Big problem for fund managers: liking Apple too much

Mon Mar 16, 2015 1:03am EDT
 
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By David Randall

NEW YORK (Reuters) - At more than 15 percent of his fund's assets, John Burnham, manager of the $136 million Burnham Fund, has a larger stake in Apple Inc 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 so-called diversified funds like his - 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," said Laura Lutton, who oversees equity fund research at fund tracker Morningstar.

In 2014, for instance, funds that underweighed Apple compared to broad market indexes were the most likely to underperform their peers, she said.

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Apple CEO Tim Cook speaks during an Apple event in San Francisco, California March 9, 2015.  REUTERS/Robert Galbraith