Globally, fund managers hold the lowest percentage of Apple stock in their portfolio when compared to Apple’s overall weighting in indexes (frequently traded baskets of stocks), according to a research note published this week by investment bank UBS.
Investors are usually underweight a particular stock when they expect it to underperform the market.
So if, for example, Apple represents 5% of the market value of the exchange, a fund manager would make 5% of his portfolio to have it balanced. If it’s less than this, say 2%, it’s underweight and a signal that the fund manager doesn’t think the stock will perform as well as the wider stock market or other particular stocks.
If the stock is overweight — if Apple is 5% but the fund manager has, say, 10% of his portfolio made up of Apple stock — then the fund manager thinks that company will do better than the wider market.
What’s unusual is that Apple comes out as the most underweight, when a lot of analysts are rating the stock positively, expecting it to outperform — here are some current analyst stock ratings and their 12-month price targets (it currently trades at around $117):
- Citi: “Buy” $130
- Cowen: “Outperform” $125
- Needham: “Strong Buy” $150
- BMO: “Outperform” £135
- Longbow: “Buy” $140
- Canaccord: “Buy” $140
- Piper Jaffray: “Overweight” $155
Being underweight Apple stock hurt funds’ performances in 2014, according to Morningstar. And billionaire activist Carl Icahn said last year that “mutual funds will increasingly realise that being underweight shares of Apple will hurt their performance as the technology giant continues to innovate.”
But the UBS note makes this realisation less clear.
Less surprising is that Amazon is the most overweight stock held by fund managers globally.
Markets Insider highlights that almost all analysts are rating Amazon stock with a “buy” recommendation.
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