Major US growth mutual funds have been among the largest sellers of Apple Inc shares over the past six months, fueling speculation that the company’s days of supercharged growth have come to an end.
Amid concerns that iPhone sales may be set to drop, the US$77.3 billion American Funds Capital World Growth and Income Fund has sold all of its 1.7 million Apple shares since the end of June, according to Lipper data. The US$9.3 billion Hartford Capital Appreciation Fund sold 1.4 million shares over the same period, reducing its position by 91 percent.
The selling of Apple stock by growth-oriented managers, who seek higher returns from fast-expanding companies, pushes Apple further toward being a so-called value stock — more appealing for its balance sheet or cash than its growth prospects.
Photo: Reuters
Investors see Wall Street’s expectations of fewer phone sales this year as a reflection of a maturing US smartphone market and the economic slowdown in China, where Apple has been deriving most of its growth.
They were jolted when Taiwan-based iPhone assembler Hon Hai Precision Industry Co (鴻海精密) — commonly known as Foxconn Technology Group (富士康) — said its revenue for last month fell by a fifth, one sign that iPhone demand could be slowing.
The massive manufacturer also plans to cut worker hours over China’s week-long Lunar New Year holiday next month, a period when it previously had often paid overtime, a source familiar with the matter told Reuters.
Wall Street analysts expect Apple to grow revenue by just 4 to 7 percent in the current fiscal year ending next September — down from 28 percent the year before, according to Thomson Reuters data.
The slowdown concerns have helped to drive Apple’s shares down almost 29 percent to US$95.98 late on Friday morning, from last April’s peak of US$134.54. Shares closed down 2.39 percent to US$97.13 on Friday.
“The upside from the phone segment, which is what has carried them for several years, is becoming more limited,” said Tony Arsta, a co-portfolio manager of the growth-oriented Motley Fool Great America Fund, which sold all of its Apple shares — 2 percent of its assets — over the past six months. “They were able to juice it by introducing a bigger screen, but all the easy decisions have played out.”
Overall, 41.4 percent of growth funds hold Apple, a decline from 47.2 percent at the end of 2012, according to Lipper. Apple is held by 20.1 percent of value funds, up from 13.9 percent over the same period.
Companies that transition from growth to value stocks sometimes see share prices stagnate for long periods. Microsoft Corp, a favorite during the late 1990s tech bubble, fell below US$40 per share in July 2000 and did not trade above that price again for about 14 years.
Still, some growth-oriented managers are holding their Apple positions.
John Barr, portfolio manager of the Needham Aggressive Growth fund, has not reduced his 5 percent weighting in the company. He expects slower but steady growth.
“The law of large numbers is happening,” he said. “But nothing is dramatically broken with the iPhone market and we think Apple is going to continue to be the innovation leader driving it forward.”
David Chieuh’s (闕又上) Upright Growth Fund has a larger share of Apple — 21.2 percent — than any other fund.
The fund was down 4.4 percent over the three months through Wednesday last week, partly because of Apple weakness, but it has outperformed the S&P 500 over that period.
Apple stock could fall another 10 percent before stabilizing, Chieuh said, but lower prices would make it more attractive — ultimately bringing in more buyers and lifting its share price.
Some investors are hoping that the biggest breakthrough product in Apple’s future will be a car — possibly an electric vehicle, suitable for car-sharing. The company has never fully acknowledged it has an automotive project, but the company has recruited dozens of experts from automakers.
For now, though, the lack of another big hit weighs on the stock price. Some of the recent decline stems from disappointment with the Apple Watch, which was launched last year, Tanaka Growth Fund portfolio manager Graham Tanaka said.
“People thought it would be the next big thing and it’s only an okay product,” he said.
Still, Tanaka is maintaining his Apple holdings because he expects the company to expand its line of smart products for the home — similar to Alphabet Inc’s Nest line of products — including Wi-Fi-enabled thermostats and home security cameras.
Such new products can increase dependence on the iPhone. In June last year, the first products compatible with Apple’s HomeKit software were launched, allowing users to tell the iPhone voice-assistant Siri to turn on lights or open door locks.
Meanwhile, hedge fund manager Morris Mark, managing partner at Mark Asset Management, is looking for Apple to sign deals with media companies such as Walt Disney Co to stream more of their live content through Apple TV, allowing consumers to cut their cable subscriptions.
That, in turn, would prompt more consumers to opt for an iPhone to manage and control their content libraries, he said.
“Nothing in the world is more important to Apple than the iPhone,” he said.
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