Nasdaq re-weighting could hurt Apple’s shares

  • Posted: 06 April 2011 11:56 PM #61

    Zeke - 06 April 2011 08:03 PM

    OK, let’s see if we understand what’s happening.  Apple’s share of the NASDAQ 100’s value is being reduced from 20% to 12%.  What this means is that funds that purport to mirror the NASDAQ 100 will have to adjust the mix of stocks in their portfolios.  If 20% of their portfolio is AAPL now, they will need to reduce that to 12% AAPL in order to mirror that NASDAQ 100.  This will happen over time.  Some will rebalance their portfolios immediately.  Others will not.  This means there will be some selling pressure over the next 30 to 60 days.  Those managers that believe AAPL will be worth less 30 days from now may make the entire adjustment now.  Those managers who believe what I just said may also make the adjustment now.  Investors who believe my last two sentences will sell now….and so on.  Eventually, things should calm down, but right now there is some panic selling out there.
    [...]

    Zeke, if a fund attempts to mirror the NAS100, then it will necessarily rebalance simultaneously with the index rebalance.  There will no doubt be other selling by those front running this.  But on May 2nd, selling will occur.

    But I have a prediction:  During the conference call on 4/20, Peter will announce a one-time share buyback to equal (or exceed) the amount being sold to accomplish the rebalancing.

         
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    Posted: 07 April 2011 12:32 AM #62

    capablanca - 07 April 2011 02:56 AM

    I have a prediction:  During the conference call on 4/20, Peter will announce a one-time share buyback to equal (or exceed) the amount being sold to accomplish the rebalancing.

    The board would have to approve this first, right? Is there time before the conference call? Would they have to meet for something like this, or could it be done via other means of communication?

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    Posted: 07 April 2011 01:20 AM #63

    capablanca - 07 April 2011 02:56 AM

    Zeke, if a fund attempts to mirror the NAS100, then it will necessarily rebalance simultaneously with the index rebalance.  There will no doubt be other selling by those front running this.  But on May 2nd, selling will occur.

    But I have a prediction:  During the conference call on 4/20, Peter will announce a one-time share buyback to equal (or exceed) the amount being sold to accomplish the rebalancing.


    Capa, if you remember, DT was talking about a split a few weeks back. I myself would prefer a split right now and a share buyback later. As for the board approving, should not be that hard to get them together to make any decision.

    Apple II+, July 2010 earnigs were considered the lost qtr considering AAPL was at 279 in April a few months before. Needless to say we are talking different markets with the DD fears and other concerns.

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    Posted: 07 April 2011 03:08 AM #64

    mbeauch - 07 April 2011 04:20 AM

    Apple II+, July 2010 earnigs were considered the lost qtr considering AAPL was at 279 in April a few months before. Needless to say we are talking different markets with the DD fears and other concerns.

    AAPL went up above $300 and its P/E recovered before October earnings. I’m sure July earnings had something to do with that. No one should expect the entire move in a quarter to happen the day after earnings.

    Speaking of “the lost quarter”, look at where we’re at now… and this after Apple’s best earnings ever was reported January. Still, earnings did have an impact if you look at the fact that AAPL made new highs the day after earnings and in mid-February.

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  • Posted: 07 April 2011 10:23 AM #65

    Apple II+ - 07 April 2011 03:32 AM
    capablanca - 07 April 2011 02:56 AM

    I have a prediction:  During the conference call on 4/20, Peter will announce a one-time share buyback to equal (or exceed) the amount being sold to accomplish the rebalancing.

    The board would have to approve this first, right? Is there time before the conference call? Would they have to meet for something like this, or could it be done via other means of communication?

    Yes, but the board could do so without meeting physically.  They all have iPhones and Apple’s Bylaws permit this practice.

         
  • Posted: 07 April 2011 10:25 AM #66

    mbeauch - 07 April 2011 04:20 AM
    capablanca - 07 April 2011 02:56 AM

    Zeke, if a fund attempts to mirror the NAS100, then it will necessarily rebalance simultaneously with the index rebalance.  There will no doubt be other selling by those front running this.  But on May 2nd, selling will occur.

    But I have a prediction:  During the conference call on 4/20, Peter will announce a one-time share buyback to equal (or exceed) the amount being sold to accomplish the rebalancing.


    Capa, if you remember, DT was talking about a split a few weeks back. I myself would prefer a split right now and a share buyback later. As for the board approving, should not be that hard to get them together to make any decision.

    Apple II+, July 2010 earnigs were considered the lost qtr considering AAPL was at 279 in April a few months before. Needless to say we are talking different markets with the DD fears and other concerns.

    Mark, a split would do nothing to mitigate against the effects of the rebalance.

    Apart from that, it is my humble opinion that a split is not in the best interest of Apple shareholders.  Our high share price keeps us out of the Dow Jones Averages.

         
  • Posted: 07 April 2011 01:07 PM #67

    I am very suspicious of the 330 billion dollars that the article quotes that track the NASDAQ 100. There are a lot of index funds out there but most of them track other index’s such as SP500 and total NASDAQ etc. I would like to see a list of the funds that track the NASDAQ 100 only and their estimated value of shares—these are the only funds that are required to change their percentage of AAPL shares from 20% to 12%. The biggest and most well known NASDAQ 100 tracking fund is the Powershares QQQ trust, normally just known as the QQQ—which had as of April 5 - 14.94 million AAPL shares worth 5.28 billion dollars. They would have to sell 40% of AAPL shares or 5.97 million shares and they have all of April to do it. Except for QQQ none of the other top 10 funds that hold AAPL are NASDAQ 100 tracking funds. The biggest holders of AAPL are Institutional management companies who set their own criteria for their mix of securities. The top fifty Institutional holders own around 44% of AAPL, top fifty mutual funds hold 18% and top fifty individuals own less then 1%. See the AOL Money and Finance site and check ownership of AAPL. I think there is a lot of confusion about the reduction of AAPL percentage of the NASDAQ 100 and just who is a real NASDAQ 100 tracking fund or Institutional holder that states in their prospective that they invest their holdings based on the NASDAQ 100. Can anyone name a fund other then QQQ that tracks the NASDAQ 100? Tracking the NASDAQ doesn’t count, only the NASDAQ 100 is effected.

         
  • Posted: 07 April 2011 01:51 PM #68

    URL: http://www.zerohedge.com/article/nasdaq-100-rebalancing-reduce-apple-weighing-20-12-0

    From the article: “There are more than 2,900 financial products tracking the Nasdaq-100 in 27 countries, Nasdaq says.  .... Nasdaq estimates that for every $1 billion directly tracking the index, such as through mutual funds or ETFs, 9.5 million shares will change hands. “It’s going to be a big trade,” says John Jacob”

         
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    Posted: 07 April 2011 02:00 PM #69

    Apple II+ - 07 April 2011 03:32 AM
    capablanca - 07 April 2011 02:56 AM

    I have a prediction:  During the conference call on 4/20, Peter will announce a one-time share buyback to equal (or exceed) the amount being sold to accomplish the rebalancing.

    The board would have to approve this first, right? Is there time before the conference call? Would they have to meet for something like this, or could it be done via other means of communication?

    The board would have to approve it.  Talked to investor relations some time back and they said that board meeting dates are confidential and so is the location.  So we won’t know of any decision until Apple releases it.

    If this re balacing truly forces all funds to sell on one day it would be a blood bath.  I doubt that.  Stock % must added to this all the time without much fanfare.  Do any of you recall any press release that indicated that the NASDAQ 100 was added a higher percent of Apple or any other company in the last 7 years? I don’t .

    To me this announcement was made to either bring AAPL or they have an obligation to do so for such a radical decrease so the funds don’t get spooked when the index goes nowhere despite moves in aapl stock.

    I suspect May 2 will come and go with minimal impact on aapl.  I would love a split because it would increase demand in the stock and bring in new buyers.  They have split it before and they will again.  None of us are sure when SJ decides he does care about the stock more then he cares about the products.

         
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    Posted: 07 April 2011 02:17 PM #70

    Has anyone read an explanation from the NASDAQ of how this will be accomplished?  Without definitive knowledge, everyone is guessing.  I cannot believe these adjustments will be done in one day on the open market.  As these adjustments are not a result of fear, they may look for good or better prices to trade.  Also these adjustments may be done off the market as institutional trades, the kind you see posted after hours that do not affect bids.

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  • Posted: 07 April 2011 08:40 PM #71

    While there will be massive volume for AAPL on the closing cross on May 2nd, there won’t be any sort of a significant spike down.  Traders trade the closing cross all the time, and while there may be some arbitrage opportunities for algorithmic traders, any sort of a spike down will already be completely priced in by the time the closing cross occurs.  Otherwise, a trader could simply short millions of shares leading up to the close on May 2nd and cover multiple points lower when everyone sells at the cross, and there’s no way it will be that easy.  It is a known event, and it will be priced in before it happens.

    The majority of the downside pressure from the rebalance happened immediately after it was announced and the remainder will be slowly priced in between now and May 2nd.  The worst of the event has already happened, and AAPL has held up quite well.

         
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    Posted: 07 April 2011 08:55 PM #72

    ktodack - 07 April 2011 04:07 PM

    I am very suspicious of the 330 billion dollars that the article quotes that track the NASDAQ 100. There are a lot of index funds out there but most of them track other index’s such as SP500 and total NASDAQ etc. I would like to see a list of the funds that track the NASDAQ 100 only and their estimated value of shares—these are the only funds that are required to change their percentage of AAPL shares from 20% to 12%. The biggest and most well known NASDAQ 100 tracking fund is the Powershares QQQ trust, normally just known as the QQQ—which had as of April 5 - 14.94 million AAPL shares worth 5.28 billion dollars. They would have to sell 40% of AAPL shares or 5.97 million shares and they have all of April to do it. Except for QQQ none of the other top 10 funds that hold AAPL are NASDAQ 100 tracking funds. The biggest holders of AAPL are Institutional management companies who set their own criteria for their mix of securities. The top fifty Institutional holders own around 44% of AAPL, top fifty mutual funds hold 18% and top fifty individuals own less then 1%. See the AOL Money and Finance site and check ownership of AAPL. I think there is a lot of confusion about the reduction of AAPL percentage of the NASDAQ 100 and just who is a real NASDAQ 100 tracking fund or Institutional holder that states in their prospective that they invest their holdings based on the NASDAQ 100. Can anyone name a fund other then QQQ that tracks the NASDAQ 100? Tracking the NASDAQ doesn’t count, only the NASDAQ 100 is effected.

    A great and informative first post. Thanks and welcome!

         
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    Posted: 07 April 2011 09:32 PM #73

    One thing that has not been talked about is how upset the MM are. Think about it, they have been able to load up on AAPL and let it provide them with large bonuses. Now they have to sell AAPL and work harder. Poor guys. rolleyes

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  • Posted: 07 April 2011 09:51 PM #74

    Bryanyc - 07 April 2011 11:55 PM
    ktodack - 07 April 2011 04:07 PM

    I am very suspicious of the 330 billion dollars that the article quotes that track the NASDAQ 100. There are a lot of index funds out there but most of them track other index’s such as SP500 and total NASDAQ etc. I would like to see a list of the funds that track the NASDAQ 100 only and their estimated value of shares—these are the only funds that are required to change their percentage of AAPL shares from 20% to 12%. The biggest and most well known NASDAQ 100 tracking fund is the Powershares QQQ trust, normally just known as the QQQ—which had as of April 5 - 14.94 million AAPL shares worth 5.28 billion dollars. They would have to sell 40% of AAPL shares or 5.97 million shares and they have all of April to do it. Except for QQQ none of the other top 10 funds that hold AAPL are NASDAQ 100 tracking funds. The biggest holders of AAPL are Institutional management companies who set their own criteria for their mix of securities. The top fifty Institutional holders own around 44% of AAPL, top fifty mutual funds hold 18% and top fifty individuals own less then 1%. See the AOL Money and Finance site and check ownership of AAPL. I think there is a lot of confusion about the reduction of AAPL percentage of the NASDAQ 100 and just who is a real NASDAQ 100 tracking fund or Institutional holder that states in their prospective that they invest their holdings based on the NASDAQ 100. Can anyone name a fund other then QQQ that tracks the NASDAQ 100? Tracking the NASDAQ doesn’t count, only the NASDAQ 100 is effected.

    A great and informative first post. Thanks and welcome!

    Indeed.  +1.  I’m going to spend some time with this on the weekend.  If true, then the selling pressure could abate sooner than we think.  Has anyone compared volume of shares traded YOY over the past week?  Perhaps that could be a clue to gauge the # of shares we think need to come out of the Nasdaq index funds.

         
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    Posted: 07 April 2011 10:03 PM #75

    capablanca - 07 April 2011 01:25 PM

    Mark, a split would do nothing to mitigate against the effects of the rebalance.

    Not immediately, but the truth is, as we’ve debated here ad nauseum, retail investors like “cheap” stocks, i.e., lower share price (as opposed to P/E or some other metric). I’ve said here before that I have a friend who is a math professor who thinks $300 a share is scary, as he thought at $100 and $200. Of course he couldn’t tell you Apple’s P/E if you put a gun to his head. I really believe Apple would not be trading at this level had it not split three times (does anyone here really believe AAPL would be trading at $2720 had those splits not taken place?) So the theory goes, Apple split down to $110 would be a more attractive price tag for the retail caveman investor, scared by fire.

    Apart from that, it is my humble opinion that a split is not in the best interest of Apple shareholders.  Our high share price keeps us out of the Dow Jones Averages.

    This is a harder point to dismiss. It’s harder for Dow stocks to breakout due to the index funds, or so the conventional wisdom goes (which may make the NASDAQ re-weighting a good thing?). Do we have any proof of this or is it just one of those urban legends? Isn’t Apple already very widely held anyway? (which is itself a concern, i.e., where are the new entrants?). And how is being a smaller sliver of the DOW 30 worse for AAPL than being a huge component of the NASDAQ 100? Both indexes are widely held in ETF’s and mutual funds.

    I’d like to hear a plausible explanation of this. Perhaps someone has done a chart on what happens to stocks once they are added to the Dow 30. Interestingly, MSFT was added in 1999, and it hasn’t done shit since. Correlation or causation?

    [ Edited: 07 April 2011 11:09 PM by JDSoCal ]

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