It’s not hard to see why Apple has captured the attention of the financial media as thoroughly as it has. We’ve all watched Apple go up, up and up over the past 5 years, and most investors out there have probably looked in the mirror at some point and thought, “What’s the point of all this research and hard work? Why bother doing due diligence and analyzing stats until I’m blue in the face when an investment in Apple would have trounced anything else I could have gotten my hands on, including Gold?”
Since becoming the largest publicly-traded company on Earth, ways of using Apple as a yardstick have flourished (how many countries Apple is bigger than, how many iPads Apple is worth, and other things Apple is worth more than). This got us wondering… how would the Apple yardstick look when applied to the hedge fund industry? The comparison seems especially fitting considering that 216 hedge funds hold Apple shares, and more hedge fund managers have Apple in their top 10 holdings than any other company. So here it is – Apple vs. Hedge Funds:
1. Market Cap
If Apple’s market cap were instead the assets under management (AUM) of a hedge fund, it would be the largest hedge fund in history by a comfortable margin. In fact, Apple’s value ($605.96 Billion as of 3/20/2012 close) is over 1/3 the size of the $1.64 trillion invested in the hedge fund industry (as of the end of 2011, according to BarclayHedge), and nearly five times the size of Bridgewater Associates, the world’s largest hedge fund at roughly $125 billion. Size: Apple in a landslide.
2. Number of Employees
According to the company’s 2011 10-k filing with the SEC, just over 60,000 people count themselves as full-time employees of Apple. That’s significantly more than hedge fund heavyweight Bridgewater, which employs only around 1,200 people. Number of employees: Apple.
3. Tax Rate
Like hedge funds, which have been heavily criticized for paying the 15% tax rate for “carried interest,” Apple has found its tax rate a source of contention in some circles. Apple reports a worldwide effective tax rate of 24.2%, however the company only books about a third of its profit in the US, paying an effective tax rate of 31%. The other 70% of profit is booked overseas at an effective tax rate of 4.7%… and that comes out to a 12.6% rate. However, the way that Apple reports its foreign earnings (by not declaring them as permanent investments in foreign companies, but also not repatriating them) increases its effective tax rate without actually changing the amount paid. All in all, this one’s a push.
4. Length of Track Record
Apple was first publicly traded in September of 1984, giving it a track record of 27.6 years, which would make it one of the longest-running hedge funds.
And of course, the performance numbers (Past performance is not necessarily indicative of future results):
|1 yr return||3 yr return||5 yr return||Max DD|
|Barclay’s Hedge Fund Index||-1.76%||39.17%||16.06%||
So there you have it – if Apple were a hedge fund, it would be the biggest, best-performing hedge fund around. Of course, the prospect of an 80% drawdown is fairly terrifying, and Apple has experienced such pain on two separate occasions (once in 1997 from the April 1991 equity high and again between 2001-2003 from the March 2000 equity high). An 80% drawdown today would put Apple at about $121 billion, wiping out the last three years of gains. Again, past performance is not necessarily indicative of future results, but Apple has definitely left the professional money managers in the dust in the last few years.