Sponsorship Link
(Reuters) - Apple Inc once again rewarded shareholders richly as its shares surged to new highs above $500 on Monday. There is, though, one part of the iPhone and iPad company's business that is not exactly humming: Its management of a pile of money now probably exceeding $100 billion.
/
While Main Street U.S. investors are bombarded with offers from banks, such as Capital One Financial Corp, offering bank account yields of as much as 1 percent, Apple may be settling for about that or less for its stash, which is bigger than the gross domestic product of many smaller nations.
And comparisons with fellow hoarders in the tech world, such as Microsoft Corp and Google, indicate that in this area at least, the most valuable publicly traded American company is probably underperforming.
With the mountain growing at an extraordinary rate - Apple's pile of money rose by more than $16 billion to $97.6 billion in the final quarter of last year, the weak returns may strengthen the arguments of investors who think it might be time Apple started returning some money to shareholders through a dividend.
Must Read
Otherwise, given the phenomenal success of its iPhone in particular, Apple could at current rates of cash generation go through the $200 billion level sometime in 2013.
Follow us
Apple said in its annual results filing that its cash and investments - worth $81.6 billion at that stage - earned just 0.77 percent in the fiscal year ended September 24, 2011. That was a hair above the 0.75 percent return earned the previous year and down from 1.43 percent in fiscal 2009 and 3.44 percent in 2008.
"Clearly it's low - absolutely and relatively," said Robert Willens, president of New York consulting firm Robert Willens LLC and a veteran accounting analyst on Wall Street.
When asked about its cash management, an Apple spokesman refers to the company's latest regulatory filing, which says its investment policy and strategy are focused on preservation of capital and supporting the liquidity requirements of the company. It also said it invests primarily in "investment grade" securities.
"They are not running themselves like a hedge fund. They are running it like a liquidity portfolio to meet their business needs," said Alex Roever, head of short-term fixed income strategy at J.P. Morgan Securities in New York.
And yet some of its peers appear to be able to eke out higher returns without seeming to take greater risks.
Microsoft, which had $59.29 billion of cash, liquid securities and other investments at the end of 2011, and Google with $44.63 billion in its pile, do not provide comparisons for a weighted average interest rate earned.
However, a look at their returns using a number of different measurements suggest that they are working their money harder with riskier investments than Apple and generating higher investment returns, an analysis by Reuters showed.
In 2011, for example, Google recorded a gross realized gain of $381 million and net unrealized gain of $469 million, for a total $850 million, on its liquid marketable securities - which were up to $34.6 billion by the end of the year.
Google declined to comment on its rate of return, though it reported gross unrealized gains and losses on cash equivalents were not material at the end of the past two years. Overall, though, the figures suggest returns may have been almost 2 percent.
