagerThe technology sector started the year with a bang atthe Consumer Electronics Show. The focus this year isthe growth of the tablet market, pioneered by Apple butnow becoming more mainstream as players such as RIM,Microsoft and others launch their product offerings. Thisis exciting because tablets are a key component of a largerstructural revolution that is occurring as we shift to acloud-based computing paradigm.The focus of the media sector in 2011 will undoubtedlybe the impact of social media in the advertising market.Discussion has heated up as Facebook has now surpassedGoogle in terms of Web traffic and in light of a potential IPOfrom Facebook this year or next.On the telecommunications side, the sector continues to offerattractive dividend yields in a low interest rate environment.Growth is coming from an explosion of data as more peopleadopt smartphones that offer more utility than simple voice.We are especially excited about the acceleration of data usagein emerging markets as new next-generation wireless datanetworks are deployed.WINTER 2011 EARLY EDITION PERSPECTIVE AS AT DECEMBER 31, 2010 13
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January - Early Edition - CI Investments

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