Apple shares are set to lose their weighting and be reclassified in the annual reconstitution of the widely followed Russell indexes and there is apprehension that its shares could fall further after dropping more than $200 billion in market capitalization in one year.
According to an analysis by Credit Suisse when the reconstitution of the Russell indexes takes effect, about $1.3 billion more will be sold in Apple Inc shares at the market close on Friday.
According to Reuters data outstanding shares have dropped to less than 5.5 billion from 5.8 billion in late June 2015, when the Russell indexes were last recalibrated because Apple has been aggressively buying back and retiring its stock.
Credit Suisse said that Apple's weighting in the Russell 1000 .RUI will roughly fall to 2.52 percent from 2.77 percent. The decline is due to the combination of fewer shares outstanding and Apple's smaller part of the index's capitalization. Larger companies like Apple tend to influence performance of a market-weighted index.
To match the new, lower weighting fund managers who are pegged to the index, including exchange-traded funds, will have to sell the stock after the changes.
According to a Reuters analysis of Morningstar Inc data, the Russell 1000 directly benchmarks roughly $96 billion in U.S. fund assets. In comparison, according to S&P Dow Jones Indices, the S&P 500 is pegged globally at $2.2 trillion.
Apple will be classified as both a value and a growth company at Russell which will add to the selling pressure. According to index provider FTSE Russell, split in between two Russell subindexes, Apple will be considered "growth" and 8 percent "value" after the close on Friday.
Value managers that peg their investments to the Russell indexes will be selling Apple while growth managers will be buying and hence the move matters. Meera Krishnan, U.S. index strategist at Credit Suisse in New York said that there will be net selling of Apple since there are more assets benchmarked to growth than to value.
There would be about $400 million of buying from the value side and there will be over $850 million of selling in Apple out of the growth component of the Russell 1000, she estimated.
According to Morningstar data to the end of May, compared to fewer than 1,000 large-cap value holders, almost 1,900 large-cap growth funds own Apple shares.
Since last year, growth funds had been shedding Apple stock.
"Indices are moving to confirm what the market has already been saying, which is it is a growth and value stock," said Graham Tanaka, portfolio manager of the Tanaka Growth Fund in New York. While considering Apple stocks as a "major holding", he said that he has trimmed the fund's Apple stake.
"The question is when and how Apple can reaccelerate their growth rate. We're playing the waiting game," he said.
When Warren Buffett's Berkshire Hathaway Inc disclosed an investment of nearly $1 billion in Apple in May, market perception was cemented. Rather than favoring heady growth prospects, strong balance sheets and management, which are characteristics of a value play, are favored by Buffett's investments.
Last April, Apple had reported its first-ever decline in iPhone sales and first revenue drop in 13 years and the company shares are down 9 percent since then. the stock has dropped 28 percent since its $133 closing high in February 2015.
(Source:www.reuters.com)
According to an analysis by Credit Suisse when the reconstitution of the Russell indexes takes effect, about $1.3 billion more will be sold in Apple Inc shares at the market close on Friday.
According to Reuters data outstanding shares have dropped to less than 5.5 billion from 5.8 billion in late June 2015, when the Russell indexes were last recalibrated because Apple has been aggressively buying back and retiring its stock.
Credit Suisse said that Apple's weighting in the Russell 1000 .RUI will roughly fall to 2.52 percent from 2.77 percent. The decline is due to the combination of fewer shares outstanding and Apple's smaller part of the index's capitalization. Larger companies like Apple tend to influence performance of a market-weighted index.
To match the new, lower weighting fund managers who are pegged to the index, including exchange-traded funds, will have to sell the stock after the changes.
According to a Reuters analysis of Morningstar Inc data, the Russell 1000 directly benchmarks roughly $96 billion in U.S. fund assets. In comparison, according to S&P Dow Jones Indices, the S&P 500 is pegged globally at $2.2 trillion.
Apple will be classified as both a value and a growth company at Russell which will add to the selling pressure. According to index provider FTSE Russell, split in between two Russell subindexes, Apple will be considered "growth" and 8 percent "value" after the close on Friday.
Value managers that peg their investments to the Russell indexes will be selling Apple while growth managers will be buying and hence the move matters. Meera Krishnan, U.S. index strategist at Credit Suisse in New York said that there will be net selling of Apple since there are more assets benchmarked to growth than to value.
There would be about $400 million of buying from the value side and there will be over $850 million of selling in Apple out of the growth component of the Russell 1000, she estimated.
According to Morningstar data to the end of May, compared to fewer than 1,000 large-cap value holders, almost 1,900 large-cap growth funds own Apple shares.
Since last year, growth funds had been shedding Apple stock.
"Indices are moving to confirm what the market has already been saying, which is it is a growth and value stock," said Graham Tanaka, portfolio manager of the Tanaka Growth Fund in New York. While considering Apple stocks as a "major holding", he said that he has trimmed the fund's Apple stake.
"The question is when and how Apple can reaccelerate their growth rate. We're playing the waiting game," he said.
When Warren Buffett's Berkshire Hathaway Inc disclosed an investment of nearly $1 billion in Apple in May, market perception was cemented. Rather than favoring heady growth prospects, strong balance sheets and management, which are characteristics of a value play, are favored by Buffett's investments.
Last April, Apple had reported its first-ever decline in iPhone sales and first revenue drop in 13 years and the company shares are down 9 percent since then. the stock has dropped 28 percent since its $133 closing high in February 2015.
(Source:www.reuters.com)
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