Apple shares shrug off rebalancing of Nasdaq-100

Mon May 2, 2011 3:39pm EDT

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 NEW YORK, May 2 (Reuters) - Apple Inc is no longer the
titan taking up more than one-fifth of the Nasdaq 100 Index,
but it's still going to find plenty of buyers.
 Index funds, exchange traded funds and managers who seek to
mimic the index were forced to sell the iPhone maker's stock
between April 5, when the announcement was made, and Friday
afternoon, when the rebalance officially took place. But the
weakness is an opportunity, not a harbinger, fund managers
say.
 "Any weakness in the share price due to the recalibration
should be taken advantage of by investors," said Channing
Smith, co-portfolio manager of a growth fund at Capital
Advisors in Tulsa, Oklahoma, that includes Apple shares.
 Nasdaq OMX Group Inc (NDAQ.O) said early last month it was
cutting its weighting in Apple (AAPL.O) to 12.3 percent from
20.5 percent as part of a rebalancing of the Nasdaq 100 .NDX
to better reflect the current market cap of the biggest Nasdaq
issues.
 "The stock continues to be best in class in technology,
continues to exceed investor expectations," said Smith.
 The news was followed by two weeks of losses in Apple stock
that brought the shares down almost 5 percent before they
recovered. The primary beneficiaries in terms of index
weighting are Microsoft Corp (MSFT.O), Oracle Corp ORCL.O and
Cisco Systems Inc (CSCO.O), although the three are all lower
since April 4, despite the news.
 The index rebalancing forces popular index-tracking funds
such as the heavily traded PowerShares QQQ (QQQ.O) to sell
Apple in order to match the new composition of the index.
 According to the Nasdaq, 329.21 million shares with a
notional value of $12.7 billion traded at the Nasdaq "closing
cross" trade in the span of 0.779 second.
 "A lot of the trading activity was done in anticipation and
I'd guess everything is behind us," said Anthony Davidow,
portfolio strategist at Rydex in New York.
 Apple traded down 1.1 percent on Monday afternoon at
$346.45, more than 1.5 percent above its close on April 4.
 "Apple is still very, very widely held (among) index
providers as well as active managers and there's a lot of
liquidity," said Rydex's Davidow.
 Apple's most recent quarterly results crushed Wall Street's
expectations after iPhone and Mac sales scaled new heights and
iPad supplies could not keep up with roaring global demand. At
least one analyst set a target price above $600.
 "Most investors are trying to outperform the index," said
Kim Caughey Forrest, senior equity research analyst at Fort
Pitt Capital Group in Pittsburgh.
 Index managers buying the components of the average will
need to hold fewer shares of Apple following the rebalancing.
More than $330 billion in funds and $40 billion in ETFs are
benchmarked to the Nasdaq 100.
 That would have put their holdings at about $75.85 billion
in Apple stock prior to rebalancing - but managers said there
would still be plenty of interest from others in buying the
shares.
 "Apple's been a stellar performer and you have to look at
the fundamentals of the stock rather than it's place in an
index to tell you what to buy and what to hold if you're going
to outperform," Forrest said.
 (Reporting by Rodrigo Campos; Editing by Dan Grebler)


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