AT MORE than 15 percent of his fund’s assets, John Burnham, the manager of the $136 million (R1.7 billion) Burnham Fund, has a larger stake in Apple than any other diversified fund.
“I think they are doing everything right and it’s still a cheap stock based on earnings and revenue,” he says.
Yet that devotion for Apple is a problem for Burnham and some other managers of diversified funds – they want more Apple than they can buy under self-imposed risk-reducing guidelines that typically have them holding no more than 5 percent of their assets in any one company.
Burnham and the 174 fund managers like him who hold large stakes of their diversified portfolios in Apple are pulled in two directions: hoping to prevent an unforeseen drop in Apple shares from upending their portfolios, while also benefiting from a company whose shares are up 12 percent this year so far.
“Your positioning in Apple may hold a big sway in how your fund does overall, particularly in categories like large blend where every basis point counts,” Laura Lutton, who oversees equity fund research at fund tracker Morningstar, said.
In 2014, for instance, funds that underweighed Apple compared with broad market indexes were the most likely to underperform their peers, she said.
Stockpickers
Holding a concentrated position in one company is one way for stockpickers to stand out as investors move money to passive index funds. Yet it was unusual for diversified funds like Burnham’s to hold more than 10 percent of their portfolios in one company, said Todd Rosenbluth, the director of mutual fund research at S&P Capital IQ.
Most fund managers were inclined to take profits when a stock hit 7 percent of a portfolio, yet there were a few set mandates set down by fund firms, Rosenbluth said. He said he could not think of any fund families that had to sell if holdings exceeded guidelines as a result of appreciation.
Diversified mutual funds were allowed by law to add shares of a company as long as the total weight was below 24.9 percent of the overall portfolio, but did not have to sell shares if they appreciated above that level, Jay Baris at Morrison & Foerster said.
Burnham did not set out to have such a big stake in Apple, he said. He began buying shares in 2005 when they traded at a split-adjusted level of less than $7 each. Those have appreciated over 2 000 percent.
“It’s the world’s greatest company. I don’t see any reason to sell it,” he said, adding that the stock should trade above $200 a share. Shares closed at $123.59 on Friday.
His big weighting in the company is helping his performance, which may in turn bring in more investor dollars. Burnham’s fund is up 4.8 percent for the year to date, according to Lipper, a return about 4 percentage points better than the S&P 500.
Over the past five years, the fund has returned an average of 14.3 percent a year, a performance slightly better than the average large cap fund. The fund costs $1.36 per $100 invested, a rate slightly above average.
Attractive
Other fund managers with large stakes in Apple who aren’t selling say they did not set out to have an oversized position in it.
David Chiueh, the manager of the Upright Growth fund, had 13.4 percent in Apple, mostly because shares he bought in 2008 had appreciated, he said. The BlackRock Science and Technology Opportunities Portfolio, had an underweight position according to the fund’s chosen benchmark, the MSCI World information technology index, a spokeswoman said.
Mark Mulholland, whose Matthew 25 fund is classified as a non-diversified fund, has 15.3 percent of his portfolio’s assets in Apple. He expects to trim the position down to 10 percent of his portfolio, in part because the shares did not look as attractive on a valuation basis, he said. “It’s not a company under duress…but it’s not trading at as big as a discount as it was before.” – Reuters