Wealthy figure Isabel Englander Offloads Apple Shares and Acquires an Index Fund with Potential to Increase 180%, as Perscribed by a Wall Street Analyst
Israel Englander, heading Millennium Management, which boasts the second highest net gains since inception among hedge funds, as per LCH Investment, made significant moves in the Q3. He offloaded 11.5 million shares of Apple (AAPL dropping 2.62%), decreasing his stake by an impressive 90%. Until now, Apple was among the top 10 holdings in Millennium, but it's now fallen out of the top 75. On the other hand, Englander invested in 2.4 million shares of the SPDR S&P 500 ETF Trust (SPY with a 0.25% decrease), thereby increasing his stake by 81%. Now, this S&P 500 index fund ranks as his seventh-largest holding, and it nestles at the top if we exclude options contracts.
Interestingly, Yardeni Research's Ed Yardeni foresees substantial growth in the S&P 500 (^GSPC declining 0.22%) in the coming decade. Yardeni believes the 'roaring 20s,' a term for the robust economic expansion observed lately, will drive annual returns of 11% during the subsequent 10 years. This translates to approximately 180% growth by 2034.
Here's what investors must take note of regarding Apple and the SPDR S&P 500 ETF Trust.
Apple: The stock Englander sold
Apple has consolidated its position as a premier consumer electronics brand thanks to its hardware and software design prowess. The iPhone's dominance is crucial, making Apple the leader in global smartphone sales and second in smartphone shipments. As Warren Buffett famously stated, people would prefer to give up a second car before relinquishing their iPhone.
The iPhone serves as Apple's primary revenue source and provides the foundation for its services business, which grew at the fastest pace in the fourth quarter. Specifically, total sales rose 6% to $95 billion, fueled by a 6% increase in iPhone revenue and a 12% surge in services revenue. Meanwhile, non-GAAP earnings rose 12% to $1.64 per diluted share.
In October, Apple launched Apple Intelligence, a suite of AI features available on newer iPhone and MacBook models. Although several analysts believe this could trigger a major upgrade cycle, the effect on iPhone wait times has been minimal, pointing to dampened consumer enthusiasm.
Indeed, David Vogt at UBS noted in a recent note, "Despite familiarity with Apple Intelligence, demand remains fairly subdued." Furthermore, while analysts anticipated a price hike, this year's iPhone 16 models kept the same prices as last year's iPhone 15 models, despite incorporating AI capabilities.
In essence, Apple has yet to demonstrate the ability to monetize AI, but the stock has risen 30% since the announcement of Apple Intelligence at its developer conference in June. The stock currently trades at 42 times earnings, significantly higher than the three-year average of 29 times earnings. This valuation may be tough to justify for a company projected to grow earnings at 9% annually over the next 3 years.
Bottom line: Apple is a successful business with a strong presence in various consumer electronics categories. However, the stock's valuation currently exceeds the average of the past three years. So, investors must think about whether Apple has better growth prospects now compared to three years ago. If your answer is no, it's best to steer clear of the stock.
SPDR S&P 500 ETF Trust: The index fund Englander invested in
The S&P 500 is virtually synonymous with the U.S. stock market due to its extensive scope and diversity. Comprising 500 large domestic companies from all 11 market sectors, the index collectively accounting for around 80% of U.S. equities and 50% of global equities in terms of market value, as per S&P Global.
The SPDR S&P 500 ETF Trust follows the performance of the S&P 500, allowing investors to invest in a diversified set of influential global businesses. Below are the top 10 holdings in the index fund, listed by weight:
- Apple: 7.4%
- Microsoft: 6.5%
- Nvidia: 6.3%
- Alphabet: 4.5%
- Amazon: 4.2%
- Meta Platforms: 2.6%
- Tesla: 2.4%
- Broadcom: 2.2%
- Berkshire Hathaway: 1.6%
- JPMorgan Chase: 1.3%
As mentioned, Yardeni thinks the S&P 500 can achieve a total return of 11% annually over the next decade, but this relies on continued productivity growth seen in recent years. Specifically, real U.S. GDP has shown an annual increase of 2.7% in the past three years, substantially exceeding the 20-year average of 2.2% per year.
While macroeconomic fundamentals ultimately drive the stock market, it's crucial to bear in mind that no one can predict the pace of economic expansion. However, considering artificial intelligence's potential to boost productivity, I tend to agree with Yardeni. It may drive above-average economic growth over an extended period.
Basically speaking, the SPDR S&P 500 ETF Trust gives investors access to some of the leading companies globally, all at a relatively low cost. The fund carries an expense ratio of 0.0945%, equating to an annual fee of $9.45 for every $10,000 invested. In my opinion, a majority of investors ought to include an S&P 500 index fund in their portfolio, regardless of their preferred stock picks. This approach could protect investors from substantial losses if individual stocks end up underperforming the market.
Despite Yardeni's prediction of the S&P 500 achieving an annual return of 11% over the next decade, engaging in finance and investing wisely is crucial. Englander's decision to invest in the SPDR S&P 500 ETF Trust, with its low expense ratio of 0.0945%, highlights the importance of diversification in one's portfolio. Balancing investments between individual stocks, such as Apple, and index funds can help manage risks, ensuring a more stable financial future.
