Apple set to lose weighting in Russell index

After dropping more than $200 billion in market capitalisation in one year, Apple shares could fall further as they are set to lose their weighting and be reclassified in the annual reconstitution of the widely followed Russell indices.

Overall, about $1.3 billion more will be sold at the market close on Friday, when the reconstitution of the Russell indexes takes effect, according to Credit Suisse.

Because Apple has been aggressively buying back and retiring its stock, outstanding shares have dropped to fewer than 5.5 billion from 5.8 billion in late June 2015, when the Russell indices were last recalibrated, according to Reuters data.

Apple’s weighting in the Russell 1,000 will roughly fall to 2.52 per cent from 2.77 per cent, Credit Suisse said. The decline is due to the combination of fewer shares outstanding and Apple’s smaller part of the index’s capitalisation.

Sell the stock

With the changes, fund managers pegged to the index, including exchange-traded funds, will have to sell the stock to match the new, lower weighting.

Roughly $96 billion in US fund assets are benchmarked directly to the Russell 1,000, according to a Reuters analysis of Morningstar data. That compares with $2.2 trillion pegged globally to the S&P 500, according to S&P Dow Jones Indices.

Adding to the selling pressure, Apple will be classified as both a value and a growth company at Russell. After the close on Friday, 92 per cent of Apple will be considered “growth” and 8 per cent “value” according to FTSE Russell, splitting it between two subindices.

The move matters because value managers that peg their investments to the Russell indexes will be buying Apple while growth managers will be selling. Because there are more assets benchmarked to growth than to value, there will be net selling of Apple, said Meera Krishnan, US index strategist at Credit Suisse in New York.

– (Reuters)