Apple is a bubble waiting to burst, says David Jane
The fund manager says demand for the technology giant’s products is driven by peer pressure and will dry up as soon as the next “must-have” gadget comes along.
By Mark Smith, Reporter, FE Trustnet
Thursday May 03, 2012
The market’s obsession with Apple is inflating the share price to an unsustainable level, according to David Jane
, who says that it is impossible for the company to meet expectations for much longer.
"This is the first time in the history of the US market that so much importance has been put on one stock," he claimed. "People are forced to own Apple because it is such a high proportion of the index."
"Even if they don’t like it then they own it underweight because of the risk of underperforming. That alone artificially inflates its value."
"It’s certainly a bubble. Whether it bursts next week, in six months or two years is still uncertain but I’m avoiding it now."
Apple’s market capitalisation has recently breached the $600bn mark and the stock accounts for 3.8 per cent of the S&P 500.
However, it is not just the over-inflation of the share price that has got Jane concerned. He worries that the market’s obsession with the stock overlooks some glaring weaknesses with the business model.
"Everybody seems to think that everyone in the world is going to have an iPad or an iPhone but the market is led by fashion," he said. "As soon as kids see their dads wanting Apple products then they will want something else. It reminds me of Nokia in the 1990s."
"Everybody wanted Nokia handsets like the one in the Matrix with the Star Trek communicator style flip-down mouthpiece, then there were the gold shiny ones that Motorola did that my wife really wanted. As sure as day follows night these fashions will come and go."
He added: "What’s more is that for the price of an Apple computer, consumers can buy three perfectly functioning models built by competitors. There are Samsung and Sony in this market, both of which could launch market-leading products."
"For the price of Apple’s market cap you could own both of these companies and have plenty of money left over for all of General Motors."
Jane heads up the £15m TM Darwin Multi Asset
fund. Before that he was head of equity at M&G. Data from FE Analytics
shows that his fund has returned roughly the same as its peers since it was launched in June 2011.
Performance of fund since launch vs sector
Source: FE Analytics
Of the 100 funds in the IMA North America
sector, 64 hold Apple in their top-10 and half of these have more than 5 per cent of total assets invested in the company. JPM American Equity has 10 per cent, which is the highest amount many funds are allowed to invest in a single holding.
More surprising is that of 158 funds in the Global
sector, 58 list Apple in their top-10.
Even UK managers are not immune to the lure of Apple. Jupiter UK Growth
, managed by FE Alpha Manager Ian McVeigh, has 4.24 per cent of its assets exposed to the company.
Jane finished by saying: "Apple needs to keep producing new products, retain market share and maintain revenue streams and distribution networks just to stand still."
"In order for investors to make lots of money Apple will have to remain the largest in the world for a long time to come and hope that no-one comes up with a better product."