Equity Mutual Funds That Invest in Apple
In our look at the similarities in top performing mutual funds, there were a few individual securities in the top 3 holdings that stood out as potential favorites. One of the most popular holdings was Apple, Inc., a strong company in our view based on several external coverage pieces and write-ups. We believe there are several reasons why an equity fund would want to hold Apple, including the bullish view on the Street about its share price, its top-notch marketing efforts that have helped it transform from a computer maker to a trendy electronic device supplier. Don’t fool yourself, if there is money to be made, the best and brightest mutual funds want to have a piece of it… and this is where Apple stands out.
The four individual funds that held this security in their top 3 were (listed in the order of most dollars exposed to least dollars exposed):
Fidelity Contrafund (FCNTX) -Despite its large portfolio of more than 400 individual securities and $71.1 Billion under management, the Fidelity Contrafund has allowed Apple to represent a 6.85% of its total assets, for a total dollar risk of $5,206,706,698.41 as of the November 10 closing price for Apple. It is a position that Fidelity is quite comfortable with, having added $15.6 million to this position recently. Given its aggressive nature, this spectacularly performing fund with its 11.27% YTD return will quite likely continue to add to this position. Our worry is that it could be over-exposed and taking on more risk than it needs to (its next-closest equity holding, Google, is 4.94% of assets). For the right investor, this fund does make sense, but it sure owns a lot of Apple. Read our full Fidelity Contrafund Review.
The Fidelity Fund (FFIDX) -Fidelity sure loves Apple. At 5.4% of this particular fund’s assets, Apple represents the Fidelity Fund’s largest holding. In dollar terms, it represents risk to the tune of $313,227,747 as of the November 10th close. With a turnover rate of 77%, it is unclear whether the Fidelity Fund will still hold this asset in such a capacity by year-end reporting, but given the strengths of this stock it will not surprise us if it does. With 124 individual securities in its portfolio, this above-average performer with a above-average risk, may just want to ride this gravy train a little longer… Read our full Fidelity Fund Review.
T. Rowe Price Personal Strategy Growth Fund (TRSGX) -Although Apple represents this firm’s largest security holding at 2.33% of assets, it is a fairly small dollar figure at $26,937,141 against a $1 Billion under management. Given this fund’s strong and steady performance over the past decade, it makes sense that the fund has reduced its holdings (by just 300 shares) and it will not surprise us if it continues to reduce holdings since most of its other top equity holdings represent risks of less than 1.65% of assets. Read our full T. Rowe Price Personal Strategy Growth Fund Review.
Franklin Growth Fund (FKGRX) – Another high-returning mutual fund (9.82% YTD), the Franklin Growth Fund has let Apple grow to 6.34% of assets. With 152 individual holdings and $4 billion under management, this position represents exposure to the tune of $2,579,223.30. Although it is the smallest total exposure of these four mutual funds, it represents a fairly big risk for the fund when its next-largest exposure, IBM, represents just 2.04% of assets. With that in mind, this type of arrangement will appeal to a lot of investors and let’s not forget that this is a great fund to begin with. For investors who want heavy Apple exposure with the added protection of the Franklin name and another 151 stocks to back it up, this fund will make sense. Read our full Franklin Growth Fund Review.
These are four great equity funds. Each of them can fit nicely into virtually anyone’s portfolio. And the biggest thing: they all hold Apple as their top holding. While some of the mutual funds hold more than others in terms of total dollars at risk as well as a percentage of total assets, the message is quite clear: the pros love this stock, and for good reason.
What Makes Apple So Hot
With a 1-year average price estimate of $364.17 and a strong buy based on 47 broker recommendations according to data compiled by Yahoo! Finance, there is plenty of room for this stock to grow. Our research also shows that this was a top pick at Credit Suisse (before the analyst covering this stock left) with an Outperform rating. Their rationale was strong iPhone, iPod and Mac sales internationally. And of course the iPad is only expected to continue to gain strength given its head-start on the competition.
We also believe that First Call’s estimate of 51.8% growth over the next five years compared to the 14% growth the rest of the industry will see is a reason to be bullish on this particular stock. And with Earnings Per Share (EPS) expected to grow from $15.15 in 2009 to $24.22 by 2013, it is easy to see why these four funds might have such an easy time taking a hold of this stock for the long term.
What this means for mutual fund investors, though, is that the volatility we have seen with Apple can be fairly easily muted against the backdrop of other strong positions, even if those positions are small in comparison. Because with a Beta of 1.36 and historic volatility of 19.253 (Sept 2010, Chicago Options Exchange), this stock actually has the same 50% probability of touching $360 that it does of touching $280 within the next year. In other words, there are risks here, no question.
And that underlines the importance of diversification and holding mutual funds in your investment portfolio.
