Industry Classification, Redefined

1. Industry Classification, Redefined How a unique approach to classification systems provides a highly customizable set of industry groups for enhanced Alpha & Risk purposes

2. Traditional Classification Systems The Revere Approach Building Industry Groups Comparison of Revere versus GICS Agenda

3. The 3 tenets of the “Traditional” Approach • Rigidity • Imposed stability, usually inaccurate • Forced/Declared Lines of Business • About 3-4% of companies change their Primary Line of Business • How exactly is change defined traditionally? • 4 Levels of Granularity • Each company must be classified at the lowest industry group level. What about companies that exist in multiple sub-industry groups, but the same top level industry?

4. Mission: Map Linkages of the Capital Market Lets look at an example… Information Technology Semiconductor Equipment Semiconductor Equipment Semiconductors Convenient, but is Intel really just a semi-conductor company?

5. Mission: Map Linkages of the Capital Market Lets start with Intel’s products & services. Where do they compete? Technology Electronic Components Software Hardware Communication Equipment Semiconductors Analog/Mixed Signal IT Infrastructure Local Area Networking Processor Radio Frequency Data Storage Network Wireless Memory Transmitters/Receivers Microprocessor (MPU) Network Security Storage Administration Network Adapters Specialized Nonvolatile Access Policy Filtering 802.11 based GPS Data Availability Flash Embedded Non - Embedded Intel’s Primary Line of Business Intel’s Product Mapping

6. Revere Hierarchy™ – Agile & Granular Revere’s deep visibility into the REAL Line of Businessprovides a highly agile classification scheme Diversified Enterprise Niche Player Variable Depth Hierarchy Structure

7. By introducing an Arbitrary Depth Classification Scheme… … we’re redefining the creation and construction of Industry Groups

8. Building Industry Groups Here’s what the “Raw” Tree structure looks like for the R3K…. Number of Industry Groups Number of companies per Industry Group

9. A Bottom Up Approach to creating Industry Groups based off their Fundamental Lines of Business Employing a bottom-up clustering algorithm, with only 1 parameter: Number of Companies per group And flatten it into delineated Industry Groups We take this tree structure…

10. Building Industry Groups Univariate Statistics of Number of Firms per Industry Group

11. What do the new distributions look like? Here’s a comparison of GICS to Revere Hierarchy GICS2 REVERE2 GICS4 REVERE4 GICS6 REVERE6 GICS8 REVERE8 REVERE10

12. Pooled Regression Tests, Russell 3K Annual price co-movement comparison ΔPricej,t = αt + βΔPricegroup,t + εj,t Group Name (ordered) REVERE10 REVERE8 GICS8 REVERE6 GICS6 REVERE4 GICS4 GICS2 REVERE2 Adj Rsqr Year

13. Pooled Regression Tests, Russell 3K Annualized results for Valuation Multiple/Financial Ratios Variablej,t = αt + βVariablegroup,t + εj,t

14. Basic Mean Reversion Strategy Mean Reversion Strategy Parameters 2/28/2007 to 4/30/2012 time horizon Russell 3000 Universe Market neutral, long/short quintal, monthly rebalance REVERE12? REVERE10 REVERE8 REVERE REVERE6 REVERE4 GICS8 GICS6 GICS GICS4 GICS2 REVERE2

15. Future Research Quantified Sector Exposure, with Multi-Industry Revenue/Profit exposure Unique cluster attributes, by including supply chain & geographic revenue factors

16. Thank You Revere Data 60 East 42nd Street, Suite 716 New York, NY 10165 GlobalClientSolutions@RevereData.com (646) 350 4984