Analysis: The funds that saw Apple's decline coming

Wed Jan 30, 2013 1:07pm EST
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By David Randall

NEW YORK (Reuters) - The slump in Apple Inc's share price from its September high has badly dented the returns of hundreds of mutual funds that had maintained outsized holdings of the stock. But some went sour on the iPhone-maker just in time.

Of the 321 funds that had more than 5 percent of their assets in Apple shares at the beginning of 2012, 53 of them - or slightly more than 16 percent - significantly cut back their weighting of the company before the plunge gained momentum, according to data from Morningstar.

Whether it was a case of simple risk management, concerns that the company's share price had peaked, or a bit of luck, fund managers who drained Apple from their portfolios helped drive down the price of the stock. As a result of their early shift in sentiment, they appear quite prescient now.

Denver-based fund manager Tom Marsico sold his firm's entire stake in the company between November and January - most of it in November before things got really ugly. At about $2 billion of the firm's $31 billion in assets under management, the Apple stake made up between 6 to 8 percent of the domestic portfolios at the time he began selling.

His concern: that the company had saturated the market with its products so much that there was "no one left to sell to."

Frank Caruso, portfolio manager of the $1.7 billion AllianceBernstein Large Cap Growth fund, began underweighting the stock in the spring, believing Apple was losing the pricing premium for its products. George Sertl, a portfolio manager of the $891 million Artisan Value Fund, sold as Apple raced through his price targets, using some proceeds to buy Samsung instead.

The result: Investors in these funds largely sidestepped the implosion of one of the most widely-held U.S. stocks. Apple's share price ended Tuesday at $458.27, down 35 percent since hitting a record high of $705.07 on September 21, brought down by concerns ranging from its lack of "cool" new products to increased competition from other mobile phone manufacturers. After the company missed Wall Street's quarterly revenue estimates on Jan 23, the shares dipped 12 percent the next day.

The drops in the company's share price were painful for big individual shareholders. The value of Apple chairman Arthur Levinson's 239,541 shares fell by $59.1 million between late September and January 28, while board member and former U.S. Vice-President Al Gore's stake fell by $25 million. CEO Tim Cook's paper wealth of 1 million restricted shares, which will fully vest in 2021, fell approximately $247 million.   Continued...

The Apple logo is pictured on the front of the company's flagship retail store near signs for the central subway project in San Francisco, California January 23, 2013. REUTERS/Robert Galbraith