Morgan Stanley’s Adam Parker has an interesting report on “The Elephant In The Room” AKA: Apple. It’s not so much about the company, but rather about the stock itself and how investors should deal with such a megacap in their portfolios.Even though Apple’s been a huge winner for tons of investors, the stock brings its headaches, since typically a prudent investor would trip their holdings as it got larger and larger. Problem is: Selling Apple at any price (up until recently) has been a huge blunder.
Anyway, here are some facts from Parker’s report (which apparently is the most-read note at Morgan Stanley today).
- Apple is the largest stock in the S&P, and will likely be the largest market weight in the S&P since 1986.
- Apple will likely surpass Exxon as the top earning stock by the end of the year.
- 9% of S&P trading volume is Apple. That’s the highest of any one stock since 1982.
- 26% of all large hedge funds hold Apple positions that are larger than 1% of their portfolios
- One in 25 of all hedge funds has 10% or more (!) of their portfolio in Apple.
- Almost no other stock correlates well with Apple.
- Apple does not correlate well with any other area of the market (i.e. mega caps)
- Earnings tend to be big movers for the stock, while product announcements are not that big of a deal for Apple’s stock.
- Apple is somewhat negatively correlated with the euro.
Another thing that’s interesting is that the report advises against trying to create a basket of related stocks (like suppliers) as they have failed to perform as well as Apple, and the baskets require constant rebalancing.
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