Apple's gains make some mutual funds riskier

Mon Mar 26, 2012 5:13pm EDT
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By David K. Randall

NEW YORK (Reuters) - When it comes to Apple, investors could become victims of their own success.

It is a dilemma more mutual fund managers are wrestling with due to the company's nearly 48 percent gain this year. Those who bought Apple well below its current price have seen the value of their investment balloon, sometimes to more than 10 percent of their fund's assets.

That effectively turns a brilliant decision into a concentrated stake, undercutting the benefits of diversification and making some mutual funds riskier.

As Apple stock has marched higher, well-timed bets on the company have helped some growth-oriented and blended mutual funds outperform the broad market. But in doing so, many of those funds have now tied investor dollars closer to the performance of a single company.

This isn't much of an issue when it comes to funds that market themselves as narrow bets on technology. But many funds whose broad holdings could be the core of a (401)k or similar retirement plan - Fidelity's $14.7 billion Blue Chip Growth and the $28.7 billion T. Rowe Price Growth fund among them - are stocking up on Apple.

Apple makes up nearly 9 percent of Fidelity's $80.8 billion Contrafund, for instance. The fund is the sixth-most popular holding in 401(k) plans nationwide, according to BrightScope, a firm that ranks company (401)k plans.

A dramatic fall in Apple's shares, however unlikely that may seem at the moment, would quickly ripple across the retirement accounts of millions of investors who thought they were safer investing in funds than individual shares.

"It adds to the risk profile of a fund to have a significant stake in one stock because it makes them more susceptible to bad news on one or two stocks and they won't be able to cushion the blow with diversification," said Todd Rosenbluth, a senior fund analyst at Standard & Poor's Capital IQ.   Continued...

An employee presents purchased new iPads to a customer at the Apple flagship retail store in San Francisco, California in this March 16, 2012, file photo. REUTERS/Robert Galbraith/Files