The 50% surge in Apple Inc.'s share price this year has helped make the company — the biggest in the U.S. by market capitalization — a risk-management conundrum for institutional investors.
Although Apple's current 4.3% weighting in the Standard & Poor's 500 stock index is less than previous heavyweights such as International Business Machines Corp. and AT&T Inc., it's the combination of the stock's size and volatility that's making executives overseeing institutional portfolios sweat, noted Howard Silverblatt, senior index analyst for S&P in New York.
With $192 billion in market gains this year, that single stock's contribution to equity returns has left many executives at pension funds and other institution nervously mulling whether they should be taking steps to somehow lock in that windfall, Mr. Silverblatt said.
On April 16, Christopher Ailman, chief investment officer of the $152.9 billion California State Teachers' Retirement System, West Sacramento, told CalSTRS board members that with Apple's stock rally this year lifting the system's holdings in the company to $1.8 billion — or 1.2% of the total portfolio — they should consider buying put options to insure against a potential stock price drop.
Mr. Ailman made that argument as Apple's stock was in the midst of a retreat from its record intraday high of $644 on April 10 to an April 24 close of $560.28, a decline of 13%. On April 25, the company's stellar first-quarter earnings report snapped that losing streak, lifting the stock price back above $600 a share. On April 27, Apple shares closed at $603.
Among investment executives and consultants, the only consensus about Mr. Ailman's suggestion was surprise that he would talk about the possibility of buying Apple put options, unless he already had accumulated as many puts as he wanted.
Mr. Ailman couldn't immediately be reached for comment, but a spokesman said CalSTRS officials decided not to purchase put options for the fund's Apple exposure.
Had CalSTRS implemented the puts, it wouldn't have been the first pension fund to hedge a stock-specific exposure.