The huge rally in Apple's shares is forcing some fund managers to revisit a thorny problem – they may not own enough of the stock.
Apple’s share price has soared about 48 per cent so far this year, ballooning its weight in stock indexes to record levels and pushing its market capitalisation over $3 trillion.
The company’s weighting in the S&P 500 has swelled to 7.6 per cent, 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, because the market’s gains are being led primarily by a handful of megacap companies such as Apple, Microsoft and Nvidia, whose shares have outperformed the market.
“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 heavyweights within the benchmarks, it becomes really challenging to outperform.”
Of 418 US 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 per cent of actively managed mutual funds with broad US market exposure have outperformed the S&P 500 year-to-date as of June 28, according to Robby Greengold, strategist at Morningstar.
Only 6 per cent 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 company prohibit putting more than 5 per cent into any one stock; that means the company is underweight Apple compared with the S&P 500, to which Greenwood funds benchmark their performance.
The firm likes Apple's stock fundamentals, so "it’s not that we are rooting for it to go down", Mr 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 per cent.
In the MSCI All-Country index, a widely used benchmark for stocks globally, Apple's 4.7 per cent weight is greater than that of all UK stocks combined, which account for 3.6 per cent, 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 per cent 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,” Mr Morris said.
Whether Apple can maintain its outperformance status 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.
Peter Tuz, president of Chase Investment Counsel, which has about $340 million under management, said his company sold about one third of its shares this year over concerns about its valuation.
The stock is still his company's fourth-largest holding, even though at 4 per cent 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,” Mr Tuz said.
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Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
Details
Through Her Lens: The stories behind the photography of Eva Sereny
Forewords by Jacqueline Bisset and Charlotte Rampling, ACC Art Books
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PROFILE OF HALAN
Started: November 2017
Founders: Mounir Nakhla, Ahmed Mohsen and Mohamed Aboulnaga
Based: Cairo, Egypt
Sector: transport and logistics
Size: 150 employees
Investment: approximately $8 million
Investors include: Singapore’s Battery Road Digital Holdings, Egypt’s Algebra Ventures, Uber co-founder and former CTO Oscar Salazar
Terror attacks in Paris, November 13, 2015
- At 9.16pm, three suicide attackers killed one person outside the Atade de France during a foootball match between France and Germany
- At 9.25pm, three attackers opened fire on restaurants and cafes over 20 minutes, killing 39 people
- Shortly after 9.40pm, three other attackers launched a three-hour raid on the Bataclan, in which 1,500 people had gathered to watch a rock concert. In total, 90 people were killed
- Salah Abdeslam, the only survivor of the terrorists, did not directly participate in the attacks, thought to be due to a technical glitch in his suicide vest
- He fled to Belgium and was involved in attacks on Brussels in March 2016. He is serving a life sentence in France
Porsche Taycan Turbo specs
Engine: Two permanent-magnet synchronous AC motors
Transmission: two-speed
Power: 671hp
Torque: 1050Nm
Range: 450km
Price: Dh601,800
On sale: now
UAE currency: the story behind the money in your pockets
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The Melbourne Mercer Global Pension Index
The Melbourne Mercer Global Pension Index
Mazen Abukhater, principal and actuary at global consultancy Mercer, Middle East, says the company’s Melbourne Mercer Global Pension Index - which benchmarks 34 pension schemes across the globe to assess their adequacy, sustainability and integrity - included Saudi Arabia for the first time this year to offer a glimpse into the region.
The index highlighted fundamental issues for all 34 countries, such as a rapid ageing population and a low growth / low interest environment putting pressure on expected returns. It also highlighted the increasing popularity around the world of defined contribution schemes.
“Average life expectancy has been increasing by about three years every 10 years. Someone born in 1947 is expected to live until 85 whereas someone born in 2007 is expected to live to 103,” Mr Abukhater told the Mena Pensions Conference.
“Are our systems equipped to handle these kind of life expectancies in the future? If so many people retire at 60, they are going to be in retirement for 43 years – so we need to adapt our retirement age to our changing life expectancy.”
Saudi Arabia came in the middle of Mercer’s ranking with a score of 58.9. The report said the country's index could be raised by improving the minimum level of support for the poorest aged individuals and increasing the labour force participation rate at older ages as life expectancies rise.
Mr Abukhater said the challenges of an ageing population, increased life expectancy and some individuals relying solely on their government for financial support in their retirement years will put the system under strain.
“To relieve that pressure, governments need to consider whether it is time to switch to a defined contribution scheme so that individuals can supplement their own future with the help of government support,” he said.
More on animal trafficking
More on animal trafficking
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How it works
1) The liquid nanoclay is a mixture of water and clay that aims to convert desert land to fertile ground
2) Instead of water draining straight through the sand, it apparently helps the soil retain water
3) One application is said to last five years
4) The cost of treatment per hectare (2.4 acres) of desert varies from $7,000 to $10,000 per hectare
KILLING OF QASSEM SULEIMANI
Groom and Two Brides
Director: Elie Semaan
Starring: Abdullah Boushehri, Laila Abdallah, Lulwa Almulla
Rating: 3/5
White hydrogen: Naturally occurring hydrogen
Chromite: Hard, metallic mineral containing iron oxide and chromium oxide
Ultramafic rocks: Dark-coloured rocks rich in magnesium or iron with very low silica content
Ophiolite: A section of the earth’s crust, which is oceanic in nature that has since been uplifted and exposed on land
Olivine: A commonly occurring magnesium iron silicate mineral that derives its name for its olive-green yellow-green colour
MATCH INFO
Manchester City 2 (Mahrez 04', Ake 84')
Leicester City 5 (Vardy 37' pen, 54', 58' pen, Maddison 77', Tielemans 88' pen)
Man of the match: Jamie Vardy (Leicester City)
Our legal advisor
Rasmi Ragy is a senior counsel at Charles Russell Speechlys, a law firm headquartered in London with offices in Europe, the Middle East and Hong Kong.
Experience: Prosecutor in Egypt with more than 40 years experience across the GCC.
Education: Ain Shams University, Egypt, in 1978.
if you go
The flights
Direct flights from the UAE to the Nepalese capital, Kathmandu, are available with Air Arabia, (www.airarabia.com) Fly Dubai (www.flydubai.com) or Etihad (www.etihad.com) from Dh1,200 return including taxes. The trek described here started from Jomson, but there are many other start and end point variations depending on how you tailor your trek. To get to Jomson from Kathmandu you must first fly to the lake-side resort town of Pokhara with either Buddha Air (www.buddhaair.com) or Yeti Airlines (www.yetiairlines.com). Both charge around US$240 (Dh880) return. From Pokhara there are early morning flights to Jomson with Yeti Airlines or Simrik Airlines (www.simrikairlines.com) for around US$220 (Dh800) return.
The trek
Restricted area permits (US$500 per person) are required for trekking in the Upper Mustang area. The challenging Meso Kanto pass between Tilcho Lake and Jomson should not be attempted by those without a lot of mountain experience and a good support team. An excellent trekking company with good knowledge of Upper Mustang, the Annaurpuna Circuit and Tilcho Lake area and who can help organise a version of the trek described here is the Nepal-UK run Snow Cat Travel (www.snowcattravel.com). Prices vary widely depending on accommodation types and the level of assistance required.
World record transfers
1. Kylian Mbappe - to Real Madrid in 2017/18 - €180 million (Dh770.4m - if a deal goes through)
2. Paul Pogba - to Manchester United in 2016/17 - €105m
3. Gareth Bale - to Real Madrid in 2013/14 - €101m
4. Cristiano Ronaldo - to Real Madrid in 2009/10 - €94m
5. Gonzalo Higuain - to Juventus in 2016/17 - €90m
6. Neymar - to Barcelona in 2013/14 - €88.2m
7. Romelu Lukaku - to Manchester United in 2017/18 - €84.7m
8. Luis Suarez - to Barcelona in 2014/15 - €81.72m
9. Angel di Maria - to Manchester United in 2014/15 - €75m
10. James Rodriguez - to Real Madrid in 2014/15 - €75m
