Institutional Stock Ownership Report U.S. Large Cap Equity FAANG Stocks (NASDAQ: FB, AAPL, AMZN, NFLX, GOOGL/GOOG) July 7, 2017 Summary The following looks at active U.S. Large Cap equity (USLC) strategies ownership of the group of companies collectively called FAANG. This report uses evestment s Holdings Based Analysis. The solution provides details on stock ownership trends through data provided to evestment by asset managers. USLC managers reported institutional assets under management of USD 2.0 trillion across 1,186 strategies to evestment at the end of Q1 2017. While managers have been persistently overweight the technology sector compared to the Russell 1000 over the past three years, the USLC universe is currently underweight FAANG. Highlights U.S. large cap managers held on average 7.65% of their portfolios in FAANG in Q1 2017. Q1 USLC exposure to Apple increased from performance and share purchases, but its weight relative to the Russell 1000 has declined for nearly seven quarters. Large cap growth managers decreased their portfolio weighting to Alphabet during the past quarter and year.
Institutional Ownership: FAANG Overview U.S. large cap (USLC) equity strategies managed USD 2.00 trillion in assets to end the first quarter of 2017. 897 managers in the universe reported portfolio holdings to evestment. USLC managers held on average 7.65% of their portfolios in Facebook, Apple, Amazon, Netflix, and Alphabet at the end of Q1 2017 compared to an 8.86% weighting in the Russell 1000. As expected, exposure levels varied significantly based on strategy style with FAANG comprising 11.11% of USLC growth portfolios in Q1 vs. 17.03% for the Russell 1000 Growth. U.S. large cap strategies were overweight the technology sector (19.07% vs. 18.42%) and the computer services software & systems sub-sector which contains Facebook and Alphabet (9.81% vs. 9.12%) in Q1 2017. Managers were also overweight the retail sub-sector, which lists Amazon and Netflix as constituents, under consumer discretionary (5.63% vs. 5.36%); we utilize the RGS classification system throughout. With the exception of Apple, U.S. large cap managers were in aggregate net sellers of FAANG quarter-over-quarter. The selling of shares may have been motivated by managers desire to take profits or maintain a certain weighting to these firms as portfolio exposure increased on average despite the reduction in share count. On a price basis, all five companies outperformed the benchmark during Q1 2017. The number of strategies holding Apple increased 2.41% in Q1 across the USLC universe and now sits at 68.00%. Portfolio inclusion may be viewed as a proxy for manager consensus or crowdedness. The number of strategies holding Netflix also increased rapidly in Q1; on net, approximately 4% of growth managers and more than 2% of core managers established new positions. On a year-over-year basis, Amazon was the most widely initiated trade across FAANG with 6.90% of growth and 6.02% of core managers becoming shareholders. Figure 1: FAANG Ownership Across U.S. Large Cap Equity Managers; Portfolio Inclusion denotes the percentage of strategies within each universe which own any amount of the specified name, Buyer-to-Seller Ratio is calculated as the number of strategies which were net share buyers divided by the number of strategies which were net sellers during the specified period Company Index Weight Average Portfolio Weight (Equal-Weighted) Q/Q Y/Y Portfolio Inclusion Number of Shares (Thousands) Net Q/Q Net Y/Y Q1 2017 Buyer-to-Seller Ratio (# Strategies) Last 12 Months All U.S. Large Cap Equity (Benchmark: Russell 1000) Facebook Inc 1.41% 1.33% 0.19% 0.10% 42.47% 133,235 (12,157) (2,092) 0.66 0.89 Apple Inc 3.48% 2.48% 0.36% 0.15% 68.00% 207,564 7,757 17,502 0.88 0.67 Amazon Com Inc 1.52% 1.35% 0.13% 0.35% 39.46% 26,026 (3,003) 420 0.58 0.89 Netflix Inc 0.27% 0.16% 0.04% 0.07% 11.93% 25,856 (4,887) 20 1.16 2.32 Alphabet Inc 2.19% 2.32% -0.04% 0.00% 61.09% 41,642 (1,948) 2,248 0.55 0.79 U.S. Large Cap Core Equity (Benchmark: Russell 1000) Facebook Inc 1.41% 0.74% 0.12% 0.10% 50.32% 21,329 (305) 5,143 1.00 1.60 Apple Inc 3.48% 2.04% 0.26% 0.05% 79.35% 56,347 4,599 9,364 0.97 0.89 Amazon Com Inc 1.52% 0.66% 0.03% 0.14% 43.87% 2,405 (51) (584) 0.76 1.12 Netflix Inc 0.27% 0.06% 0.02% 0.02% 10.00% 2,885 134 2,065 1.50 2.67 Alphabet Inc 2.19% 1.61% -0.04% -0.03% 72.26% 7,718 51 540 0.68 1.14 U.S. Large Cap Growth Equity (Benchmark: Russell 1000 Growth) Facebook Inc 2.80% 2.36% 0.22% -0.20% 82.40% 111,732 (11,852) (7,235) 0.49 0.57 Apple Inc 6.33% 2.73% 0.33% -0.31% 77.90% 115,811 3,158 8,138 0.77 0.47 Amazon Com Inc 3.03% 2.44% 0.16% 0.42% 77.53% 23,422 (2,951) 1,005 0.49 0.77 Netflix Inc 0.53% 0.33% 0.06% 0.10% 27.34% 22,957 (5,021) (2,045) 1.03 2.18 Alphabet Inc 4.35% 3.25% -0.27% -0.62% 91.01% 30,235 (1,999) 1,707 0.43 0.54 U.S. Large Cap Value Equity (Benchmark: ) Facebook Inc 0.00% 0.03% -0.01% -0.01% 1.56% 173 26 397 2.00 4-to-0 Apple Inc 0.59% 0.79% 0.04% -0.03% 48.75% 35,407 946 4,814 0.60 1.60 Amazon Com Inc 0.00% 0.07% 0.01% -0.01% 3.44% 200 12 52 2.50 0.83 Netflix Inc 0.00% 0.00% 0.00% 0.00% 0.94% 15 4 15 1-to-0 3-to-0 Alphabet Inc 0.00% 0.44% -0.02% -0.01% 25.31% 3,689 (4) 2,057 0.93 1.88 2
Y/Y Weight Q/Q Weight Institutional Ownership: FAANG Figures 2 3: s in Total FAANG Exposure The charts below depict prior period portfolio exposure to FAANG as a whole (X-axis) and change in exposure through Q1 2017 (Y-axis) on a manager-by-manager basis. Bubble widths are based on Q1 2017 institutional AUM. Value strategies, with the exception of a few, have largely stayed out of these stocks or have initiated small positions Y/Y. A handful of large (in AUM terms) growth managers have sizeable positions in FAANG with some adding to their exposure further during the past quarter and year. Most U.S. large cap strategies have seen their exposure to these five companies increase over the chosen timeframes, whether it is due to relative price changes or establishing and/or actively adding to positions. Value Core Growth 8% 6% Horizontal lines depict Q/Q change for Russell 1000, 4% 2% 0% -5% 0% 5% 10% 15% 20% 25% 30% -2% -4% 10% Value Core 8% Growth 6% Q4 2016 Portfolio Weight Vertical lines depict Q4 2016 weights for Russell 1000, Lines depict Y/Y change for Russell 1000, 4% 2% 0% -5% 0% 5% 10% 15% 20% 25% 30% -2% -4% -6% Vertical lines depict Q1 2016 weights for Russell 1000, -8% Q1 2016 Portfolio Weight 3
Institutional Ownership: FAANG Portfolio Exposure Over Time Across the five companies, Apple was the only issue to which U.S. large cap growth managers were underweight against the Russell 1000 over the past year. On a two-year basis, Facebook, Amazon, and Netflix were the main gainers in terms of weighting in growth portfolios. On average, large cap core managers increased their exposure to all FAANG stocks both quarter-over-quarter and year-over-year; Alphabet was the one exception with portfolio weights declining 4 bps and 3 bps, respectively. Value strategies generally eschewed Facebook, Amazon, and Netflix throughout the reporting timeframe. Alphabet has become more investable for the cohort with average portfolio weights to the company increasing from 18 bps in Q1 2014 to 44 bps in Q1 2017. Figures 4 8: Exposure s Over Last 3 Years Average portfolio weights (equal-weighted) for US Large Cap Core in green, US Large Cap Growth in orange, US Large Cap Value in blue, and the Russell 1000 Index in grey 3.0% Facebook 4.5% Apple 4.0% 3.5% 3.0% 3.0% Amazon 0.4% Netflix 0.3% 0.2% 0.1% 4.5% Alphabet 4.0% 3.5% 3.0% 4
Institutional Ownership: FAANG Portfolio Exposure vs. Benchmarks Over the past three years, U.S. large cap equity managers overall were underweight all FAANG stocks with the exception of Alphabet compared to the Russell 1000. Looking at managers by their style categories and respective benchmarks, we see large cap core strategies have been consistently underweight FAANG compared to the Russell 1000 and relative weightings have been declining steadily over the stated time frame. Q1 2017 marked the lowest point, in terms of manager underweightedness, for all five stocks with the exception of Facebook (-68 bps in Q3 2016 was the starkest difference to the downside vs. -67 bps in Q1 2017). Large cap growth strategies relative allocations to FAANG ex- Apple remained within a 60 basis point band compared to the Russell 1000 Growth until Q2 2016. The decline in relative exposure for growth managers from Q2 2016 to the current quarter was largely a function of the benchmark s change in weight; growth managers average portfolio weight to FAANG ex-apple decreased by -10 bps during this period compared to a +98 bp increase for the benchmark. FAANG, including Apple, now constitutes 17.03% of the Russell 1000 Growth. The did not count any FAANG stocks as constituents between Q2 2014 and Q1 2016. Apple was a constituent at the end of Q1 2014 and re-entered the index in Q2 2016; this is reflected in figure 12. Alphabet has become an increasingly important active share allocation for value managers over the past three years, up from +18 to +44 bps. Figures 9 12: Managers Portfolio Weights Relative to Benchmarks Average manager weights less benchmark weights for FAANG stocks by quarter Facebook in red, Apple in orange, Amazon in yellow, Netflix in green, and Alphabet in blue 0.4% All U.S. Large Cap Less Russell 1000 0.2% -0.2% -0.4% -0.6% -0.8% - -1.2% 0.2% U.S. Large Cap Core Less Russell 1000-0.2% -0.4% -0.6% -0.8% - -1.2% -1.4% -1.6% U.S. Large Cap Growth Less Russell 1000 Growth - - - - - -3.0% -3.5% -4.0% 1.2% U.S. Large Cap Value Less 0.8% 0.6% 0.4% 0.2% -0.2% -0.4% -0.6% 5
Methodology & Notes Investment managers report holdings and other portfolio characteristics to evestment voluntarily. Managers may decline at any time to report portfolio holdings, assets under management, or any other piece of information to evestment. The managers included in this report are not necessarily benchmarked to our chosen comparison index. Time series in portfolio weight, number of shares, portfolio inclusion, and other metrics are affected by strategies which have incomplete reporting histories. Company Description evestment provides a flexible suite of easy-to-use, cloud-based solutions to help global investors and their consultants select investment managers, enable asset managers to successfully market their funds worldwide and assist clients to identify and capitalize on global investment trends. With the largest, most comprehensive global database of traditional and alternative strategies, delivered through leading-edge technology and backed by fantastic client service, evestment helps its clients be more strategic, efficient and informed. For more evestment research visit: www.evestment.com/resources/research-reports Locations Atlanta (Headquarters) support@evestment.com +1 (877) 769 2388 New York support@evestment.com +1 (212) 661 6050 Edinburgh europe@evestment.com +44 (0) 131 564 0736 London europe@evestment.com +44 (0) 20 7651 0800 Sydney australia@evestment.com +61 (0) 2 8211 2717 Hong Kong asia@evestment.com +852 2293 2390 Dubai support@evestment.com +971 561380679 Research Group Peter Laurelli, CFA Global Head of Research plaurelli@evestment.com +1 (212) 230 2216 Minkyu Mike Cho, CFA Senior Research Analyst mcho@evestment.com +1 (212) 230 2209 Tony Kristić Senior Research Analyst tkristic@evestment.com +1 (646) 747 7166 Media Contacts Mark Scott Corporate Communications mscott@evestment.com +1 (678) 238 0761 Jamie Letica Cognito (US) jamie.letica@cognitomedia.com +1 (646) 395 6305 Francesca Bliss Cognito (UK) francesca.bliss@cognitomedia.com +44 (0) 20 7426 9419 Natalie Chan Ryan Communication (Asia) natalie@ryancommunications.com +852 3655 0539 evestment Alliance, LLC All Rights Reserved 5