Bank of America internal memo on quarterly stock idea selection process

Top 10 US Ideas Quarterly Our Top 10 US Ideas are based on our view that these companies could have the most significant market and business related catalysts over the next three months. The list reflects primarily a bottoms-up approach, with calendar-specific events noted for most stocks. We constructed our list by canvassing BofAML Fundamental Equity Research analysts in order to find 10 BofAML-covered stocks which we think will significantly outperform or underperform peers during the quarter. We considered only Buy-rated names for outperform ideas and Underperform-rated names for underperform ideas. We then narrowed the list after consulting our Equity Research colleagues. To be eligible for the list, the stock must be covered by BofA Merrill Lynch AMRS fundamental equity analysts with a rating of Buy or Underperform, for long and short stock recommendations, respectively. Stocks will be chosen on a discretionary basis by the Alpha Generation team, which currently includes strategists with experience choosing stocks for BofAML’s US 1 list. Stocks will be chosen for the list using a bottoms-up approach after taking into account the views of the relevant BofA Merrill Lynch Fundamental Equity analyst and upcoming catalysts. Diversity of the list and BofAML macro views will also be factors in choosing stocks for the list. Stocks on the list will generally remain on the list during the quarter. However, a stock will be removed interim quarter if considered ineligible due to a change in the stock’s fundamental rating, or if the stock is no long covered by BofA Merrill Lynch fundamental Equity Research. When stocks are removed during the quarter, they will not be replaced. Stocks will generally be removed from the list at the end of the quarter in conjunction with the publication of the next quarter’s list, but may on select occasions remain on the list if the identified catalyst remains relevant or a new catalyst is expected to drive the requisite over/under performance. Any intra-quarter actions to the list will be announced in a research report. The Top 10 list will be published on or close to the first day of each quarter. In addition, we may also publish research reports updating the catalysts’ status or other news on particular stocks during the quarter. How the list will be maintained and updated We will publish this list at the beginning of each quarter. Ideas will generally remain on the list through the quarter unless coverage is dropped or the recommendation changes. Any security which is removed will not be replaced. If there are any changes to the list during the quarter we will promptly publish a note explaining the change. Securities are intended to stay on the list for one quarter, though some may be chosen again for the next quarter’s list. Bankof America 2 Top 10 US Ideas Quarterly | 03 January 2017 Merrill Lynch HOUSE_OVERSIGHT_014623