Apple's growing stock market heft poses dilemma for fund managers
Send a link to a friend
[July 03, 2023] By
Lewis Krauskopf
NEW YORK (Reuters) - The massive rally in Apple's shares is forcing some
fund managers to revisit a thorny dilemma: they may not own enough of
the stock.
Apple’s share price has soared 49% so far this year, ballooning its
weight in stock indexes to record levels and pushing its market
capitalization over $3 trillion. The company’s weighting in the S&P 500
has swelled to 7.6%, the biggest of any one stock in the history of the
benchmark index, according to S&P Dow Jones Indices.
That hefty weighting means moves in Apple’s shares have an outsized
influence on index performance. Yet many investors hold allocations of
Apple that are smaller than its relative weighting in indexes, whether
it's due to the desire for portfolio flexibility, worries over owning
too much of any one position and limitations imposed by the rules of
their own funds.
If shares of Apple keep rallying, that could hurt the results of active
fund managers, who strive to beat indexes such as the S&P 500 or Russell
1000.
The issue has taken on additional urgency this year, as the market’s
gains are being led primarily by a handful of megacap companies such as
Apple, Microsoft and Nvidia, whose shares have outperformed.
![](http://archives.lincolndailynews.com/2023/Jul/03/images/ads/current/castlemanor_sda_FINANCIAL_2017.png)
“If you’re an active manager, one of the issues is it’s hard to own that
much of one name. You are taking on more and more risk," said Todd Sohn,
technical strategist at Strategas.
“Because they are such heavy weights within the benchmarks, it becomes
really challenging to outperform.”
UNDERALLOCATED
Of 418 U.S. broad market funds tracked by Morningstar, only 26 held a
greater weight in Apple than the stock's weight in the S&P 500,
according to their most recent regulatory filings.
The lower allocations to Apple and other stock market winners may be
hurting their performance. Only 20% of actively managed mutual funds
with broad U.S. market exposure have outperformed the S&P 500
year-to-date as of June 28, according to Robby Greengold, strategist at
Morningstar.
Only 6% of active large-growth funds around in 2013 outperformed the
category benchmark through 2022, the firm’s data showed.
Greenwood Capital, which has $1.4 billion in assets under management,
counts Apple as one of its top five holdings, said chief investment
officer Walter Todd. But risk management rules at the South Carolina
firm prohibit putting more than 5% into any one stock; that means the
firm is underweight Apple compared to the S&P 500, to which Greenwood
funds benchmark their performance.
[to top of second column] |
![](../images/070323PIX/busine59.jpg)
An Apple logo hangs above the entrance
to the Apple store on 5th Avenue in the Manhattan borough of New
York City, July 21, 2015. REUTERS/Mike Segar
![](http://archives.lincolndailynews.com/2023/Jul/03/images/ads/current/businessdirectory_dailycover_2023.png)
The firm likes Apple's stock fundamentals, so "it’s not that we are
rooting for it to go down," Todd said. "We just think there are
other names that have the opportunity to do better."
The cost of limiting Apple shares may be particularly high for fund
managers this year, given the stock's swelling weight in indexes.
Apple's weighting in the S&P 500, for example, is bigger than the
entire 37-stock consumer staples sector, which was last at a weight
of 6.7%. In the MSCI All-Country index, a widely used benchmark for
stocks globally, Apple's 4.7% weight is greater than that of all
United Kingdom stocks combined, which account for 3.6%, according to
DataTrek Research. Some investors are happy to hold hefty positions
in the stock. Alex Morris, chief investment officer of F/m
Investments, said its F/m Investments Large Cap Focused Fund holds a
13% weight in Apple, slightly above the weight in the Russell 1000
growth index, which is the fund's benchmark.
“Fund managers at their own peril don’t hold Apple and a handful of
stocks just like it at index weight or about index weight,” Morris
said. Whether Apple can maintain its outperformance remains to be
seen. Apple's forward price-to-earnings ratio at 29.5 times, is
about twice its median P/E over the past decade, according to
Refinitiv Datastream. Analysts' median price target for Apple shares
is $190, according to Refinitiv data, 2% below the stock's closing
price of $193.97 on Friday.
Peter Tuz, president of Chase Investment Counsel, which has about
$340 million under management, said his firm sold about one third of
its shares this year over concerns about its valuation. The stock is
still his firm's fourth-largest holding, even though at 4% of the
portfolio, it puts it underweight Apple versus the S&P 500.
"If you don’t own any and the stock does well, indeed as it has this
year, you run the risk of lagging,” Tuz said.
(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Anna
Driver)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
![](http://archives.lincolndailynews.com/2023/Jul/03/images/ads/current/graue_sda_042021.png) |