Investing￿in￿the￿Financial￿Services￿Sector December￿19,￿2022

December19,2022

InvestingintheFinancialServicesSector

FINANCIAL SERVICES SECTOR REPORT

Companies mentioned in this report:

? Allstate (ALL-Buy; $131.19) ? American Tower (AMT-Buy; $213.45) ? Bank of America (BAC-Buy; $31.70) ? Berkshire Hathaway (BRK B- Buy; $300.00) ? BlackRock (BLK-Buy; $700.22) ? Capital One (COF-Buy; $90.10) ? JP Morgan Chase (JPM-Buy; $129.29) ? Moody's (MCO-Buy; $281.76) ? Realty Income (O-Buy; $63.48) ? S&P Global (SPGI-Buy; $339.60) ? Truist Financial (TFC-Buy; $41.30) ? Wells Fargo (WFC-Buy; $41.19)

Source: Reuters. Prices and opinion ratings are as of market close on 12/16/22 and are subject to change.

For more information:

Individuals can obtain the full research report with full disclosures on any of the companies mentioned in this report by contacting a local Edward Jones financial advisor, or write to: Edward Jones,12555 Manchester Road, St. Louis, MO 63131. Information about research distribution is available through the Investment Services link on .

? Financialservicescompaniesarecriticalinensuringtheeconomy transactsandfunctionsefficientlybysharingresponsibilityfor thegeneralmanagementandtransactionofmoney.Almostall businessesandconsumersareusersoffinancialproductsand services.Webelievethatoverthelongtermthesectorwillbedriven byagrowingglobalpopulation,globalizationofworldeconomies, andmarketandtechnologicalinnovations.Thatsaid,reformand economicconditionswillalsolikelyinfluencethesectorinthenear term.

? Whenbuildingoutthefinancialservicespartofyourportfolio, werecommendstartingwiththebankingsubsector,whichtends tobemorediversified.Aftergainingexposuretobanks,we recommendemployingabalancedapproachbyaddingstocksfrom theremainingthreesubsectors:insurance,diversifiedfinancials, andREITs.

? Thefinancialservicessectorhasbeenconstantlyevolvingsince thefinancialcrisis,andrisksareinvolvedwheninvestinginfinancial companies.Someoftheserisksincluderegulation,litigation, deterioratingeconomicconditions,andachangingbusinessmodel.

WhyInvestinFinancialServicesCompanies?

Webelievethefinancialservicessectorisanimportantcomponent ofawell-diversifiedportfolio.Thesectorencompassesalargegroup ofcompaniesincludingmegabanks,regionalbanks,insurers,asset managers,custodybanks,consumerfinancecompanies,securities andbrokeragefirms,andREITs.Financialsmakeupasignificant portionofoverallGDPandareextremelyimportantinensuringthe economyfunctionsefficiently.Playingsuchanintegralroleinthe livesofconsumers,businessesandinstitutions,webelievefinancial servicescompaniesshouldbeakeycomponenttoaninvestor's portfolio.

Analyst: James Shanahan, CFA Analyst: Kyle Sanders, CFA

Please see important disclosures and analyst certification on page 5 of the report.

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Long-termGrowthTrends

Webelievetherearethreemaintrendsthatwill positivelydrivethesectorinthelongrun.These trendsareagrowingglobalpopulation,globalization ofworldeconomies,andmarketandtechnological innovations.Asindividualsindevelopedcountries livelonger,thereisanincreasingneedtosave andplanforretirement.Inaddition,asdeveloping economiesgrowandwealthaccumulateswithin thoseregions,thereisanincreasingneedfor individualsandbusinessestohaveaccesstoawide varietyoffinancialproductsinordertomanage, hedgeandcompoundtheirnew-foundwealth.This newwealthwilllikelycauseglobalizationtobecome prominent,meaningtherewillbeagreaterdesireto easilytransfermoneyacrossborders.Astechnology continuestoimprove,itwillbecomemoreefficient forcompaniestoofferfinancialproductsglobally. Inaddition,technologyhasthepotentialtoalterthe landscapeofthefinancialservicesindustry,leading toreducedcosts,newrevenuestreamsandindustry consolidation.

Formorespecificguidanceonshort-termfactors drivingtheindustry,pleaseseeourtopicalSector Reports,whichareregularlywrittenandupdatedin responsetocurrentindustryevents.

UnderstandingtheIndustry

Webreakdownthefinancialservicesindustryinto fourmainsubsectors:Banks,DiversifiedFinancials, InsuranceandREITs.Werecommendinvestors diversifytheirfinancialservicesportfoliobyinvesting inavarietyofdifferentcompanieswithinthefour subsectors.Manyfinancialservicescompanies sharesimilaritieswithcompaniesinothersubsectors. REITssharesimilaritiestoassetmanagers,asboth areattemptingtomaximizefinance,andinsurance.

Figure1:EarningsExposureMatrixofEdwardJones FinancialServicesCoverage(ExcludingREITs)

Banking

MegaBanks-Megabanksareoftenthemost diversifiedcompanieswithinthefinancialservices sector,giventheytendtooperateinmanybusiness lines.Typically,thefocusofamegabankison traditionalretailandbusinessbanking,corporate bankingandconsumerbanking.Inorderto diversifyandincreaserevenues,thesebanks alsooftenoperateinotherfinancialareassuchas wealthmanagement,insurance,custodybanking, investmentbankingandtrading.Whiletheeconomy playsalargeroleintheperformanceofthesestocks, megabanks'multitudeofbusinesslineshelps themnavigatethroughchallengingenvironments. Duetothediversenatureofthemegabanks,we believethesecompaniesofferagoodentrypoint forinvestingwithinthefinancialservicessector.JP MorganChase(JPM)andBankofAmerica(BAC) areontheEdwardJonesUSStockFocusList.

RegionalBanks-Ascaleddownversionof largebanks,regionalbanksarelocallybased institutionsthatprovideasignificantportionofthe financingrequiredbysmallbusinesses,aswellas constructionandcommercialrealestateprojects withinacommunity.Oftentimes,regionalbanksare lessdiversifiedthanthemegabanks,derivinga largerportionofrevenuefromtraditionalbanking activities(borrowingandlending)andasmaller portionofrevenuefromfee-basedbusinesslines (suchasinvestmentbankingandtrading).Asa result,regionalbankstendtohavelessexposure tomorevolatilebusinesssegments,makingtheir earningsmorepredictablerelativetolargerpeers.A long-termthemeforregionalbanksisconsolidation. Regionalbankingisoftenconsideredafragmented industrybecausetherearethousandsofdifferent communitybanksacrosstheUnitedStates.Industry consolidationprovidesanopportunityforthese bankstobuildsizeandtheadvantagesthatcome withsize.Consequently,weviewconsolidationas apositivecatalystforfutureearningsgrowthandas anopportunitytoincluderegionalbanksaspartof aninvestmentinthefinancialservicessector.Truist Financial(TFC)isontheEdwardJonesUSStock FocusList.

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Source:EdwardJones

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DiversifiedFinancials

ConsumerFinance-Similartobanks,consumer financecompanieslendtoconsumersand businesses.However,consumerfinancecompanies focustheirlendingoncreditcards,mortgages,auto loans,studentloansandpersonalloans.Asthe namewouldimply,consumerfinancecompanies arecloselytiedtothehealthoftheconsumer,often performingwellwhenconsumerspendingisupand consumers'financialpositionsarestrong.These companiessucceedbasedontheirabilitytogrow lendingatattractiverateswhilekeepingborrower creditstandardshigh.Withfewcompaniesthatsolely focusonconsumerfinance,exposuretothisspace canbeincludedinaportfoliobyinvestinginamega bankthathasastrongconsumerfinancearmaspart ofitsbusinessmodel.CapitalOne(COF)isonthe EdwardJonesU.S.StockFocusList.

InvestmentBanks&Brokerage-Aninvestment bankisresponsibleforraisingcapitalandmanaging thecapitalneedsforlargebusinessesand governments.Meanwhile,abrokeragefirmacts asanintermediarybetweenbuyersandsellersof financialsecuritiesaswellasoftenprovidingwealth managementandfinancialplanningservicesfor theirclients.Investmentbanksandbrokeragefirms areamongthemostcyclicalcompanieswithinthe financialservicessectorbecausetheyarevery exposedtothetrajectoryofthefinancialmarkets, oftenperformingwellwhenstockandbondmarkets riseandperformingpoorlywhenthosemarketsfall. Fewstandaloneinvestmentbanksandbrokerage firmsremaintodayafterthefinancialcrisiscaused awaveofindustryconsolidationandregulatory reform.Today,investmentbanksandbrokeragefirms havehighercapitalrequirements,relativelylower leveragedbusinessmodels,greatertransparency, andstricterlawsguidingoperations.Asaresult,we believeinvestmentbanksandbrokeragefirmswill notlikelygobacktohistoricgrowthratesandreturns. However,becauseoftheevolvingindustrylandscape andthedepressedmarketreturnssincethefinancial crisis,webelievethereareopportunitiestoinclude investmentbanksandbrokeragefirmsinadiversified financialservicesportfolio.

AssetManagers-Throughvariousproduct offerings,assetmanagershelpretail(individualsand families)andinstitutional(pensions,endowments, 401(k))clientsmanagetheirinvestmentsinorder tomeetspecificgoals.Someoftheseproducts

includemutualfunds,exchange-tradedfunds(ETFs), hedgefundsandprivateequity,allofwhichcanbe tailoredtoaclient'sspecificneed.Assetmanagers generaterevenuebychargingafeerateagainst thetotalassetsundermanagement(AUM)thatthe firmmanagesforaclient.Generally,thegreaterthe numberofassetsmanagedonbehalfofaclient,the lowerratethatclientpays.Economiesofscaleare amajorfactorintheprofitabilityofassetmanagers. Largerfirmscanleveragetheirsizeinorderto chargelowerpricesandoffernewerandmoreunique productsandservices.Theprofitabilityofanasset managerishighlycorrelatedtotheoverallmarket, meaningfirmscanexperienceperiodsofvolatility inearningswhenmarketsfluctuate.Webelieve assetsmanagersareagoodsourceofportfolio diversificationforinvestorswhoseriskprofilecan toleratethevolatility.BlackRock(BLK)isonthe EdwardJonesUSStockFocusList.

CustodyBanks-Althoughcustodybanksinclude theword"bank"intheirname,theircorebusinessis verydifferentfromtraditionalbanks.Ratherthantake depositsandmakeloans,custodybanksholdassets (suchassecurities)onbehalfoftheircustomers (suchasmutualfunds),earningfeesderivedfrom thevalueofthoseassets.Asaresult,custodybanks' revenuesarepositivelycorrelatedwiththerisein assetvaluesandinturnareheavilyreliantupon asset-basedcustodyfees.Inaddition,custodybanks arelesssensitivetodomesticloandemandand notasdependentoninterestratesasasourceof profitsrelativetotraditionalbanks.Similartoasset managers,custodybanksarehighlycorrelatedtothe overallmarket,meaningfirmscanexperienceperiods ofvolatilityinearningswhenmarketsfluctuate.

RatingsAgencies-Bondissuerspayratings agenciestoassignacreditratingontheirsecurities, whichisanopinionabouttheabilityoftheissuerto meetitsdebtobligationsandthelikelihoodofdefault. Inturn,investorsrelyonthesecreditratingtoassess andmanagerisk,typicallyrequiringratingsfromtwo independentratingsagenciesperbond.Inourview, thisprocessishighlyvaluableformarketparticipants, makingratingsagenciesunavoidablegatekeepersto debtcapitalmarkets.Collectively,weestimatethat S&PGlobal(SPGI)andMoody's(MCO)accountfor adominantportionofallbondratingsintheU.S.and Europe.Inadditiontoissuingcreditratings,ratings agenciesofferdataandanalyticsservicestoasset managers,banksandinsurancefirms.

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Insurance Insurancefirmshelppeopleprotectthemselves againsttheriskofunfortunateorcatastrophicevents. Thesecompaniesgeneraterevenuebycollecting premiumsfromcustomersandearningincomeon investingthecollectedpremiums.Theirprimary expensestemsfrompayinginsuranceclaimswhen theprotectedeventoccurs.Aninsurancefirm's profitabilityisdrivenbythefirm'sabilitytoforecast thefrequencyandamountoffutureclaimsaccurately andinvestpremiumsatattractiverates.Insurance companiesdotheirbesttoensurethattheyhave sufficientlossreservesandthattheycaneasily accesstheirinvestmentsforwhentheymighthave toplayclaims.Theinsurancesubsectorcanbe brokendownintotwoparts:lifeinsurersandproperty andcasualty(P&C)insurers.Allstate(ALL)and BerkshireHathawayBShares(BRKB)areonthe EdwardJonesU.S.StockFocusList.

LifeInsurers-Lifeinsurers'offerawidearrayof financialservicesincludinglifeinsurance,annuities andretirementproducts.Lifeinsurancepolicies generallyhavelongertimehorizons(suchasthe entirelifespanofanindividual)thanpolicieswritten bypropertyandcasualtyinsurers.Becauseofthis difference,lifeinsurancecompaniestendtotake moreriskwithintheirinvestmentportfolios(such asinvestmentsinequities)andderiveagreater portionofoverallrevenuefrominvestmentincome. Whilethesedifferencesenhancethegrowthand profitabilitypotentialoflifeinsurers,webelieve theyalsoincreaseinvestmentriskandshareprice volatility.Consequently,EdwardJonesprovides limitedguidanceonlifeinsurers.

PropertyandCasualty-AmajorityoftheP&C insurancebusinessisdrivenbythesaleof automobileandhomeownersinsurance.P&C insurerswritepolicies(suchasautoinsurance policies)thatprovidelossprotectiononanassetin exchangeforpremiums(cashpaidbythecustomer). Whenalosseventoccurs(suchasacaraccident orastorm),theP&Cinsurerpaysclaims.Because P&Cinsurershavepolicyandlosscyclesthat areshort(sixto12months),thesecompanies generallyinvestpremiumsinlower-risk,shortermaturityinvestments.AP&Cinsurer'sprofitabilityis drivenbythecompany'sabilitytogrowandretain policyholders,underwriteprofitablepolicies,and generateinvestmentincome.BecauseP&Cinsurers focustheirbusinessonrelativelynondiscretionary products(thereislittlechoicetopurchaseinsurance

regardlessoftheeconomicenvironment),weview thesecompaniesasamoredefensiveoptionwithin thefinancialservicessector.

REITs(RealEstateInvestmentTrusts) REITsgiveindividualsawaytoinvestinadiversified portfolioofrealestatethroughthepurchaseofstock. AREITtypicallyownsalargepoolofproperties, managestheproperties,andcollectsrentfrom tenants.Asageneralrule,virtuallyallREITsinvest solelyincommercialrealestate,suchasshopping centersandapartmentbuildingsratherthansinglefamilyhomes.REITsoffermanybenefitsoverdirect realestateinvesting,suchasdiversificationby propertyandgeography,liquidity,andflexibilityof investmentsize.REITsprovideaninvestmentinreal estatethatdoesnotrequiretheinvestortoactively participateintheday-to-daymanagementofthe realestate.WebelieveREITscanbeanattractive investmentoverthelongtermbecausethesubsector offersdiversificationbenefitswithintheFinancials sectoraswellascurrentandrisingincome.Realty Income(O)andAmericanTower(AMT)areonthe EdwardJonesUSStockFocusList.

Valuation

Whenvaluingfinancialservicescompanies,weuse variousmethods,including,butnotlimitedto,priceto-earningsratios(P/E),price-to-bookratios(P/B), return-on-equitycalculations(ROE),andprice-tofundsfromoperations(P/FFO)forREITs.During timesofdepressedearnings,wefeelitismost appropriatetorelymoreheavilyonprice-to-book ratiosandnormalizedearningsestimates.During timesofmorenormalizedearnings,wefocuson boththeprice-to-earningsratioandprice-to-book ratio.TheP/Bmeasurementanalyzesthevalueof equity(orbookvalue)afinancialcompanyhason itsbalancesheet.Mostfinancialcompaniesarein thebusinessofborrowingandlending,sothevalue oftheassets,liabilitiesandequityonacompany's balancesheetareparamounttodeterminingwhatthe sharesareworth.Lastly,returnonequityisanother usefulmeasuretogaugewhatanappropriateprice isforacompanybasedonwhatitcanearnonits capital.

Risks

Whilewebelievethereareattractiveinvestment opportunitieswithinthefinancialservicessector,it isimportanttonote,aswithallinvestments,there aresomepotentialrisksinvolvedwithinvestinginthe sector:

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? Thepotentialforhighcostsrelatedtolegal settlementscouldhurtfirmprofitabilityand capitalization,reducingthefirms'abilitytogenerate returnsandconsequentlyhurtingshareprices.

? Shouldfinancialreformandcapitalrequirements beoverlysevereandpunitive,financialservices companiesmaynotbeabletogrowearnings astheyhavehistorically.Theresultbeinglower returnsonequityandthepossibilityfornegative returns.

? Financialservicescompaniesarehighlysensitive tochangesininterestrates,meaningthatgreater volatilityininterestratesmayleadtogreaterstockpricevolatility.

? Financialservicescompaniesarehighlysensitive totheoverallhealthoftheeconomy.During challengingeconomictimes,thesharepricesof financialservicescompanieshavethepotentialto benegativelyaffected.

Environmental,SocialandGovernance (ESG)Considerations

ESGconcernsinthefinancialservicessectoroften revolvearoundtwoissues.Oneistheenvironmental impactofprovidingfinancingtocompaniesissectors suchasmanufacturing,oil&gasandforestry thatincreasegreenhousegasses.Thebankswe recommendaremakingprogresstoreducecarbon emissionsassociatedwiththeirloanportfolios andhavesettargetstoincreasefundingforfuture climate-changeinitiatives.Recently,JPMorgan (JPM)setagoaltofinance$2.5trillionofinitiatives thatcombatclimatechange,suchascleanenergy alternatives.Consumerprotectionisasecondkey consideration.Banks,assetmanagersandinsurers provideimportantservicesentrustedbymillionsof clientstoprovidefairproducts,followregulations, andpreventunethicalbusinesspractices.Mostof thecompanieswerecommenddoagoodjobof upholdingbusinessethicsandregulationrelated tosellingproductsthatareappropriateforclients, protectingconfidentialclientdata,ensuringthatdebt underwritingandcollectionpracticesarefair,and handlingcomplaints.Lapsesinconsumer-protection practicescanresultinsignificantreputational, regulatoryandlegalissuesforfirmslikeWellsFargo (WFC).OurBuy-ratingforWellsFargoisbased largelyonourviewthatthecompanywillmake significantimprovementstoaddresspastconsumer protectionmiscuesandresolveregulatoryviolations.

HowtoInvestintheFinancialServices Sector

Wesuggestdiversifyingacrossthesectordue tothevaryingopportunitiesandriskexposures amongthecompanies.Asaguideline,investorscan looktoourBuy-ratedfinancialservicesstockson theEdwardJonesStockFocusListbysubsector. Amongthedifferentsubsectorswithinthefinancial servicessector,werecommendinvestorsstartwith companiesinthebankingsubsector,whichtends tobemorediversified.Aftergainingexposureto banking,werecommendemployingabalanced approachbyaddingstocksfromtheremaining subsectors:insurance,diversifiedfinancials,and REITs.

Pleaseseetheindividualresearchreportsfor additionalinformation,includingdisclosures, analystcertifications,valuationandrisksspecific toeachcompany.

AnalystCertification

Icertifythattheviewsexpressedinthisresearchreport accuratelyreflectmypersonalviewsaboutthesubjectsecurities andissuers;andnopartofmycompensationwas,is,orwillbe directlyorindirectlyrelatedtothespecificrecommendationsor viewscontainedintheresearchreport. JamesShanahan,CFA;KyleSanders,CFA

RequiredResearchDisclosures

Analystsreceivecompensationthatisderivedfromrevenuesofthefirm asawholewhichinclude,butarenotlimitedto,investmentbanking revenue.

OtherDisclosures

Allinvestmentdecisionsneedtotakeintoconsiderationindividuals' uniquecircumstancessuchasrisktolerance,taxes,assetallocationand diversification.

ItisthepolicyofEdwardJonesthatanalystsortheirassociatesarenot permittedtohaveanownershippositioninthecompaniestheyfollow directlyorthroughderivatives.

Thisopinionisbasedoninformationbelievedreliablebutnotguaranteed. TheforegoingisforINFORMATIONONLY.Additionalinformationis availableonrequest.Pastperformanceisnoguaranteeoffutureresults.

Ingeneral,EdwardJonesanalystsdonotviewthematerialoperationsof theissuer.

Diversificationdoesnotguaranteeaprofitorprotectagainstlossin decliningmarkets.

Specialrisksareinherenttointernationalinvestingincludingthoserelated tocurrencyfluctuations,foreignpoliticalandeconomicevents.

Dividendscanbeincreased,decreasedoreliminatedatanytimewithout notice.

Anindexisnotmanagedandisunavailablefordirectinvestment.

EdwardJones-MemberSIPC

aecspad

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