Credit Suisse has predicted that a change to an index designed to help fund managers hold the right balance of stock to meet their goals is likely to see a net sell-off of AAPL shares to the tune of $1.3B. This scale of sales is expected to be large enough to cause a fall in the share price, reports Reuters.
The index concerned is known as the Russell Index, which classifies stocks as some mix of ‘growth’ and ‘value’ depending on their performance. Growth stocks are expected to generate higher returns at greater risk, while value stocks are those likely to generate lower returns at less risk. Apple is being reclassified as 92% growth and 8% value …
The move matters because value managers that peg their investments to the Russell indexes will be buying Apple while growth managers will be selling. Because there are more assets benchmarked to growth than to value, there will be net selling of Apple, said Meera Krishnan, U.S. index strategist at Credit Suisse in New York.
Reuters says that there are almost twice as many large funds geared to growth as there are ones geared to value goals.
Almost 1,900 large-cap growth funds own Apple shares versus fewer than 1,000 large-cap value holders, according to Morningstar data to the end of May.
The same thinking – that Apple is now a safer bet but one less likely to see dramatic growth – is believed to have been behind the $1B stake taken by Berkshire Hathaway, whose founder Warren Buffett had previously dismissed AAPL as too unpredictable a stock. Icahn, in contrast, got out of the stock completely last month.
Apple reported its first ever fall in iPhone sales in Q2, down 18% year-on-year, leading to speculation about Q1 representing ‘peak iPhone.’ I gave my own views on both that idea and Apple’s broader prospects in a couple of opinion pieces, but the market has – for now at least – made its views clear: AAPL ended 2.3% down at close on Friday. The stock has dropped 28% since its high in February 2013.