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Investor Education > Market Commentary

27 February 2017

Should I have a position in Apple? And how would I even do that?

By Alex Pollak, CIO Loftus Peak

These are the questions on so many investors' minds. Apple, Google, Amazon, Alibaba - how to invest in companies like these, which are changing the face of global indices and outperforming Walmart, Exxon and Telstra.

At Loftus Peak, we invest in these companies. But not in a me-too, jump-on-the-bandwagon kind of way.

It shows in the way we think about our investment in Apple. We have held the world's largest listed company as it has rallied 40% in the past year including 10% in the days around the result a couple of weeks ago. Now we are not so sure.

Specifically, the underlying numbers weren't actually that great; so the stock seems to be rallying because of the excitement which is building around the iPhone 8, which will be released around the tenth anniversary of the first iPhone in September of this year.

One of the features being talked about for the new iPhone is in-the-pocket charging.

There is always a lot of speculation about Apple’s innovations, and because the supply chain is so long (meaning that its component providers need time to tool up) it can be pretty well-informed. For example, there was plenty of chatter before the current iPhone was released about the removal of the headphone jack, and it turned out to be true.

Now, wireless, inductive charging (putting a device on a charge pad, rather than charging it through a wire into the device) has been around for a while – it works in toothbrushes, for example, where water is problem, and on the Apple watch.

But this is a step beyond that – there are companies which have technology which will charge a device anywhere in the room, including in your pocket, wirelessly, using a radio signal which beams power into the device.

One pundit even opined that wireless charging is deeply disruptive, and indeed could be the next wi-fi, with all the disruption this entailed.

And here is where it gets interesting.

Without in any way being critical, we would respectfully disagree. Wireless charging technology and wi-fi both operate on the idea of connecting without wires – but one is highly disruptive, while the other is, well, just a neat bit of technology.

It's more than just a point of difference - it goes to the core of how we invest.

Wi-fi is disruptive because it reveals the position, buying habits and identity of the user, which radically changes the business model of every company that cares to take advantage of it. Wireless charging, by contrast, is just a more convenient way to charge, kind of like a more powerful flashlight, or a cd, say, compared with a record.

Why is this important? Because new technologies, in their own right, aren’t really all that investable – they can go up quickly, but also drop just as fast, a result of missed numbers or a falling multiple. So the wireless charging company (Energous, by the way, its listed on NASDAQ if you care to bet) could be interesting, but it doesn’t make the cut for us as a disruptive company with all that entails for fast value creation.

It isn’t that we think that disruption is the only way to make money – it isn’t. It’s just that right now, there are a slew of variables pointing to wealth creation through further disruption whether in cars, energy or life sciences. And all of these will bring forward new business models in retail, media, transport, medicine to name just a few. And it shows in our numbers: Since inception on 30 June 3014, we have returned an annualised 16.46% pa net of all fees.

And as for the Apple numbers, they really do look like a problem. The quarterly results benefitted from an extra week, relative to the prior corresponding period, adjusting for which leaves the revenue numbers down, not up. iPad sales also went backward (again). Services were good, but from a low-ish base.

What is really going on at Apple? In our view, it appears to be losing the battle on a number of critical fronts. Its cloud offering is way behind Google and even Microsoft. Apple Music isn’t doing especially well, while Apple TV is looking more like a dumb pipe (Netflix has the bundle, and is making real inroads as a studio). Amazon is winning the battle for the interface in the home, and the company has scaled back development of the car, which is looking like the next battleground. So while the excitement builds about the iPhone, and maybe its wireless charging, we look at the numbers and trends and maybe aren't totally convinced. Maybe we will even sell.

Which brings us back to the central question. If you want to own part of the some of the fastest growing companies in the world, but don't quite know how to do it, we think we can help. Click on the following links below to find out more and view our latest offer provided by Loftus Peak.




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