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

2. Overview

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

4. Sector Weight

5. Industries

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

8. Performance (YTD)

9. Info Tech
S&P

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

11. Business Analysis

12. Business Cycle

13. 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

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

17. 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

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

19. Economic Analysis

20. 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

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

22. S5INFT Vs. World GDP

23. S5INFT Vs. US GDP

24. S5INFT Vs. Consumer Sentiment

25. S5INFT Vs. Median Household Income

26. S5INFT Vs. 10 Year Treasury

27. Financial Analysis

28. 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)

29. 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

30. 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

31. 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

32. 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.

33. Valuation Analysis

34. S&P 500 S5INFT S5INFT / SPX Absolute Basis High Low Median Current P/E
P/B
3.2153
2.6913
3.0534
3.2101
P/S
2.1731
1.8618
2.0632
2.1697
P/EBITDA
AS OF 11/2/17
S5INFT
Absolute Basis
High
Low
Median
Current
P/E
P/B
 5.4465
4.2476
4.8468
5.4414
P/S
 4.5147
3.5848
4.0065
4.5106
P/EBITDA  
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

35. SECTOR / INDUSTRY
P/E RATIO
AVERAGE P/E RATIO
S&P 500
INFORMATION TECHNOLOGY
INTERNET SOFTWARE & SERVICES
IT SERVICES
SOFTWARE
COMMUNICATIONS EQUIPMENT
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT

37. SMA

38. MACD

39. Recommendation

40. 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