SIM Sector Presentation: Information Technology Ellie McCabe, Steven Munn, Jordan Kopman, Matthew McGahan, Noah Mitchell

Overview

Total Market Cap=5.5 Trillion Sector Weight Total Market Cap=5.5 Trillion

Sector Weight

Industries

Largest Companies NASDAQ: AAPL $900B NASDAQ:GOOGL (Google) $718B NASDAQ:MSFT $651B NASDAQ: AMZN $540B NASDAQ: FB $523B

Performance (YTD)

Info Tech S&P

SIM Portfolio Sector Weight Currently 22.25% (on October 5th) Slightly underweight

Business Analysis

Business Cycle

Life Cycle Moore’s Law keeps steady demand in mature product segments Potentially obsolete within 10 years New technology will be needed to keep this going New technology and innovation pave the way for growth in the tech sector Artificial Intelligence Virtual Reality 3-D printing Blockchain Internet of things Cloud Computing

Porter’s Five Forces Threat of New Entrants – High Record number of VC-backed tech startups in recent years

Porter’s Five Forces Strength of Suppliers – Moderate Many customers Strength of Buyers – Strong Lots of companies to choose from Buy in bulk Companies have a lot of buyers which weakens their pricing power

Porter’s Five Forces Threat of Substitution – High Short product life cycles Competitive Rivalry – High High R&D expenses

Economic Analysis

Info Tech Summary The tech industry is cyclical It’s highly correlated with the S&P 500 Can use Info Tech as a leading indicator Vital part of many sectors You can use semiconductor activity as a look into health of IT sector

S5INFT Vs. Semiconductor capacity utilization (Blue) & manufacturing (Copper)

S5INFT Vs. World GDP

S5INFT Vs. US GDP

S5INFT Vs. Consumer Sentiment

S5INFT Vs. Median Household Income

S5INFT Vs. 10 Year Treasury

Financial Analysis

Revenue of S&P 500 vs S&P 500 Infromation Technology Financial Analysis Revenue of S&P 500 vs S&P 500 Infromation Technology S&P 500 S&P INFT Shows the Revenue of the S&P 500 vs the S&P INFT Can see that S&P INFT was lagging in revenue but has recently matched the revenue of S&P 500 (tend to follow the same trendline)

Profit Margin of S&P 500 vs S&P 500 Infromation Technology Financial Analysis Profit Margin of S&P 500 vs S&P 500 Infromation Technology S&P 500 S&P INFT Profit Margins or the S&P 500 profit margin above S&P INFT at first, but in the more recent years the S&P 500 has been more profitable, as they become more efficient

Revenue 5 Year Compounded Annual Growth Rate Financial Analysis Revenue 5 Year Compounded Annual Growth Rate AAPL ARRS CTSH GOOGL DVMT This looks at the 5 yr CAGR of all of all the INFT companies held in the SIM portfolio in the past 5 years. Shows a downward trend, slowing growth with the exception of ARRS which shows more steady growth

Financial Analysis Gross Profit Margin AAPL ARRS CTSH GOOGL DVMT Gross Profit margin has been stagnant in the past 10 years, again with the exception of ARRS which saw a huge jump in gross profit margin 2013, but then returned to more normal levels after that

Financial Analysis Free Cash Flow AAPL ARRS CTSH GOOGL DVMT Lastly we have the free cash flows from the past 5 years, of the 5 companies, Apple and Google have increasing cash flows, which can partially explain their really high valuations.

Valuation Analysis

S&P 500 S5INFT S5INFT / SPX Absolute Basis High Low Median Current P/E 19.4844 17.2085 18.5383 19.3698 P/B 3.2153 2.6913 3.0534 3.2101 P/S 2.1731 1.8618 2.0632 2.1697 P/EBITDA 11.3582 10.4435 11.0388 11.3179 AS OF 11/2/17 S5INFT Absolute Basis High Low Median Current P/E 19.6393 16.7035 18.4611 19.4516 P/B  5.4465 4.2476 4.8468 5.4414 P/S  4.5147 3.5848 4.0065 4.5106 P/EBITDA  15.6687 12.9188 14.2322 15.6597 AS OF 11/2/17 S5INFT / SPX Relative to SP500 High Low Median Current P/E 1.5466 0.8987 1.1075 1.1129 P/B 1.7773 1.3048 1.5278 1.6683 P/S 2.1371 1.4929 1.7989 2.0238 P/EBITDA 2.3022 1.1019 1.5152 1.3405 AS OF 8/29/17

SECTOR / INDUSTRY P/E RATIO AVERAGE P/E RATIO S&P 500 19.3698 18.5385 INFORMATION TECHNOLOGY 19.4516 18.4611 INTERNET SOFTWARE & SERVICES 25.2148 23.8384 IT SERVICES 19.6808 18.7732 SOFTWARE 26.1018 23.2068 COMMUNICATIONS EQUIPMENT 14.4785 13.9192 TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS 14.1717 14.4742 ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS 25.1452 20.6843 SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 15.8586 15.1420

SMA

MACD

Recommendation

Hold Position Hold slightly underweight position in SIM portfolio (22.25%) Sector has been consistently priced higher than the overall market Shift in focus to technology in modern day makes these companies (and their products) less discretionary