CGM’s Heebner Bets Against Apple Shares as Institutions Cut

Kenneth Heebner, manager of the $1.6 billion CGM Focus Fund, bet on a decline in Apple Inc. through a $52 million short sale during the fourth quarter, as institutional investors grow less bullish on the stock.

Heebner, co-founder of Boston-based Capital Growth Management LP, sold short 100,000 Apple shares at an average price of $517.87 each, according to an annual report that CGM Focus filed today with the U.S. Securities and Exchange Commission. The short sale generated proceeds of about $51.8 million, equaling almost 3.2 percent of the fund’s net assets at the end of last year.

Institutional ownership of Apple shares has been declining as funds question the ability of the iPad and iPhone maker to increase revenue long term, Morgan Stanley analysts said in a report published today. The 30 largest stockholders at Cupertino, California-based Apple own a record low 30 percent of company shares outstanding, down from a peak of 40 percent in 2009, according to the New York-based bank. Apple shares slipped 0.9 percent to $517.35 at the close in New York, down from more than $700 in September 2012.

Martha McGuire, a Capital Growth spokeswoman, said the firm doesn’t comment on holdings and wouldn’t say whether the position is still outstanding. Kristin Huguet, an Apple spokeswoman, also declined to comment.

Heebner’s Guidance

Under Heebner’s guidance, CGM Focus ranked as the top diversified U.S. stock mutual fund for the decade through 2007, only to falter during the recession. The fund, which makes concentrated bets on the direction of different economic sectors, rose almost 38 percent last year, ranking it among the top 7 percent of its peers, according to data compiled by Bloomberg.

Heebner is one of a small number of mutual fund managers who engage in short sales, a trading strategy that involves the sale of borrowed securities in anticipation of a price decline. CGM Focus also has a 13.6 percent gain as of Dec. 31 on the short sale of 30-year U.S. Treasuries with a face value of $500 million, its annual report shows.

CGM Focus has previously been bullish on Apple, trading in and out of the stock as its price soared over the past decade. Apple shares generated an average annual return of 46 percent over the 10 years ended Jan. 31.

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