Global Sector Positioning

Global Utility White Paper CONFIDENTIAL Global Sector Positioning Tech Industrials Insurance Pharma Discretionary Materials Energy Banks Staples . Substantially Telecoms underweight Utlites -40 -35 -30 -25 -20 “15 “10 5 +0 +5 +10 +15 +20 225 +30 +35 <= underweight // overweight => Source: Bank of America Merrill Lynch Global Fund Manager Survey, Feb 12, 2013 Net % Overweight Global Utilities u TTY OOM i. i Ti I; } Red circle = ao | ae crossing below 1o underweight So + T T T 7 T i T T T r 7 8S 2003 2004 2006 200G 2007 2008 2009 2010 2011 2OVE 2013 Met % Overweight Utilities Pc ste mtiaally Underowne 4 — Sector Relative te VWorldacR HH SCALE) Potentially OQverowned Source: Bank of America Merrill Lynch Global Fund Manager Survey, Feb 12, 2013 The sector has been not only a substantial long-only underweight, but also a wholesale short for many macro/generalist hedge funds. However, it is very interesting to note that an inflection point appears to have occurred in the middle of 2012, with hedge funds increasing their net exposure to the global utility sector after a long period of reducing net. The long/short ratio of utility stocks held by hedge funds fell from 3.0x in Jan 08 to about 1.7x in Jan 12 (4 years), but has since risen by 60% to 2.7x, which is more than twice the increase for hedge funds’ overall net exposure during the same period (source: Goldman Sachs). Based on discussions with the Street, it appears that this short exposure has been expressed via ETFs, regional utility indices or large bellwether index utility proxies. Individual name crowdedness has continued to remain at a low level (e.g., utilities rarely show up Goldman Sachs Hedge Fund VIP list — ticker GSTHHVIP). Today, utilities account for the lowest in gross assets held of the 10 global sectors. (Source: Goldman Sachs Hedge Fund Trend Monitor analysis of 700 hedge funds with $1.3 trillion in gross assets.) In addition, global QE programs have boosted demand for higher-beta stocks, which has contributed to the recent relative underperformance of and lack of interest in utilities. However (see below), the underperformance of US _ utilities has diminished with each successive QE round (QE1 6 Electron Capital Partners, LLC HOUSE_OVERSIGHT_024207