US tech giants pour cash into money funds, bitcoin in the hunt for yield
The top six S&P500 index companies boosted money fund holdings by $26 billion while Tesla made an eye-catching cryptocurrency investment.
The largest six S&P 500 companies by market capitalisation – Apple, Alphabet, Amazon, Facebook, Microsoft and Tesla – increased their investments in money market funds by 53% in Q4 2020 from the previous quarter, totalling $75 billion at the end of 2020, an increase of $21 billion from 2019. Electric car manufacturer Tesla accounted for the majority of the increase, boosting its money market fund holdings from $6.2 billion to $19.3 billion in the same period.
The increase in investments is still dwarfed by the amount the companies are collectively paying to shareholders. Four of the tech giants repurchased $128.1 billion of stock during 2020, contrasting with Tesla which issued $7.5 billion of stock, and Amazon which hasn’t repurchased stock since 2012.
In the first three quarters of 2020, companies such as Apple, Alphabet, Microsoft, Amazon and Facebook had shunned money market funds, reducing their investments by $13.2 billion after they had boosted their money market funds to record levels in 2019.
In 2020, corporates suffered a slump in their investment yield as emergency central bank measures during the pandemic depressed bond returns. EuroFinance in Q3 2020 reported that none of the top 25 S&P 500 index companies managed to post an increase in their effective interest rates compared to 2019. In this environment, the latest data from top-six S&P 500 index companies show that they are moving towards money market funds to secure better yields in low bond yield environments.
Tesla, which in terms of market cap is now larger than Facebook, has made an unconventional move by deploying its $1.5 billion cash into bitcoin in January 2021 in order to ‘further diversify and maximize returns’ on its cash holdings, according to an SEC filing. However, the carmaker cautioned on its holdings of digital assets in terms of accounting rules wherein the decrease in value will be recognised in impairment charges but its increase in its market value won’t be recorded until its sale.
Bitcoins do not constitute the part of its cash and cash equivalent holdings and Tesla in its SEC filings does not report the bifurcation of its investment holdings but says the majority of they are in money market funds.
Apple and Facebook reduced their money market funds by 45% and 23% respectively from 2019 to 2020. In terms of percentage, Alphabet and Tesla recorded a substantial jump of 165% and 210% in the same period. Individually, Amazon holds most of them at $27 billion. Although, Microsoft does not keep its investments in money market funds and has shunned away from it.
In terms of bond holdings of government and corporate bond holdings for tech companies namely- Apple, Microsoft, Alphabet, Facebook and Amazon- it stood at $257 billion and $167 billion respectively. In terms of absolute change, corporate bonds rose by $12 billion while government bonds decreased by $5.1 billion. Apple had the largest holding of corporate bonds amongst tech companies at $85 billion and Microsoft had the largest holding in government bonds at $103 billion in 2020.
Due to the pandemic, corporations had to diversify their investment holdings in order to maximize their yields earned on them. Amongst these top six companies, none of the companies managed to match their effective interest rate of 2019 in 2020.
Tech companies collective holdings went up by $40 billion in 2020 from 2019. Amongst them, the largest increase in absolute value was seen in Amazon by $29 billion and Alphabet by $17 billion, however, Apple saw a dip in its holdings by $11 billion. The collective holdings stood at $610 billion, crossing the $600 billion mark second time since 2017.