Is Apple Inc. (NASDAQ:AAPL) losing its popularity? Hedge funds are still crazy about Apple Inc. The technology giant counted 149 hedge funds with a total stake of nearly $21 billion among its shareholders at the end of 2014. That’s a slight decline of 5 hedge funds over the fourth quarter. Some of the value-oriented fund managers indicated in our conversations that they are taking chips off the table because the easy money in Apple has been made. We will summarize the hedge fund activity in Apple below, but first let us explain why you should pay attention to hedge fund moves.
In the eyes of most shareholders, hedge funds are viewed as costly, outdated financial tools of yesteryear. They have a point. An average equity hedge fund returned slightly more than 3% last year, vs 13.5% for S&P 500 index funds. Hedge funds underperform the market because they are hedged and they charge excessively for their services. Our research has shown however, that hedge funds’ top stock picks, like Apple, historically beat the market by about 2 percentage points per year. So, there is still some value in hedge fund’s moves. David Einhorn bought this stock below $250 per share (this was before Apple’s 7-to-1 stock split last summer) and the stock has more than tripled since then (the current shares trade at an equivalent of $900, pre-split). Carl Icahn went on CNBC multiple times and told everybody that he was buying big time at a price of less than $500. Those moves proved very profitable for these hedge funds.
Keeping this in mind, we’re going to view the latest hedge fund action regarding Apple Inc. (NASDAQ:AAPL).
What does the smart money think about Apple Inc. (NASDAQ:AAPL)?
At Q4’s end, a total of 149 of the hedge funds tracked by Insider Monkey were long in this stock, a change of -3% from the previous quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes significantly.
When looking at the hedgies followed by Insider Monkey, Carl Icahn’s Icahn Capital LP had the biggest position in Apple Inc. (NASDAQ:AAPL), worth more than $5.8 billion, comprising 18% of its 13F portfolio at the end of 2014. On Icahn Capital LP’s heels is Ken Fisher’s Fisher Asset Management which held a $1.19 billion position; 2.5% of its 13F portfolio is allocated to the company. Other hedge funds with similar optimism include Phill Gross’ Adage Capital, Philippe Laffont’s Coatue Management and David Einhorn’s Greenlight Capital. Though all three of these funds trimmed their stakes between 1% (Adage) and 16% (Coatue).
Although aggregate interest decreased and some hedge funds cut their bets, specific money managers have jumped into Apple Inc. (NASDAQ:AAPL) headfirst. Billionaire Stephen Mandel’s Lone Pine initiated a $200+ million position during the fourth quarter. Quant hedge fund Renaissance Technologies might have detected the upward move in the stock and built a $193 million position. RenTech’s large positions aren’t usually high-frequency trading-related. Hari Hariharan‘s NWI Management is a new fund in our list as well. They had a $128 million position at the end of last year. Former Valiant Capital analyst Shashin Shah’s new hedge fund, Think Investments also joined Apple’s hedge fund herd.
On the negative side, another systematic trading hedge fund, Arrowstreet Capital, dumped its entire $760 million stake in Apple. Arrowstreet is founded by Peter Rathjens, Bruce Clarke, and Harvard professor John Campbell. Other hedge fund heavyweights, namely billionaires David Tepper and George Soros, also sold out their $100+ million positions in the tech giant. Apple is a $750 billion market cap company and it isn’t easy to keep a behemoth growing at a fast enough rate to justify its nearly trillion dollar market value. There are very few consumer markets that they can get into which have the potential to generate substantial revenues. One of them is the car market and we now read news about Apple exploring the possibility of making electric cars. Given Apple Inc. (NASDAQ:AAPL)’s massive cash hoard, the possibility of the iPhone maker buying Tesla Motors Inc (NASDAQ:TSLA) outright is probably a more practical idea. Although Tesla founder Elon Musk has said that an acquisition by Apple is “very unlikely,” the popular entrepreneur and investor did not close the door on the possibility.
We aren’t convinced that this would be the right move for Apple. However, if Tim Cook and his team believe that there is a huge growth potential for their $750 billion market cap company, a $30 billion payment to Tesla shareholders could save them years and keep the company growing. Until something big happens, we believe hedge funds will keep trimming their Apple holdings.
Disclosure: None
