Apple Inc. shares could fall further after already losing more than $200bn in market capitalization in one year. The stock is set to lose their weighting, and be reclassified in the annual reconstitution of the Russell Indexes. As per Credit Suisse analysts, when the reconstitution of the Russell Indexes takes effect, about $1.3bn more will be sold in Apple shares.
Apple’s weighting to drop
As per Reuters data, Apple’s outstanding shares had dropped to less than 5.5bn from 5.8bn in late June 2015 (when the Russell indexes were last recalibrated) as the tech giant is retiring and buying back shares aggressively.
Apple’s weighting in the Russell 1000 will fall roughly from 2.77% to 2.52%, say Credit Suisse. This fall is due to the combination of Apple’s smaller part of the index’s capitalization and fewer shares outstanding. Larger firms, such as Apple, influence the performance of a market-weighted index. Fund managers, who are pegged to the index, including ETFs, will have to sell the stock to match the new, lower weighting.
Roughly $96bn in the U.S. fund assets are benchmarked directly to the Russell 1000, as per Reuters analysis of Morningstar data. This compares to the $2.2 trillion fixed to the S&P 500 globally, as per the S&P Dow Jones Indices.
Apple will be classified as growth and a value
Also, the iPhone maker will be classified as a growth and a value company at Russell, adding further to the selling pressure. As per index provider FTSE Russell, 92% of Apple will be considered “growth” and 8% “value” after the close on Friday. This matters because growth managers who fix their investments to the Russell indexes will be selling Apple Inc. while value managers will be buying.
Meera Krishnan – the U.S. index strategist at Credit Suisse in New York – said there will be a net selling because there are more assets benchmarked to growth than to value. There will be about $400mn of buying in Apple from the value side, and over $850mn of selling out of the growth component of the Russell 1000, believes Krishnan.
As per Morningstar data, by the end of May, around 1,900 large-cap growth funds own Apple Inc. shares compared to fewer than 1,000 large-cap value holders. Growth funds are selling Apple since last year
Graham Tanaka – a portfolio manager of the Tanaka Growth Fund in New York – said, “Indices are moving to confirm what the market has already been saying, which is it is a growth and value stock.” Though Apple is still a major holding, he trimmed the fund’s Apple stake.
“The question is when and how Apple can reaccelerate their growth rate,” he said. “We’re playing the waiting game.”
Since late April, when the iPhone maker reported results, including its first revenue decline in 13 years and first-ever drop in the iPhone sales, its shares are down 9%.The stock has declined 28% since its $133 closing high in February 2015.