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10 OPINION 6.7.2023 APPLE'S share price has soared 49 percent so far this year, ballooning its weight in stock indexes to record levels and pushing its market cap- italization over $3 trillion. The company's weighting in the S&P 500 has swelled to 7.6 percent, the biggest of any one stock in the history of the benchmark index, ac- cording to S&P Dow Jones Indices. That hefty weighting means moves in Apple's shares have an outsized influence on in- dex performance. Yet many investors hold allocations of Apple that are smaller than its relative weighting in indexes, wheth- er it's due to the desire for portfolio flexibility, worries over owning too much of any one position and limitations imposed by the rules of their own funds. If shares of Apple keep ral- lying, that could hurt the results of active fund man- agers, who strive to beat in- dexes such as the S&P 500 or Russell 1000. The issue has taken on ad- ditional urgency this year, as the market's gains are being led primarily by a handful of megacap companies such as Apple, Microsoft and Nvidia, whose shares have outper- formed. "If you're an active manager, one of the issues is it's hard to own that much of one name. You are taking on more and more risk," said Todd Sohn, technical strategist at Strate- gas. "Because they are such heavy weights within the benchmarks, it becomes re- ally challenging to outper- form." Underallocated Of 418 U.S. broad market funds tracked by Morning- star, only 26 held a great- er weight in Apple than the stock's weight in the S&P 500, according to their most recent regulatory filings. The lower allocations to Apple and other stock market winners may be hurting their performance. Only 20 percent of actively managed mutual funds with broad U.S. market expo- sure have outperformed the S&P 500 year-to-date as of June 28, according to Rob- by Greengold, strategist at Morningstar. Only 6 percent of active large-growth funds around in 2013 outperformed the category benchmark through 2022, the firm's data showed. Greenwood Capital, which has $1.4 billion in assets under management, counts Apple as one of its top five holdings, said chief invest- ment officer Walter Todd. But risk management rules at the South Carolina firm prohibit putting more than 5 percent into any one stock; that means the firm is under- weight Apple compared to the S&P 500, to which Green- wood funds benchmark their performance. The firm likes Apple's stock fundamentals, so "it's not that we are rooting for it to go down," Todd said. "We just think there are other names that have the opportunity to do better." The cost of limiting Apple shares may be particularly high for fund managers this year, given the stock's swell- ing weight in indexes. Apple's weighting in the S&P 500, for example, is big- ger than the entire 37-stock consumer staples sector (.SPLRCS), which was last at a weight of 6.7 percent. In the MSCI All-Country index, a widely used bench- mark for stocks globally, Apple's 4.7 percent weight is greater than that of all United Kingdom stocks com- bined, which account for 3.6%, according to DataTrek Research. Some investors are happy to hold hefty positions in the stock. Alex Morris, chief invest- ment officer of F/m Invest- ments, said its F/m Invest- ments Large Cap Focused Fund holds a 13 percent weight in Apple, slightly above the weight in the Rus- sell 1000 growth index, which is the fund's benchmark. "Fund managers at their own peril don't hold Apple and a handful of stocks just like it at index weight or about index weight," Morris said. Whether Apple can main- tain its outperformance re- mains to be seen. Apple's forward price-to- earnings ratio at 29.5 times, is about twice its median P/E over the past decade, accord- ing to Refinitiv Datastream. Analysts' median price tar- get for Apple shares is $190, according to Refinitiv data, 2% below the stock's closing price of $193.97 on Friday. Peter Tuz, president of Chase Investment Counsel, which has about $340 mil- lion under management, said his firm sold about one third of its shares this year over concerns about its valuation. The stock is still his firm's fourth-largest holding, even though at 4 percent of the portfolio, it puts it under- weight Apple versus the S&P 500. "If you don't own any and the stock does well, indeed as it has this year, you run the risk of lagging," Tuz said. Whether Apple can maintain its outperformance remains to be seen Apple's growing stock market heft poses dilemma for fund managers If shares of Apple keep rallying, that could hurt the results of active fund managers, who strive to beat indexes such as the S&P 500 or Russell 1000

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