Stocks versus Bonds: The Apple Example

In the past year, stock buyers have done significantly better than bond buyers. If you need hard evidence, look at Apple Inc. In less than four months, debt investors have lost nearly $1 billion in market value on $30 billion of Apple bonds. That much money is enough to purchase about two million of Apple’s smart-watches. While Apple bonds have lost 1.6 percent this year, equity buyers have enjoyed the exact opposite. Equity buyers have seen a 14 percent return, even after disappointing earnings numbers last week.

This is further evidence that even if a company, “can feed a country with its cash hoard while churning out iPhones, iPads, and Apple Watches, that doesn’t mean its bonds will do well. In fact, in this twisted, stimulus-riddled world, their debt may actually do worse because of how bulletproof Apple’s balance sheet is and, subsequently, how little they’ve had to pay to borrow for decades to come.”

It’s simple math. Jody Lurie, a corporate-credit analyst at Jannery Montgomery Scott LLC in Philadelphia said, “It’s Bond Math 101. When rates rise, there’s only one way to go, at least prior to it going to maturity, and that’s down.” In 2013, Apple’s bonds were highly rated, with maturities as long as 30 years and historically low yields. Apple was taking advantage of the Fed’s stimulus, which included bond purchases and overnight interest rates held at close to zero in hopes of boosting economic growth. Apple bonds are highly sensitive to moves in benchmark borrowing costs because of how little extra yield they pay. The $3 billion of notes maturing in 2043 were sold at 99.42 cents on the dollar in April 2013. Today, they’re trading at 91.63 cents, according to Trace. Bonds sold this year have also declined, with its 2.7 percent notes maturing in 2022 falling to 98.87 cents on the dollar from highs of 101.59 in May.

All the individual investors who wanted Apple bonds because of the brand’s name are disappointed. In total, they’ve seen more than 2.3 percent decline on comparably rated corporate debt. Their stock buying counterparts are likely much happier, with a lot more to show for their investment.

If you are interested in expanding your portfolio, let an advisor at Apex Financial help you pick the best options. We’ll help insure you get the most from your investment.