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 indexes. When all is said and done, about $1.3 billion more will be sold in Apple shares at the market close on Friday, when the reconstitution of the Russell indexes takes effect, according to an analysis by Credit Suisse.

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

Apple’s weighting in the Russell 1000 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. The performance of a market-weighted index is more influenced by larger companies, like Apple.

With the changes, fund managers who are 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 1000, according to a Reuters analysis of Morningstar Inc data. That compares to $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 index provider FTSE Russell, splitting it between two Russell subindexes. 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. She estimated there will be over $850 million of selling in Apple out of the growth component of the Russell 1000 and about $400 million of buying from the value side. Almost 1,900 large-cap growth funds own Apple shares versus fewer than 1,000 large-cap value holders, according to Morningstar data to the end of May.

Apple’s shares are down 9 per cent since late April when it reported results, including its first-ever decline in iPhone sales and first revenue drop in 13 years. Since its $133 closing high in February 2015, the stock has dropped 28 per cent. It closed Friday at $95.33, down 2.3 per cent on the day.

Reuters