Apple worth a nibble


Stocktake:Apple’s recent hammering reminds one of the adage about buying the rumour and selling the news.

The stock soared from $517 in May to $705 in September, when the iPhone 5 was launched, but has now lost all those gains. Talk of a $1,000 share price and becoming the world’s first trillion-dollar company has vanished. Over-owned and over-hyped, Apple’s miserable performance means 488 of the 500 stocks in the SP 500 have outperformed it since October.

Stats show just how over-owned Apple has become. It was the biggest holding of 21 of 30 hedge funds surveyed by Citigroup earlier this year, and is also the most heavily owned stock among the 50 biggest actively managed US funds. When a stock is held by fast-money types, large swings are not unexpected.

Value managers are the ones likely to be nibbling at current prices, however. Apple trades for just 12 times trailing earnings and 11 times projected earnings.

Strip out its $130 billion cash pile, and Apple is effectively trading for just eight times earnings.

Investors dump active funds

2012 has been another big year for the exchange-traded fund (ETF) industry, with assets under management rising 24 per cent to a record $1.9 trillion. Some $1.3 trillion of that is invested in ETFs in the US, compared to just $540 billion in 2009, while about $360 billion is invested in Europe.

Over the last decade, ETFs have seen assets under management grow by 30 per cent annually. Mark Wiedman of iShares, the world’s largest ETF manager, reckons global assets could multiply tenfold in coming years.

Cheaper ETF costs mean investors are dumping funds. US equity ETFs, for example, have seen net inflows of $117 billion since the start of 2011, while equity funds have seen $182 billion in outflows.

Not all funds are suffering, however.

US passive equity funds have actually recorded $93 billion in net inflows since 2011. In contrast, actively managed funds suffered a whopping $275 billion in outflows.

Perhaps investors are finally realising what academics have known for decades: most active funds overcharge for underperformance.

Markets to cheer a Santa Claus rally

Wall Street will be hoping for its usual Santa Claus rally in coming days. The phrase, says Jeffrey Hirsch of the Stock Trader’s Almanac, refers to the last five trading days of the year and the first two trading days of the new year, so it is due to begin this Friday. During this period, markets have enjoyed average gains of 1.5 per cent since 1950.

Market commentator Mark Hulbert went back further. Since 1896, markets rose by an average of 1.06 per cent during the four trading days after Christmas – more than 10 times the average four-day gain.

Why? Christmas bonuses being invested, tax considerations, and seasonal cheer are potential factors. Additionally, turn-of-the-month periods tend to be bullish in general.

If Santa snubs Wall Street, however, Hirsch advises caution – lower prices or flat years tend to follow, he says. Hence the slogan, “If Santa should fail to call, bears may come to Broad and Wall.”

Return of volatility feared

Market volatility diminished in 2012 – for the first time in seven years, there were no spikes in the Vix, or fear index. However, a recent JP Morgan note suggests that 2013 could be different.

Currently, the Vix is below 16, compared with its long-term average of 20. In Europe the VStoxx is at 17, well below its historical average of 26, while the Japanese volatility index (17) is similarly subdued. These low readings are “in stark contrast to virtually every macroeconomic indicator across the globe”, said JP Morgan. Analysis of 484 macro indicators suggests the Vix should be 7.2 points higher, the VStoxx 9.7 points higher, and Japan 8.9 points higher. The global economic environment is unlikely to “change drastically”, so “risk for market volatility is to the upside”.

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