Israel Englander is the CEO of Millennium Management, the second most profitable hedge fund in history as measured by net gains since inception, according to LCH Investment. In total, Millennium owns more than 6,000 stocks, index funds, and options, but Englander downsized one of his largest positions in the third quarter.
Specifically, he sold 11.5 million shares of Apple(NASDAQ: AAPL), reducing his stake by 90%. Apple had been one of his hedge fund's top 10 holdings, but it no longer ranks in top 75. Meanwhile, Englander bought 2.4 million shares of the SPDR S&P 500 ETF Trust(NYSEMKT: SPY), increasing his stake by 81%. That S&P 500 index fund is now his seventh largest holding, and it ranks first if options contracts are excluded.
That is particularly interesting because Ed Yardeni of Yardeni Research anticipates significant upside in the S&P 500(SNPINDEX: ^GSPC) in the next decade. He believes the roaring 2020s -- a term that refers to booming economic growth seen in recent years -- could drive returns of 11% annually during the next 10 years. That equates to a total return of roughly 180% by 2034.
Here's what investors should know about Apple and the SPDR S&P 500 ETF Trust.
Apple: The stock Millennium Management sold
Apple has established itself a premium consumer electronics brand through design expertise that spans hardware and software. Particularly important is the strength of its iPhone. Apple is the global leader in smartphone sales and it consistently ranks second in smartphone shipments. Warren Buffett once quipped that people would sooner give up a second car than part with their iPhone.
The iPhone is Apple's largest source of revenue and the foundation of its services business, which was the fastest growing segment in the fourth quarter. Specifically, total sales rose 6% to $95 billion, driven by a 6% increase in iPhone revenue and a 12% increase in services revenue. Meanwhile, non-GAAP earnings rose 12% to $1.64 per diluted share.
In October, the company launched Apple Intelligence, a suite of artificial intelligence (AI) features available on newer iPhone and MacBook models. Several Wall Street analysts touted the release as a catalyst for a massive upgrade cycle, but the impact on iPhone wait times has so far been negligible, which suggests consumers are underwhelmed.
Indeed, David Vogt at UBS wrote in a recent note, "Even as consumers familiarize themselves with Apple Intelligence, the data indicates that demand has been relatively muted thus far." Moreover, while several analysts anticipated a price bump, iPhone 16 models launched this year with identical prices to iPhone 15 models last year, despite all newer models having AI capabilities.
In short, Apple has not yet demonstrated that it can monetize AI, yet the stock is up 30% since the company announced Apple Intelligence at its developer conference in June. Shares trade at 42 times earnings, a huge premium to the three-year average of 29 times earnings. That multiple is hard to justify for a company projected to grow earnings at 9% annually over the next three years.
Here is the bottom line: Apple is a wonderful business with a strong position in several big consumer electronics categories. But the stock trades at a material premium to its average valuation over the last three years. So, investors should ask themselves: Does Apple have better growth prospects today versus three years ago? If your answer is no, avoid the stock.
SPDR S&P 500 ETF Trust: The index fund Millennium Management bought
The S&P 500 is essentially synonymous with the U.S. stock market due to its scope and diversity. The index includes 500 large domestic companies from all 11 market sectors that collectively account for about 80% of U.S. equities and 50% of global equities in terms of market value, according to S&P Global.
The SPDR S&P 500 ETF Trust tracks the performance of the S&P 500, allowing investors to spread money across many of the most influential businesses in the world. The 10 largest positions in the index fund are listed by weight below:
Apple: 7.4%
Microsoft: 6.5%
Nvidia: 6.3%
Alphabet: 4.5%
Amazon: 4.2%
Meta Platforms: 2.6%
Tesla: 2.4%
Broadcom: 2.2%
Berkshire Hathaway: 1.6%
JPMorgan Chase: 1.3%
As mentioned, Ed Yardeni thinks the S&P 500 can achieve a total return of 11% annually in the next decade, but that projection is predicted on a continuation of the productivity boom that has defined recent years. Specifically, real U.S. GDP has increased at 2.7% annually in the last three years, meaningfully above the 20-year average of 2.2% annually.
While macroeconomic fundamentals ultimately drive the stock market, investors must bear in mind that no one can predict how fast the economy will expand. Even so, I am inclined to agree with Yardeni. Artificial intelligence could meaningfully increase productivity, potentially driving above-average economic growth for many years to come.
Here is the bottom line: The SPDR S&P 500 ETF Trust provides exposure to some of the most influential businesses in the world at a reasonable price. The fund has an expense ratio of 0.0945%, which means the annual fees will total $9.45 on every $10,000. Personally, I think most investors should own an S&P 500 index fund, even those that prefer stocks. That strategy can prevent catastrophic losses if individual stocks fail to beat the market.
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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, S&P Global, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
