After dropping more than $200-B in market cap in 1 year, Apple shares could fall further as they are set to lose their weighting and be reclassified in the annual reconstitution of the Russell indexes.
When all is said and done, about $1.3-B worth of shares will be sold at the market close this Friday, when the reconstitution of the Russell indexes take effect.
Apple has been aggressively buying back and retiring its stock, so the outstanding shares have dropped to less than 5.5 from 5.8-B in late June 2015, when the Russell indexes were last re-calibrated, according to the data.
Apple’s weighting in the Russell 1000 will roughly fall to 2.52% from 2.77%. The decline is due to the combination of fewer shares outstanding and Apple’s smaller part of the index’s capitalization.
The performance of a market-weighted index is more influenced by larger companies, like Apple.
With the changes, fund managers who are pegged to the index, including ETFs (exchange-traded funds), will have to sell the stock to match the new, lower weighting.
Roughly $96-B in US fund assets are benchmarked directly to the Russell 1000, according to Morningstar Inc.’s data. That compares to $2.2-T pegged globally to the S&P 500, according to S&P Dow Jones Indices.
Adding to the selling pressure, Apple will be classified as both a value and a growth company at Russell. After the close on Friday, 92% of Apple will be considered “growth” and 8% “value” according to index provider FTSE Russell, splitting it between 2 Russell sub-indexes.
The Big Q: Why does this matter?
The Big A: It 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.
It is estimated there will be over $850-M of selling in Apple out of the growth component of the Russell 1000 and about $400-M of buying from the value side.
Almost 1,900 large-cap growth funds own Apple shares Vs fewer than 1,000 large-cap value holders, according to Morningstar data to the end of May.
Growth funds have been selling Apple stock since last year.
Apple’s shares are down 9% since late April when it reported results, including its 1st-ever decline in iPhone sales and 1st revenue decline in 13 years. Since its 133/share closing high in February 2015, the stock has dropped nearly 30%.
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