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.”