Apple Inc. (NASDAQ:AAPL) shares are up moderately today, by 0.81%, following the tech giant’s revelation that the launch of the iPhone 6S and 6S Plus are on pace to break the opening weekend sales record set by the 6 and 6 Plus last year. Pre-orders for the devices, which were unveiled last week and go on sale beginning on September 25, have outpaced those of the current models, which sold a record 10 million units during their first weekend of availability.
Record sales yet again would come as somewhat of a surprise to critics, who have contended that it’s only a matter of time before the iPhone becomes over-saturated and sales level out, at the very least, if not decline; that a $900 phone can’t have the same year-over-year appeal as something like the annual installment of a video game franchise might. Hedge funds have also proven to be somewhat cautious on Apple Inc. (NASDAQ:AAPL) of late, with ownership in our database declining overall, as well as among the billionaires we track.
It is well-known that hedge funds have under-performed the S&P 500 based on net returns over the past several years. But we are missing something very important here; hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these companies. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks like Apple Inc. (NASDAQ:AAPL) underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning 118% and beating the market by more than 60 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.
In terms of Apple, that sentiment has waned recently, with overall hedge fund ownership declining to 144 from 150 throughout the second quarter, while the aggregate value of their investments also declined to $21.27 billion from $21.52 billion. The declines kept Apple behind Allergan PLC (NYSE:AGN) in hedge fund popularity for the second straight quarter, with Facebook Inc (NASDAQ:FB) gaining ground on both of them. Billionaires we track were also somewhat bearish on Apple, as ownership fell by one to 15, while aggregate holdings declined by nearly a billion dollars to $12.16 billion, despite Apple’s shares being up slightly during the second quarter. Carl Icahn continued to be Apple’s largest shareholder in our database by far, owning 52.76 million shares. Billionaire David Tepper, who re-opened a position in Apple during the second quarter, recently told CNBC that the stock was “cheap”.
Additionally, as a counterpoint to the record-breaking tale being woven by Apple and much of the press, it should be noted that the forthcoming launch will include Apple’s second-largest market, China, which last year’s launch did not. Therefore, it is actually to be somewhat expected that Apple should break last year’s records, as global sales would have fallen quite dramatically if not. To further that point, pre-orders from China have reportedly been very strong.
All told, that may account for why shares have only made marginal gains today, despite the positive headlines blaring across news outlets. That continues the market’s tepid reaction to the new iPhone models in general, as well as the other products unveiled during Apple’s event last week, which included an iPad Pro with a 12.9-inch screen that also boasts an optional smart keyboard and stylus (both of which are sold separately), and the latest version of Apple TV, which will now run music and gaming apps, the latter point being seen as a potential death knell for the console gaming industry by at least one iOS developer. Jeff Smith, CEO of Smule, told Forbes “It’s game over for console (sic). It truly is. It’s Apple opening up this second big market. I think they’ve now opened up the home for the first time.”
Suffice to say that the console industry has been prematurely marked for death umpteen times and yet continues to thrive even as mobile gaming has also steadily and exponentially grown alongside it. Until Apple TV can play Destiny or the Final Fantasy VII remake, it poses no threat to consoles and doesn’t promise any great new revenue stream for Apple in its gaming capabilities alone.
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