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Industrial Growth | Third Quarter 2014

November 2014 – The industrial sector is beginning to face some cyclical headwinds as market indicators are sending a range of mixed messages with respect to expansion or contraction. Certainly, to the positive, the latest ISM Report reflects strong growth with a composite index for October of 59.0 vs. consensus of 56.0 and a September mark of 56.6. This matches August’s level and is the strongest since February 2011. Conversely, the PMI Manufacturing Index came in at 55.9, below both consensus (56.1) and last month (57.5). Key to this report was (i) new business as monthly growth slowed to its lowest rate since the severe winter weather in Q1, (ii) slow export sales, and (iii) little increase in total backlog orders. Given the mixed readings, the sector, predictably, is experiencing cyclicality in light of the pockets of positive momentum and declining input costs, such as oil, which are offset by rising geopolitical instability, concerns of overbought equity markets reaching new all-time highs, and a search for sustainable drivers of growth.

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Capital Restructuring | Third Quarter 2014

November 2014 – In this edition, we provide our third quarter 2014 perspectives on the restructuring market. Default rates reported by Moody’s and S&P held relatively steady during the Third Quarter 2014, remaining low at 1.7% and 1.6%, respectively. With some indications of strengthening economic conditions, few corporate defaults are expected in the near term. Loan investors who responded to a recent survey predict loan default rates will remain low for the next 12 months in part because low amounts of debt are coming due in the short term, U.S. companies as a whole are expanding their cash flow, and a moderate economic forecast through 2016.

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Business Services | Third Quarter 2014

November 2014 – The SCA Business Services Index underperformed the broader markets in Q3 2014, declining by 4.5% compared to an increase of 0.5% for the S&P 500. In particular, the SCA Marketing Services sector (down 17.0%), the SCA Professional Staffing sector (down 10.0%), and the SCA IT Consulting sector (down 5.0%) reflected growing concerns about slowing revenue growth and missed revenue forecasts. Despite overall investor caution regarding the Business Services sector, there were several bright spots. Healthcare staffing stocks in particular showed strong appreciation based on the positive impact of health reform driving demand for physicians and nurses. AMN Healthcare (NYSE: AMN) was up 24.1% in the third quarter and Cross Country Healthcare (NASDAQ: CCRN) was up 42.3% during this same period.

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Healthcare Services | Third Quarter 2014

November 2014 – Merger and acquisition volume for the healthcare industry in Q3 2014 set a record high in terms of deal value compared to all previous third quarter results on record, according to preliminary figures from Irving Levin Associates, Inc. Figures show a total of 323 deals were announced, totaling $119.5 billion. The closest Q3 period was in 2011, when 336 deals were announced, totaling $118.3 billion. The Pharmaceutical sector contributed to 75% of the quarter’s dollar volume with $89.4 billion in transaction volume as six of the 10 largest deals in Q3 2014 were for pharmaceutical targets. Biotechnology, eHealth, Long-Term Care and Medical Device targets made up the remainder of this transaction list.

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Capital Restructuring | Second Quarter 2014

September 2014 – In this edition, we provide our second quarter 2014 perspectives on the restructuring market. According to Moody’s and S&P, default rates held relatively steady during the Second Quarter 2014, at 1.9% and 1.6%, respectively. EFH’s bankruptcy was already heavily expected, and hence has been excluded from the reported figures. A potential bankruptcy filing from another struggling giant, Caesars Entertainment Operating Co., would propel the trailing 12-month U.S. high yield default rate to higher levels.

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Industrial Growth | Second Quarter 2014

August 2014 – This quarter, we provide our insights on the industrial growth market, which is experiencing strong momentum as industrial production, construction and the auto sectors all are expanding. Industrial production increased 0.4% in July, which equaled the pace in June, and capacity utilization reached its highest rate in over four years led primarily by a strong 1.7% increase in production of durable goods. According to manufacturing surveys from the Federal Reserve and industrial publications, manufacturing recoveries appears to be robust in broad sectors like auto manufacturing. The equity capital markets reported mixed results for the quarter, as only one sector of our Industrial Growth Universe – Resource Recovery & Waste Management – generated a strong return (+14.1% for the quarter) relative to the S&P 500 (+4.7%), while three sectors were generally in line with the broader market – Metals (+5.5%), Chemicals (+5.3%) and Analytical Instrumentation & Testing Equipment (+5.2%). The remaining four sectors of our universe all generated returns below the S&P 500.

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Business Services | Second Quarter 2014

August 2014 – The SCA Business Services Index underperformed the broader markets in Q2 2014, declining by 2.7% compared to an increase of 4.0% for the S&P 500. Despite strong performances by several staffing sector leaders (Manpower, Robert Half), the overall sector was dragged down by concerns of slowing economic growth. In particular, the SCA HR Services sector (down 8.0%), SCA Marketing Services sector (down 22.6%) and SCA Professional Staffing sector (down 5.0%) were particularly impacted by concern about slowing U.S. employment growth and small business investment. In addition, several sub-sectors, such as healthcare staffing and advertising, continue to experience challenges related to the fundamental transitions occurring within their respective industries.

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