Apple Is Now The World's Largest Bond Fund

Tyler Durden's picture

Nearly five years ago, when looking at the cash and cash equivalents of Apple, which at the time was a far more "modest" $121 billion in gross cash (and virtually no debt at the time), we noted that Tim Cook's company was "the world's biggest hedge fund you have never heard of." Five years later, with more details available about its balance sheet holdings, we can conclude that in addition to the world's largest publicly traded company, Apple has now also become the world's biggest bond fund.

In its 10-Q filed on Wednesday, the iPhone-maker reported that $148 billion of its record $257 billion cash pile is invested in corporate debt, with an additional $53.1 billion in Treasurys and another $21 billion in mortgage-backed securities.

According to Bloomberg calculations, AAPL's corporate bond holdings are enough "to buy all the assets in the world’s largest fixed-income mutual fund, the Vanguard Total Bond Market Index Fund, which has about $145 billion of assets including company, government and mortgage bonds."

At 58%, corporate bonds represent the single biggest asset class behind the company's record $256 billion in gross cash equivalents.

Notably, Apple’s holdings, which as we first revealed in 2012, are managed by its Braeburn Capital unit in Reno, Nevada, "may be large enough to move markets if the company makes any big shifts in its allocations" according to Bloomberg estimates. Apple has typically favored safer, shorter-dated, more liquid bonds from high-rated financial issuers and other companies.

As is well-known, Apple like other tech companies, has resisted shifting the money it earns abroad back to the U.S. to avoid triggering corporate income taxes on the repatriation. Instead, it has invested in corporate bonds and other assets like money market funds and U.S. Treasuries. The chart below shows the tremendous increase in AAPL's corporate holdings over the past 5 years.

For now, Apple and other cash-rich companies have been holding out for a cash-repatriation holiday suggested on many occasions by Trump. The President's tax plan includes a repatriation provision, though it hasn't specified a rate. He proposed a 10 percent levy when campaigning, and Treasury Secretary Steve Mnuchin has said the rate would be “very competitive" Bloomberg notes. Preparing for repatriation may mean cash-rich companies want to hold more of their funds in more liquid securities like U.S. Treasuries, said Benjamin Campbell, chief executive officer of Capital Advisors Group, quoted by Bloomberg.

"Companies have been looking at the repatriation issue and a portion of them are prepping for it," Campbell said. "I think Treasuries would end up absorbing some of the supply."

Apple executives have so far failed to disclose what they’d do if repatriation becomes a reality. “It’s very difficult for us to speculate,” Apple’s Chief Financial Officer Luca Maestri said in a Bloomberg interview Tuesday. “We’d like to reassess what we’ve done if and when that happens.”

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SallySnyd's picture

 It will be interesting to see when and if Apple fixes these vulnerabilities in its key product line:

 

http://viableopposition.blogspot.ca/2017/03/apple-and-central-intelligen...

 

Hundreds of millions of Apple consumers got more than they bargained for.

CPL's picture

They aren't security holes, those are features of the product so apple can 'manage' your equipment any time it wants.  Read your end user licensing agreement before clicking 'ok' and 'i agree'.  There is a reason they have dual confirmations in their product agreements and it's for nothing good.  They were the architects that drafted the SOPA and PIPA laws in conjunction for first dibs to spy on it's own users.  The fact is they've been caught doing it hundreds of times.

And here's a secret...they aren't sharing everything with the 'government'.  They have a secret data mining operation being built here in Ottawa.  Of course it's not secret here because their executives tends to get very drunk and run their mouths forgetting that everything here is monitored.  Everything.  Still not sure if they should be 'accidented' or not yet.  They haven't paid me for permission to stay, so they might not make it past this summer.  In the meanwhile we'll just keep feeding them rope to hang themselves with.

PrayingMantis's picture

 

... >>> "In its 10-Q [is that a 'thank you' to .gov?] filed on Wednesday, the iPhone-maker reported that $148 billion of its record $257 billion cash pile is invested in corporate debt, ..." ... invested in 'corporate debt' ... lol ...

... but the real question is, 'how much money AAPL avoids paying taxes in the US by 'pretending' it is based in Ireland?

...>>> "In the U.S., the corporate tax rate can be as high as 35% of income. Ireland's tax rate is 12.5%, and by using various complicated international accounting maneuvers — some of which have cute names like "the Dutch Sandwich" and "the Double Irish,"  which Apple is credited with pioneering — Apple has  lowered its tax rate on some of its income to as little as 3.7% last year, according to Reuters."

... btw, I call this 'creative accounting' ... and they call it "investing in corporate debt" ... does Panama come to mind? ...

... to continue ...

...>>> "Apple says it has not received any selective tax treatment from Ireland. Nonetheless, it uses Ireland's tax laws to its advantage: Apple places certain corporate assets in Ireland and uses them as a pivot for international transfers that lower its taxes. In one example,  a U.S. Senate subcommittee found that an Irish Apple entity named "ASI" was, in fact, the company that actually sold iPhones internationally: In the case of Apple, ASI purchased finished Apple goods manufactured in China and immediately resold them to ADI or Apple Singapore which, in turn, sold the goods around the world. ASI did not conduct any of the manufacturing – and added nothing – in Ireland to the finished Apple products it bought, yet booked a substantial profit in Ireland when it resold those products to related parties such as ADI or Apple Singapore But how much tax does Apple actually avoid when it does this? A lot, it turns out.

In 2012, Apple's "foreign base sales income" was about $25 billion, according to the Senate report, and it avoided paying $9 billion in taxes on that income: ..."

read more here: ... >>> http://www.businessinsider.com/how-much-money-apple-avoids-paying-in-taxes-2014-6?op=1

 

... and the loser here,folks, is the US taxpayers which essentially subsidizes Apple's 'creative accounting'-'Double Irish'-"investing-in-corporate-debt" US-tax avoidance loophole by lowering their fair share of taxes which in turn puts the burden on the middle class and 'Mom & Pop businesses for more tax increases to keep up with America's expenditures on the world stage.

... and you multiply that scenario with the other globalist big-wig corporations that knowingly and wilfully avoids paying taxes, you get $695 billion that should've been paid in 2016 ... >>> "How U.S. companies are avoiding $695 billion in taxes" >>>

https://www.washingtonpost.com/news/business/wp/2016/03/04/why-u-s-companies-wont-bring-2-4-trillion-in-foreign-profits-back-home/?utm_term=.04f6a19f0e66

... I know, Washington Pest, but what the heck, they sometimes come up with gems like this ;)

... "Hiding money in foreign tax havens sounds like the domain of oil barons, rich bankers, major pharmaceutical companies and titans of manufacturing. The truth is, when it comes to hiding money away from U.S. taxation, tech companies like Apple and Google are leading the way."

... and in 2015, view the chart of biggest tax-evading corporate offenders here (and this could be an old chart too) >>>

https://mic.com/articles/126416/one-chart-shows-how-much-apple-and-google-are-hiding-in-overseas-tax-havens#.aEhBScAsd

 

... don't you just want to do a Double-Irish-Dutch-Sandwich on your taxes too?

 

;)

 

JRobby's picture

No surprise here. Peak insanity! Until next month of course!

DutchZeroPrinter's picture

Could Apple be buying their own debt? Issue corporate debt to buy back shares and buy Apple bonds with overseas money. That way it's free to repatriate the profits.

earleflorida's picture

yeah, and the public is getting smart regarding, 'professor gadgets' (ankle bracelet?), factfinder Facebook/ Apple [a day]... Google'ling your rights away.

 i smell change in the 'AIRe'...?

CPL's picture

Yeah, it's called Linux.

JRobby's picture

McAfee is labelling your link "trouble".

I don't think that reflects on you personally though.......................

ETP - Eradication of Trolls Program   ZH, implement the program because it is eroding the enterprise value of your site.

BorisTheBlade's picture

So, they could buy Tesla three times over. That's some incredible war chest.

junction's picture

FATCA does not apply to Apple.

I am Jobe's picture

Slave Labor helps plus fleecing the sheeples is priceless. 

earleflorida's picture

the central banks nucleus of free trade capital[fasc]ism... until, the lexiconic domicile changes with the whims of tyranny

GRDguy's picture

That's sure a whole lot of paper promises expected to be kept.

ejmoosa's picture

And if rates rise sharply, won't that hurt AAPL's bond holdings?

At what point will the FED decide it needs to protect AAPL assets, since as goes AAPL so goes the economy?

NotApplicable's picture

I'd say the Fed has been doing so already for quite some time now.

Otherwise, Apple would've never turned into yet another financial entity.

A. Boaty's picture

Reminds me of the old GM, a finance company that also made cars.

JRobby's picture

Ally is all that's left. A POS.

Lady Jessica's picture

Apple provides an interesting distortion of the classical view of the function of accumulated capital.

I'm sure most of the corporate debt they're holding is funding share buybacks, rather than being deployed to enhance new capital formation and the productivity of labour.

Hope Copy's picture

You got to wonder if the company is registered properly, should not the investors be getting this pile in dividends?  Surly Vanguage should look into this as I'm sure they hold Apple.

Codwell's picture

Quite odd that such a successful corporation uses retained earnings to buy other corporate debt rather than invest in itself. It appears corporate debt is more appealing than your own business.

If Apple refuses to reward its shareholders, the least it could do is use the money to buy back shares.

Erwin643's picture

How do you think they keep their stock going up?

NotApplicable's picture

You may have missed the part where they borrow money to buy back their shares rather than repatriate the cash to do it.

Codwell's picture

Yeah as of February 2016 that buyback resulted in a 20% decline in share price, and overpaying $15 billion for the shares retired.

Borrowing adds a far worse libility to the books than stock shares. 

Yars Revenge's picture

It would be interesting to know what Apples top 10 corporate holdings are

Discombobulated Hobo's picture

I'd be interested to know how much of that corporate debt is Apple's own bonds.  Is that even legal?  Can a company own its own debt?

 

Also, when the housing market crashes, they're going to be left holding the bag on a lot of worthless mortgage-backed bonds.

 

JRobby's picture

Irwin Fletcher: "Give each other $20.00"

Servants: "Thank you Senor!!!"

John Law Lives's picture

How much of their filthy lucre came off the backs of slave labor and duped customers...

slave labor + overpriced goods + duped customers thinking they "must" buy the latest gizmo = cash bonanza

iFUBAR

LeftandRightareWrong's picture

$20 per month for anything useful that works is essentially free, and a great ROI for many people.

John Law Lives's picture

This article is several years old, but the message is clear enough:

http://www.imore.com/iphone-users-biggest-cash-cows-carriers

iPhones are expensive, and the associated plans with them tend to be quite expensive.

TheSilentMajority's picture

Apple is actually burning cash now.

Net cash fell this quarter, and also a couple of quarters before.

Burn baby burn!

Consuelo's picture

 

 

All on essentially (1) product line...   Wow.

 

That's like the mountain bike dude riding the 12 inch trail atop 10,000 foot jagged peaks - he's King of the world, but one false move...

Good thing to have net $150B in cash, because as in the late 90's --- early 2000's, it took a few years and lots of 'innovation' to crawl out from behind $9/share and offers from Bill Gates to save a 'uniquely American icon'...  

Rebel yell's picture

I was wondering if the super mighty preemptive insider stock sell off resulted in insider bond buying. Not Apple specific. Would any ZHer happen to know?

This is very strange! Nestle bonds usually issued in $500 million amounts. Set to expire 1-16 -18 $500 million with a 1.25% coupon, and then $133 million with a coupon of 3.75% set to expire on 1-18-18! This looks like an insider sweetheart deal if I've ever seen one!!! Also $400 million issued with a coupon of 1.375 % set to expire 7-24-18 and then $152 million with a coupon of 3.875% set to expire on 7-19-18!
http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=nsrgy

Same bizarro world bond market at IP!!!
http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=ip

And how is this for WTF?! Del Monte has no bond data available for Morning star?!!!!
http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=fdp

Insiders at X are acquisition heavy:
http://www.nasdaq.com/symbol/x/insider-trades

All of this fits in with my theory that the corporations are deliberately trying to bankrupt America with a two poison pill strategy on the left, increased social spending and expensive wars, on the right, massive tax cuts and expensive wars, and then a fire sale sell of of our sovereignty in piecemeal as previously happened in Russia to the corporations of every thing- federal land, parks, water, waste management, roads, education! This would leave us in a modern day Mussolini world of corporate statist fascism!

I believe that this is what Clinton's pay to lay was all about!! Agenda 21 calls for public private partnerships! People didn't donate $1.6 trillion to the Clintons because they are nice people!!!

The_Passenger's picture

Has anyone thought about the possibility that Apple's offshore pile is being invested into AAPL bonds? Would be equivalent to rapatriation, but no tax paid? Or would that be illegal?

LeftandRightareWrong's picture

Wat would AAPL earnings look like if interest rates normalize?