SECOR Asset Management€¦ · S&P500 vs NASDAQ 100 History of Returns 2000-2003 performance 2 ... Any such offering will only be made in accordance with the terms and conditions

This presentation may not be reproduced or distributed without SECOR’s prior written consent. The materials contained herein are for information purposes only and do not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investments offered by SECOR or its affiliates. The information in the document reflects SECOR’s views, opinions and interpretations of market trends and conditions as of the date on the document and may no longer represent SECOR’s outlook as of the date posted to the site, or accessed.

SECOR Asset Management

Technology Sector Equity Performance and Valuation

16 December 2019

Relevant market considerations

1

▪ Consensus outlook is for a range-bound market

– Slowing earnings growth is expected to be offset by relatively stable global economic expansion and accommodative monetary policy

– Analysis of historical episodes after strong annual rallies supports these expectations

▪ Observable risks

– US elections

– Large tech companies are convenient targets for politicians

– Global economy may deteriorate

– Margins may contract

– Fed may start raising rates sooner than expected

As of 10 December 2019

S&P500 vs NASDAQ 100 History of Returns2000-2003 performance

2

▪ Between March 1999 and March 2000 NASDAQ 100 outperformed S&P500 by 91% and then gave it all back within the next 10 months

▪ Annualized volatility of relative performance was 27%

Sources: Bloomberg, SECOR

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Cumulative performance of NASDAQ100 and S&P500 1999-2003

S&P500 Nasdaq 100

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Rolling 1 Year Outperformance of NASDAQ 100 vs S&P5002000-2003

S&P500 versus information technology history of returns

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▪ Since December 2010 the Information Technology sector outperformed S&P500 by 4.8% a year with majority of outperformance realized since 2016

▪ Earnings growth and change in P/E ratio were the main contributors to this outperformance


All data as of November 30, 2019

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Cumulative Growth of $1 invested in S&P500 vs Information Technology Sector

S&P500 InfoTech

Return comparison S&P500 vs Information Technology since Dec 2010

S&P500 Information Technology

Actual Total Ret 13.1% 17.9%

Average Dividends 2.0% 1.3%

Earnings Growth 7.1% 10.3%

Sales Growth 4.3% 7.8%

Change in P/E 3.5% 5.3%

NASDAQ 100 vs Financials and Industrials Valuation

4

▪ NASDAQ’s valuation vs Financials appears elevated: Financials suffered from post-Global Financial Crisis (GFC) regulations and low interest rates

▪ Investors rewarded technology companies with higher valuation ratios compared with those for more traditional Industrial companies due to higher expected growth rates



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NASDAQ100/Financials Ratio of Next-12-Months expected P/E

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NASDAQ100/Industrials Ratio of Next-12-Months expected P/E

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▪ NASDAQ 100 appears to be somewhat overvalued versus S&P500 based on expected earnings, but not outside of the post-GFC range

▪ Based on Free Cash Flow yield, valuations appear to be similar

▪ However, this comparison ignores that:

– NASDAQ has become much larger portion of the market

– Differences in valuations across sectors hide Tech overvaluation vs. some sectors

NASDAQ 100 vs S&P500 Valuation



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Free Cash Flow Yield

S&P500 Nasdaq 100

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NASDAQ100/S&P500 Ratio of Next-12-Months expected P/E

P/E differences increased after differences in growth were realized

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▪ In the aftermath of GFC, investors underestimated the pace of earnings growth in Tech sector

▪ While recent pick up in relative P/E differentials seems large, it’s not comparable with the levels of 2000 tech bubble: in December 1999, InfoTech and S&P500 were trading at P/E of 66 and 29, respectively



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S&P500 vs InfoTech Sector P/E ratio

S&P500 InfoTech

S&P500 Information Technology

Q3 2016 - Nov 2019 2.1% 16.3%

Q3 1996 - Dec 1999 56.6% 182.2%

P/E ratio change comparison between periods

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S&P500 vs InfoTech Expected Earnings Growth (FY3 vs Next Year)

S&P500 InfoTech

Earnings growth tends to disappoint when investors are enthusiastic

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▪ Information technology sector has matured and its future returns will depend on its ability to deliver continued robust earnings growth

▪ Historically, elevated P/E ratios often coincided with slowdown in earnings growth



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Next 12 Months(NTM) Earnings growth as a function of Expected P/E ratio for S&P500

NASDAQ 100 exposure to economic growth increased recently

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▪ Technology companies’ earnings are increasingly exposed to global growth and to the developments in the US-China trade tensions; therefore, correlation with yield changes increased: Technology performed strongly when higher expected economic growth pushed yields higher over the recent history

▪ Healthcare companies are potentially exposed to the outcome of the US Elections



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Rolling one-year correlation of NASDAQ 100 returns with changes in 10-Yr Yield

FANG+ vs NASDAQ 100

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▪ FANG+ is an equal weighted index of Facebook, Apple, Amazon, Netflix and Alphabet (Google)

▪ Collectively these 5 companies represent ~38% of NASDAQ 100 market cap; as of Nov 30, 2019 FANG+ traded at NTM P/E of ~32

▪ Performance of FANG may be partially driven by idiosyncratic factors, which may be different from the factors affecting broad technology sector, but correlation between FANG+ and NASDAQ 100 is 0.88



FANG vs NASDAQ 100 Return History, 09/2014 – 11/2019

FANG Nasdaq 100 FANG - NASDAQ 100

Annualized Return 23.4% 16.5% 6.9%St.Dev. 20.9% 15.0% 10.4%

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FANG+ / NASDAQ Cumulative Performance

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FANG/NASDAQ100 Ratio of NTM expected P/E

Summary: Considerations for technology in 2020

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▪ Bull case: technology companies may deliver strong earnings growth driven by continuing penetration of Artificial Intelligence, cloud computing, 5g technology, etc.

▪ Bear case:

– Investors are expecting double-digit earnings growth, thus the room for disappointment is large;

– Success of large technology companies makes them a target for politicians – there is a risk of break-up or additional regulations

Source: Bloomberg, SECOR. As of 10 December 2019

Disclaimer

11

The information and opinions contained in this presentation are for background purposes only and do not purport to be full or complete. No reliance may be placed for any purpose on the information or opinions contained herein.SECOR does not give any representation, warranty or undertaking, or accept any liability, as to the accuracy or the completeness of the information or opinions contained herein.

This presentation does not constitute an offer or solicitation to any person in any jurisdiction. Any such offering will only be made in accordance with the terms and conditions set forth in a private placement memorandum or otheroffering document.

Recipients should not rely on this material in making any future investment decision. We do not represent that the information contained herein is accurate or complete, and it should not be relied upon as such. Opinions expressedherein are subject to change without notice. Certain information contained herein (including any forward-looking statements and economic and market information) has been obtained from published sources and/or prepared bythird parties and in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, SECOR and its affiliates do not assume any responsibility for the accuracy or completeness of suchinformation. SECOR does not undertake any obligation to update the information contained herein as of any future date. Any views or opinions expressed may not reflect those of the firm as a whole.

This document may include projections or other forward-looking statements regarding future events, targets, intentions or expectations. Due to various risks and uncertainties, actual events or results may differ materially fromthose reflected or contemplated in such forward-looking statements. Past performance is no guarantee of future results. Investments are subject to risk, including the possible loss of principal. There is no guarantee that projectedreturns or risk assumptions will be realized or that an investment strategy will be successful. No representation, warranty or undertaking is made as to the reasonableness of the assumptions made herein or that all assumptionsmade herein have been stated. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made referenceto directly or indirectly in this document, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio.

Illustrative models or investments presented in this document are based on a number of assumptions and are presented only for the limited purpose of providing a sample illustration. Any sample illustration is inherently subject tosignificant business, economic and competitive uncertainties and contingencies, many of which are beyond SECOR’s control. Any sample illustration may not be reflective of any actual investment purchased, sold, or recommendedfor investment by SECOR and are not intended to represent the performance of any investment made in the past or to be made in the future by any portfolio managed or advised by SECOR. Actual returns may have no correlationwith the sample illustration presented herein, and the sample illustration is not necessarily indicative of an investment that SECOR will make. It should not be assumed that SECOR’s investment recommendations in the future willaccomplish its goals or will equal the illustration provided herein.

The information contained in this document is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution or any future date and SECOR does not undertake any obligation toupdate the information contained herein as of any future date. This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided forbackground purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make its own evaluation of the information described herein, any risks associatedtherewith and any related legal, tax, accounting or other material considerations. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her/its specific portfolio orsituation, it is encouraged to consult with the professional advisor of his/her/its choosing.

Investment advisory services are provided by SECOR Investment Advisors, LP (“SIA”) and SECOR Investment Advisors (UK), LLP, (“SIA-UK”) , each subsidiaries of SECOR Asset Management, LP. Portfolio solutions are provided bySECOR Investment Management, LP (“SIM”), a subsidiary of SECOR Asset Management, LP. SIA UK is authorized and regulated by the Financial Conduct Authority. Each of SIA and SIM are registered as an investment adviser with theSecurities and Exchange Commission. Registration as an investment adviser with the Securities and Exchange Commission does not imply any level of skill or training.

Indexes are unmanaged, do not reflect deduction of fees and expenses, and are not available for direct investment.

Documents

SECOR Asset Management€¦ · S&P500 vs NASDAQ 100 History of Returns 2000-2003 performance 2 ... Any such offering will only be made in accordance with the terms and conditions