Marmite, wannabe Presidential candidate, you either love him or hate him, Donald Trump, is in the news again this time his target is Apple. Mr Trump wants to force manufacturing back to the US. “Make America great again”, “We’re going to get things coming. We’re gonna get Apple to start building their damn computers and things in this country instead of in other countries”, he said in a speech at Liberty University in Virginia.
Apple did produce and manufacture in the US until the late 1990’s when they moved production to countries such as China to take advantage of the region’s industrial base and lower labour costs. China has more mid-level engineers, a more flexible workforce, and gigantic factories that can ramp up production at the drop of a hat. Apple still does their design and research at their California headquarters. An attempt by Apple’s Chief Executive Tim Cook to bring some manufacturing work back to the US in 2012 did not succeed, when he said that it’s difficult to make broad changes because of declining expertise in the US, in skills such as tool-and-die manufacturing.
This reflects the problems that the US will face over the coming years as little has been invested in core manufacturing as companies have preferred to buy their own shares and line shareholders pockets rather than invest in the capacity and future capabilities of the American work force.
We do hold a position in Apple through the 3.85% bond maturing May 2043 which carries an Aa1 rating and fits well into our continued positioning longer in maturity than our peer group and with a higher weighted average credit stance. This bond currently yields 4.27% at a discounted price of 93.20 which is a current spread of +152 basis points over the US Treasury curve. According to our “Relative Value Model” (RVM) fair value is around 67 basis points and so this bond is priced just over 4 credit notches cheap. This 16.24 year duration bond, offers a potential capital gain of 15% if it moves to fair value and if we add in the yield that return raises to 19.47%; a nice addition to the portfolio.