Sequoia Fund · NASDAQ:SEQUX
Sequoia Fund — Ruane Cunniff — Investor Day (May 2024)
52 slides from Sequoia Fund's investor day presentation, May 16, 2024
Slide 1: Please share your feedback on the event
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Slide 2: Investor Day 2024
I N V E S T O R D AY 2 0 2 4 M AY 1 6 , 2 0 2 4 45 Rockefeller Plaza, 34th Floor New York, NY 10111 (212) 832-5280 | www.ruanecunniff.com
Slide 3: Agenda
AGENDA Welcome Performance Portfolio Organization Company Presentations Q&A RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 4: Disclosures
DISCLOSURES Please consider the investment objectives, risks and charges and expenses of Sequoia Fund, Inc. (the “Fund”) carefully before investing. The Fund's prospectus and summary prospectus contain this and other information about the Fund and are available at www.sequoiafund.com or by calling 1
Slide 5: Disclosures (continued)
DISCLOSURES (CONTINUED) Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment): Management Fees 1.00% Other Expenses 0.11% Total Annual Fund Operating Expenses 1.11% Expense Reimbursement by Investment Advisor (0.11)% Net Annual Fund Operatin
Slide 6: Disclosures (continued)
DISCLOSURES (CONTINUED) Average Annual Total Returns, where noted, reflect the compound annual return of Sequoia Fund net of all fees over the specified time period. Total stock return figures, where noted, are taken from Bloomberg and reflect the calculation of total return for a security over a sp
Slide 7: Performance
PERFORMANCE Last 12 Months to May 15 , 2 0 2 4 40% 34.61% 35% 30.33% 30% 25% 20.32% 20% 15% 10% 5% 0% SEQUX S&P 500 S&P 500 Equal Weight See Disclosures on slides i-iii. Past performance does not guarantee future results. RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 8: Performance
PERFORMANCE J une 30, 2016 † to May 15 , 2 0 2 4 (Annua l i ze d ) 16% 14.53% 14% 12.29% 11.92% 12% 10% 8% 6% 4% 2% 0% SEQUX S&P 500 S&P 500 Equal Weight See Disclosures on slides i-iii. Past performance does not guarantee future results. †Performance measured from June 30, 2016, the start of the fi
Slide 9: Performance: Contribution
PERFORMANCE: CONTRIBUTION Last 12 Months to May 15 , 2 0 2 4 Liberty Broadband Liberty Media Eurofins Scientific CarMax Netflix Berkshire Hathaway UnitedHealth Group Credit Acceptance Jacobs Engineering Group Ashtead Group Elevance Health Intercontinental Exchange Meta SAP Capital One Constellation
Slide 10: Portfolio Adds and Exits
PORTFOLIO ADDS AND EXITS Last 12 Months to May 15, 2024 ∆ Portfolio ∆ Portfolio New Purchases Weight Full Sales Weight Ashtead 3.2% Netflix -2.7% RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 11: Portfolio: Top 10 Holdings
PORTFOLIO: TOP 10 HOLDINGS As of May 15, 2024 Investment Portfolio Weight Years Invested Rolls-Royce Holdings PLC 7.7% 16.8 Intercontinental Exchange, Inc. 7.0% 3.8 Alphabet, Inc. 6.9% 13.9 Charles Schwab Corp. 6.8% 8.0 Constellation Software, Inc. 6.4% 9.8 Taiwan Semiconductor Mfg. 6.0% 4.6 Liberty
Slide 12: Portfolio Characteristics Today
PORTFOLIO CHARACTERISTICS TODAY † Portfolio Valuation* Portfolio Concentration – Weight of Top 10 100% Sequoia Fund Avg: 64% 80% 19.7x 21.8x 60% 40% IC Avg: 60% 63% SEQUOIA FUND S&P 500 36% 20% S&P 500 0% *Non-GAAP. Price-to-earnings ratios are based on internal earnings estimates updated based on t
Slide 13: Firm Update
FIRM UPDATE ASSETS UNDER MANAGEMENT* $16 BILLION TEAM MEMBERS 60 INVESTMENT PROFESSIONALS 27 NEW INVESTMENT HIRES 2 BUSINESS PROFESSIONALS 33 *Ruane Cunniff LP and related parties. Estimated as of 5/15/2024. RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 14: Slide 14
Slide 15: Arman Gokgol-Kline
ARMAN GOKGOL-KLINE RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 16: Rolls-Royce Holdings
ROLLS-ROYCE HOLDINGS SEQU OI A FUND INVESTMEN T £4.50 £0.75 Initial Purchase 7/27/2007 £0.60 £4.00 £0.45 £3.50 £0.30 £3.00 Earnings per Share £0.15 Stock Price £2.50 £0.00 £2.00 -£0.15 £1.50 -£0.30 £1.00 -£0.45 £0.50 -£0.60 £0.00 -£0.75 RR EPS RR Stock Price Curr Portfolio Wgt: 7.7% RR Stock TR (Ann
Slide 17: Key Questions
KEY QUESTIONS 1. Given the bumpy road over the past 10 years, how do we remain comfortable owning Rolls-Royce? 2. Tufan Erginbilgic has done a good job of getting Rolls-Royce back on track. Do you worry about key- man risk? RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 18: Rolls-Royce Holdings
ROLLS-ROYCE HOLDINGS SEQU OI A FUND INVESTMEN T £4.50 £0.75 Initial Purchase 7/27/2007 Trent 1000 £0.60 £4.00 Issues £0.45 £3.50 £0.30 £3.00 Earnings per Share COVID £0.15 Stock Price £2.50 £0.00 £2.00 -£0.15 £1.50 -£0.30 £1.00 -£0.45 £0.50 Rights -£0.60 Offering £0.00 -£0.75 RR EPS RR Stock Price C
Slide 19: Business Fundamentals Vastly Improved
BUSINESS FUNDAMENTALS VASTLY IMPROVED Total Cash Costs / Gross Margin 25.0x Net Debt / TTM EBIT 0.9 20.0x 0.6 15.0x 10.0x 5.0x 0.0x 2019 2023 2019 2020 2021 2022 2023 $40 RR Hedge Book $1.55 700 Trent 1000 Fix Costs (GBP millions) $35 $1.50 600 $30 $1.45 500 $25 $1.40 400 $20 $1.35 300 $15 $1.30 200
Slide 20: Key Questions
KEY QUESTIONS 1. Given the bumpy road over the past 10 years, how do we remain comfortable owning Rolls-Royce? 2. Tufan Erginbilgic has done a good job of getting Rolls-Royce back on track. Do you worry about key- man risk? RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 21: Will Pan & Layton Os Good
W I L L PA N & L AY T O N O S G O O D RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 22: Alphabet
ALPHABET SEQU OI A FUND INVESTMEN T $180 $7.00 $160 Initial Purchase 6/7/2010 $6.00 $140 $120 $5.00 Earnings per Share Stock Price $100 $4.00 $80 $3.00 $60 $2.00 $40 $1.00 $20 $0 $0.00 GOOGL EPS GOOGL Stock Price Curr Portfolio Wgt: 6.9% GOOGL Stock TR (Ann.): 21.0% S&P 500 TR (Ann.): 14.5% RUANE CU
Slide 23: Key Questions
KEY QUESTIONS 1. Is Generative AI a threat to Alphabet’s dominance? 2. Does Alphabet’s business possess the fitness to navigate this paradigm shift? RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 24: Generative AI Is a Powerful Tool
GENERATIVE AI IS A POWERFUL TOOL Source: chatgpt.com RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 25: Google Search Provides Answers Too
GOOGLE SEARCH PROVIDES ANSWERS TOO Tabbed Browsing Dynamic Standard Links Knowledge Box Suggested Questions Source: www.google.com RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 26: Google Monetizes Search
GOOGLE MONETIZES SEARCH Ad Carousel Featured Snippet Knowledge Box Suggested Traditional Questions Results RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 27: Google Integrating AI in Search
GOOGLE INTEGRATING AI IN SEARCH AI Helping To Refine the Question Tabbed Ad Browsing Ad Carousel & Traditional Results RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 28: Alphabet's Ecosystem
ALPHABET’S ECOSYSTEM Search Gmail Android Chrome YouTube Play Store Drive Calendar Photos Assistant Lens Maps Ads Home Workspace AdSense Cloud Waze RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 29: Key Questions
KEY QUESTIONS 1. Is Generative AI a threat to Alphabet’s dominance? 2. Does Alphabet’s business possess the fitness to navigate this paradigm shift? RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 30: Ingredients for Scale Up AI
INGREDIENTS FOR SCALE UP AI Data Talent Infrastructure Foundational Model RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 31: Talent: Number of Models by Organization
TALENT: NUMBER OF MODELS BY ORGANIZATION 2019- 2023 Google 40 OpenAI 20 Meta 19 Microsoft 18 DeepMind 15 Tsinghua University 7 EleutherAI 6 Together 6 Cohere 5 Stanford University 5 Hugging Face 5 Anthropic 5 AI2 4 BigScience 4 Shanghai AI Laboratory 4 0 5 10 15 20 25 30 35 40 Number of Foundation M
Slide 32: Data: Alphabet's Access Is Unmatched
DATA: ALPHABET’S ACCESS IS UNMATCHED Search YouTube Maps RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 33: Infrastructure: Massive Computing Capability
INFRASTRUCTURE: MASSIVE COMPUTING CAPABILITY RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 34: Key Questions
KEY QUESTIONS 1. Is Generative AI a threat to Alphabet’s dominance? 2. Does Alphabet’s business possess the fitness to navigate this paradigm shift? RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 35: Matt Cooper & Will Reid
M AT T C O O P E R & W I L L R E I D RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 36: UnitedHealth and Elevance
UNITEDHEALTH AND ELEVANCE SEQU OI A FUND INVESTMEN T S $600 $30.00 $600 $40.00 Initial Purchase Initial Purchase 11/15/2019 3/17/2021 $35.00 $500 $25.00 $500 $30.00 $400 $20.00 $400 Earnings per Share Earnings per Share $25.00 Stock Price Stock Price $300 $15.00 $300 $20.00 $15.00 $200 $10.00 $200 $
Slide 37: UnitedHealth and Elevance
UNITEDHEALTH AND ELEVANCE SEQU OI A FUND INVESTMEN T S $600 $30.00 $600 $40.00 Initial Purchase Initial Purchase 11/15/2019 3/17/2021 $35.00 $500 $25.00 $500 $30.00 $400 $20.00 $400 Earnings per Share Earnings per Share $25.00 Stock Price Stock Price $300 $15.00 $300 $20.00 $15.00 $200 $10.00 $200 $
Slide 38: Key Questions
KEY QUESTIONS 1. Given the US healthcare system’s high costs and inefficiencies, does the exposure to policy risk make the healthcare industry too difficult to invest in? 2. Medicare Advantage has been a big driver of growth for both companies, but today has seen some financial and political pressur
Slide 39: Healthcare Spend in United States
HEALTHCARE SPEND IN UNITED STATES $4,500 Total Healthcare Spend 20% 2022 Consumer Healthcare Spend 1980 - 2022 By segment $4,000 18% Gov't - Medicare / 16% Medicaid $3,500 Admin Gov't - Healthcare Spend ($ Billions) Insurance Public 14% Cos. Health $3,000 12% Retail Drugs % of GDP $2,500 10% Home /
Slide 40: Key Questions
KEY QUESTIONS 1. Given the US healthcare system’s high costs and inefficiencies, does the exposure to policy risk make the healthcare industry too difficult to invest in? 2. Medicare Advantage has been a big driver of growth for both companies, but today has seen some financial and political pressur
Slide 41: Growth in Medicare Advantage Penetration
GROWTH IN MEDICARE ADVANTAGE PENETRATION 60% 51% 50% 48% 46% 42% % of Total Medicare Enrollees 40% 39% 37% 35% 32% 33% 31% 30% 29% 26% 27% 24% 25% 22% 20% 19% 10% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: KFF; Centers for Medicare & Medicaid Serv
Slide 42: Medicare Advantage Structure
MEDICARE ADVANTAGE STRUCTURE Government Spend Supplemental Benefits MCOs deliver Pre-Tax Margin care more Marketing & efficiently. Admin Cost of Care Cost of Care Traditional Medicare Medicare Advantage RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 43: Medicare Advantage Structure
MEDICARE ADVANTAGE STRUCTURE Government Spend Supplemental Benefits Pre-Tax Margin Lower government spend Marketing & will lead to reduction in Admin supplemental benefits… … but Insurers’ Pre-tax Cost of Care Margin remains unaffected in the long run. Cost of Care Traditional Medicare Medicare Adva
Slide 44: Key Questions
KEY QUESTIONS 1. Given the US healthcare system’s high costs and inefficiencies, does the exposure to policy risk make the healthcare industry too difficult to invest in? 2. Medicare Advantage has been a big driver of growth for both companies, but today has seen some financial and political pressur
Slide 45: Trevor Magyar & Sophie Garrett
T R E V O R M A G YA R & S O P H I E G A R R E T T RUANE CUNNIFF LP | INVESTOR DAY | MAY 2024
Slide 46: Charles Schwab Corp
CHARLES SCHWAB CORP SEQU OI A FUND INVESTMEN T $100 Initial Purchase 5/11/2016 $3.50 $90 $80 $3.00 $70 $2.50 Earnings per Share $60 Stock Price $2.00 $50 $40 $1.50 $30 $1.00 $20 $0.50 $10 $0 $0.00 SCHW EPS SHCW Stock Price Curr Portfolio Wgt: 6.8% SCHW Stock TR (Ann.): 15.3% S&P 500 TR (Ann.): 14.5%
Slide 47: Key Questions
KEY QUESTIONS 1. Have the recent developments with Schwab compromised the strength of the franchise? 2. For a firm that admits to not having great macroeconomic insights, how do you approach owning a company where having a view on interest rates seems central to the thesis? RUANE CUNNIFF LP | INVEST
Slide 48: 30 Years of Client Asset Growth
30 YEARS OF CLIENT ASSET GROWTH Total Schwab Client Assets 1994 - 2023 $9,000 $8,000 $7,000 Client Assets ($B of USD) $6,000 Compound Annual Growth 15.8% $5,000 Est. Organic Asset Growth 14.7% $4,000 (adjusted for TD acquisition) $3,000 $2,000 $1,000 $- 1994 1996 1998 2000 2002 2004 2006 2008 2010 2
Slide 49: Declining Cost to Serve
DECLINING COST TO SERVE Revenue and Expense per Client Assets 1994 - 2023 $9,000 $1.20 $8,000 $1.00 $7,000 Revenue per $100 of Client Assets Rev / Exp per $100 of Client Assets Client Assets ($B of USD) $6,000 Wirehouse Rev/$100 of Client Assets ~$0.60 $0.80 $5,000 Wirehouse Exp/ $100 of Client Asse
Slide 50: Key Questions
KEY QUESTIONS 1. Have the recent developments with Schwab compromised the strength of the franchise? 2. For a firm that admits to not having great macroeconomic insights, how do you approach owning a company where having a view on interest rates seems central to the thesis? RUANE CUNNIFF LP | INVEST
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Slide 52: Thanks for Attending!
Please share your feedback Thanks on the event here: for Attending!