Tuesday 24 April 2018 by Guest Contributor Opinion

How Apple invests its $270bn cash stockpile

The world’s biggest companies have huge investment portfolios. Here we assess how they invest ‘cash and marketable securities’ and find some common themes  


Every day we talk to investors who are frustrated with the ongoing rock bottom term deposit rates they receive from banks.

We completely understand the frustrations, however imagine how you would feel if you had $270bn, cash in the bank. Well, you might feel pretty fantastic because even a paltry 2%pa term deposit rate would generate $5.4bn before tax, annually which is likely to satisfy even the most decadent tastes! However tech giant Apple currently has a cash and marketable securities portfolio of $270bn but it invests just 5% in term deposit and at call cash accounts. Over 60% is invested in corporate bonds, 20% in government bonds and the remainder in mortgage and asset backed securities.

How seven of the world’s largest companies invest ‘cash and marketable securities’

Figure 1

It is worth exploring why -

  1. To generate higher returns than just investing in deposits alone.
  2. For greater liquidity - bonds are tradeable, whereas deposits are not.
  3. To diversify investments and income streams.

Some Australian institutions would invest in cash alone and miss out on these benefits.

Late last year, the Financial Times stated that 30 large US organisations, including Apple, had amassed USD1.2trn in cash between them. From our perspective, it is illuminating to look at these companies and assess how they invest very large sums, especially given the fact that US term deposit rates are much lower than the rates on offer here. These are clearly very large and successful corporations which are run in a highly sophisticated fashion and while some outsource cash management to professional managers, others have effectively built a fund management division within their existing businesses. 

When considering the data, it is fundamental to remember that this is corporate cash so the risk tolerance is incredibly low. Any losses would have to be disclosed to shareholders who are unlikely to be particularly sympathetic! Figure 1 above outlines a selection of other large US organisations with a breakdown of asset allocations within their ‘cash and marketable securities’ portfolios.

When looking at Figure 1 it is easy to lose sight of the overall amount invested. Apple is the largest investor holding over $250bn of the seven companies, but combined they have over $750bn invested in cash and the other asset classes outlined above. Indeed, if Apple’s corporate bond investments worth $171bn were considered to be a ‘fund’ then it would be the biggest corporate bond fund in the world just pipping Vanguard’s Total Bond Market Index Fund which is c.USD161bn in size. 

It is interesting to note that Johnson & Johnson and GE are the only two organisations that hold more than 50% in cash or term deposits. For most of the other companies,  government and corporate bonds are the dominant asset class. It is also interesting to see that Apple has an 8.1% or a mere US$21.7bne to mortgage and asset backed securities.

What is very clear from looking at Figure 1 is that these organisations are not just accepting low term deposit rates. They are diversifying to improve returns and all seven invest in bonds

They are working hard to try and extract the best possible return while maintaining a low risk profile. Risk is typically reduced by focusing bond investments exclusively in the investment grade (BBB- or better) space.

Aggregating the data, using a simple average (to avoid Apple skewing the results) shows that these companies invest just under 30% of holdings in cash, another 32% is invested in corporate paper & bonds with 35% invested in government bonds.

Combined average ‘cash and marketable securities’ asset allocation

Figure 2

When I moved to Australia in 2013 I was very surprised to see that many investors, both corporate and individual, held such high levels of cash and such low levels of bonds.

We believe that if some of the largest, most profitable and sophisticated companies in the world are happy to allocate a substantial portion of its investments to bonds then, other investors whether they are individuals, corporates, not-for-profits or any other groups should take comfort and consider using the same strategies.