Schwarz writes, “Suppose you were a mutual fund manager and your strategic models allowed for a maximum 8% allocation in any individual stock. What would have happened to your Apple holdings in 2012? As of September 21st, Apple was up 74.9% year-to-date. Apple allocations at the largest mutual funds had grown to between 13% and 15% of total holdings with the fiscal year end approaching on October 31st. Because of Apple’s strength, because it was such an outlier when compared to the rest of the market, these money managers were forced to re-balance their portfolios in order to comply with their risk models. The Apple slingshots, or in other words the deeper than unexpected selloffs, are caused by systematic institutional re-balancing. This is the unintended consequence of Apple’s status as the most widely held stock of most hedge funds, indexes, pension funds and mutual funds. Apple’s slingshot selloffs occur because of its strength, not because of its weakness.”
“As confidence grows that the fiscal cliff will be resolved, Apple finds itself in a favorable supply/demand stock scenario for the first time since July 26th,” Schwarz writes. “The next run is coming and the stock will skyrocket just as it has during the last 10 slingshots because every money manager on Wall Street trusts Apple’s fundamental growth story and they know that maxing out Apple allocations is key to outperforming their index.”
Read more in the full article here.
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