William Danoff might want to send a thank-you note to Steven Jobs, Apple Inc.’s chief executive officer .
Danoff’s $78 billion Fidelity Contrafund got 13 percent of its return over the past two-and-a-half years from its stake in Apple. The fund, a portfolio with 494 stocks as of June 30, is one of six among Apple’s 10 biggest U.S. mutual fund holders who can credit at least 13 percent of their return since 2009 to the technology giant, data compiled by Bloomberg show.
Apple, the maker of iPhones and iPads, has risen five-fold since early 2009, powering the stock market rally and attracting top mutual-fund and hedge-fund managers searching for returns. As the company’s weight in the market and in many funds has grown, stock pickers need to be wary they don’t become overly reliant on a single stock, said John Buckingham, chief investment officer at Al Frank Asset Management, which oversees $500 million.
“With the history of high flyers that have crashed and burned, the last thing a fund manager should do is let a position grow too large,” said Buckingham, who won’t let a stock get beyond 3 percent to 4 percent of the portfolio. “I don’t see how you can take more risk than that no matter how much you like Apple.”
Buckingham, whose company is based in Laguna Beach, California, has owned Apple since 2002 when the shares averaged less than $10, according to data compiled by Bloomberg. He said he has trimmed his Apple holdings in the $102 million Al Frank Fund regularly over the years. At the end of June, Apple represented 1 percent of the fund.
‘It Takes Courage’
Apple closed above $400 a share for the first time on July 26, up from $78.20 on Jan. 20, 2009, when the combination of a recession and shaky credit markets drove almost all equities lower. Apple closed yesterday at $388.91. The stock has added almost $300 billion in market value over those 30 months.
Since Jan. 20, 2009, when it reached a low during the credit crisis, Apple has been responsible for about 7.3 percent of the gain in the Standard & Poor’s 500 Index, more than twice the contribution of the runner-up, Armonk, New York-based International Business Machines Corp., according to data compiled by Bloomberg.
“It takes a lot of courage to build up a big position the way he has,” James Lowell, editor of Fidelity Investor, a Needham, Massachusetts, newsletter, said in a telephone interview, referring to Danoff. “If the stock had gone the other way it could have ended up tarnishing a career.”
Driving the Market
Danoff, 51, last year celebrated his 20th anniversary as manager of the Contrafund, which had $300 million in assets when he took it over. In the 20 years ended June 30, the fund returned 12 percent a year compared with 8.7 percent for the S&P 500 Index. Danoff was named Morningstar’s domestic stock-fund manager of the year for 2007.
Apple represents 3.1 percent of the S&P 500, second only to Irving, Texas-based Exxon Mobil Corp., which has a weighting of 3.3 percent. Danoff’s Contrafund had 6.8 percent of its assets in Apple, owning 16 million shares as of June 30, making it the largest mutual fund holder of the stock. Apple accounted for 13 percent of the fund’s gains since Jan. 20, 2009, according to Bloomberg calculations.
The other funds among the 10 biggest holders that got at least that much help from Apple were the $17.7 billion Fidelity Advisor New Insights Fund (13 percent), the $7.8 billion Fidelity OTC Portfolio (14 percent), the $26.7 billion T. Rowe Price Growth Stock Fund (15 percent), the $8.7 billion Janus Twenty Fund (28 percent) and the $5.5 billion Janus Forty Fund (23 percent).
Beating the Index
Bloomberg portfolio analysis allows measuring how much an individual stock contributes to a mutual fund’s performance over any given period of time. Because the fund data is gathered on either a monthly or quarterly basis, the calculation is approximate, not precise. The analysis cannot be done on mutual funds that own both stocks and bonds.
While it has helped performance, owning Apple is no guarantee a fund will outperform peers. The two Janus funds equaled approximately the 69 percent return in the S&P 500 between Jan. 20, 2009, and Aug. 1, 2011.
The other four funds did better, with T. Rowe Price Growth returning 89 percent and Fidelity OTC gaining 126 percent. The two funds managed by Danoff, Fidelity Contrafund and Fidelity Advisor New Insights, rose 74 percent and 72 percent, respectively.
Janus Twenty, which had the largest contribution to performance from Apple, fared the worst, rising 68 percent.
“The past two years have been miserable for this fund,” Kathryn Young, an analyst at Morningstar, wrote in a July note. Young said the poor showing was a reflection of losses in holdings such as Bank of America Corp. and San Jose, California-based Cisco Systems Inc.
Charlotte, North Carolina-based Bank of America fell 29 percent this year; Cisco dropped 24 percent. Janus Twenty sold both holdings as of June 30, Bloomberg data show.
The fund, run by Ron Sachs, 44, is a concentrated portfolio that typically holds 20 to 30 stocks, according to the website of Denver, Colorado-based Janus Capital Group Inc. Sachs wasn’t available to comment because Janus managers do not discuss individual stocks, James Aber, a spokesman for the company, wrote in an e-mail.
The fund cut its holdings of Apple shares by more than 50 percent between Oct. 31, 2009, and March 31, 2011, regulatory filings show.
The “growth outlook for the company remains bright,” P. Robert Bartolo, manager of T. Rowe Price Growth Stock fund, wrote to shareholders in a January 2011 letter. He cited the expansion of Apple’s retail outlets among the reasons.
Apple grew to 7.5 percent of Bartolo’s fund in the two years ended Dec. 31, 2010, from 3.6 percent, regulatory filings show. The stock represented 7.3 percent of the portfolio as of March 31.
Bartolo, 39, has been managing Growth Fund since 2007. The fund, Baltimore-based T. Rowe Price Group Inc.’s largest, returned 4.9 percent a year in the five years ended June 30, compared with 2.9 percent for the S&P 500 Index, Bloomberg data show.
T. Rowe Price declined to make Bartolo available, Heather McDonold, a spokeswoman for the company, wrote in an e-mail.
Both Bartolo and Danoff have cut their Apple holdings as the company’s market value grew. Bartolo held 5.6 million shares as of March 31, down from 6.3 million shares at the end of 2009, according to regulatory filings.
At Danoff’s Contrafund, Apple represented 2.1 percent of holdings, with 11.7 million Apple shares at the end of 2008, according to filings with the Securities and Exchange Commission. By the end of 2010, Apple was 7.1 percent of the fund and the share count reached 16.5 million. Between Dec. 31 and June 30, the fund cut its holdings of Apple by about half a million shares, Bloomberg data show.
A second fund managed by Danoff, Fidelity Advisor New Insights Fund, had 6.3 percent of its assets in Apple, or 3.4 million shares, as of June 30, according to Bloomberg data.
Fidelity managers can’t discuss individual holdings, said Sophie Launay, a spokeswoman for the firm, explaining why no one from the company would talk about Apple.
Geoff Bobroff, a mutual-fund consultant based in East Greenwich, Rhode Island, said managers who bet heavily on Apple need to be aware that technology stocks, in particular, have been known to plummet. He cited Cisco, which lost almost 90 percent from its 2000 high to the 2002 low, Bloomberg data show.
“Now that the stock is approaching the stratosphere, you have to start thinking about what could happen if Apple hits a difficult patch,” Bobroff said in a telephone interview.