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Some Equity-Income Funds Have Already Bitten Apple

Vanguard adds to its fund board and more. 

Morningstar Fund Analysts, 03/22/2012

Apple's AAPL almost five-fold jump in its share price over the past three years has boosted the results of most large cap growth funds. Morningstar data show the stock is both a significant holding (5.6% of assets for the average large-cap growth fund) and the category's top performance contributor during that time period. Now, though, Apple's announcement that it will use some of its $100 billion cash position to pay a dividend could affect another group of funds: equity-income offerings.

Equity-income funds primarily focus on dividend-paying stocks. The table below lists a sampling of these funds that already own Apple shares (along with other dividend-focused offerings). The positions aren't that large. Indeed, even Apple's 20% increase over the past month hasn't catapulted most of them to the top of the category rankings in 2012. What isn't apparent from the table, though, is what Apple is doing in these portfolios in the first place. After all, it just announced it would start paying a dividend. In the case of many equity-income funds, such as Fidelity Equity-Income FEQIX, for example, there are no strict limits on what the fund can own. Instead, the manager aims to have a dividend yield greater than that of the S&P 500. So, some stocks in these portfolios may have a low yield or none at all.

- source: Morningstar Analysts

Apple's dividend will open the shares up to a whole new audience. Morningstar's database lists 127 funds with either "equity income" or "dividend" in their names--a rough universe of the funds that focus on these payouts (and may have stricter dividend mandates). Together, those funds hold nearly $200 billion in assets. It's a good bet many of them are now taking a look at Apple stock after watching its run from the sidelines the past few years. That doesn't include income-oriented investors who may also take an interest.

Investors, though, don't need to make any trigger-finger decisions when it comes to Apple stock. Most large-cap diversified offerings already own the shares. In addition, the stock is trading around its all-time high. And the last time a tech bellwether like this started paying a dividend, the results going forward were lackluster. Microsoft MSFT announced a dividend in 2003 and since then the shares have mostly traded in the $25 to $30 range. Of course, Microsoft didn't have the iPad or the iPhone.

Vanguard Adds to Its Board
Vanguard added two members to its Fund Board. Mark Loughridge and Scott Malpass joined the board on March 22, 2012. Loughridge is a senior vice president and chief investment officer at IBM. Malpass is the CIO and vice president of the University of Notre Dame. Malpass also serves on the investment advisory committee for the Financial Industry Regulatory Authority.

Hartford Announces Restructuring
Hartford Financial Services HIG announced it will exit the individual annuity business and consider bids for its individual life, its retirement plans, and Woodbury Financial Services businesses as it focuses on property and casualty, group benefits, and mutual funds. The firm said in a press release its focus on those three areas is due to the subsidiaries having solid market shares and lower sensitivity to capital markets.

These moves come in the wake of previously reported changes at Hartford's mutual fund lineup. In February 2012 the firm announced it was in the process of handing over most of the fixed-income subadvisor duties to Wellington Management. Hartford's board has already approved Wellington as a subadvisor on 11 bond funds and is expected to do the same on 17 more later this year.

The restructuring also comes as outside investor Paulson & Co is urging the company to break up some of its business units.

USAA Launches Funds
USAA is adding to its Cornerstone series of tactical allocation funds that invest in stocks, bonds, REITs, commodities, and other options. The firm filed to launch in June 2012 USAA Cornerstone Conservative, USAA Cornerstone Moderately Aggressive, USAA Cornerstone Aggressive, and USAA Cornerstone Equity. USAA Balanced Strategy USBSX and USAA Cornerstone Strategy USCRX will be renamed USAA Cornerstone Moderate and USAA Cornerstone Moderately Aggressive, respectively. Some of the funds use a multimanager approach, but firm veterans John Toohey and Wasif Latif will be managers on all the funds.

Etc.
Todd Williams joined the management team of Principal Large Cap Value III PLVIX that includes subadvisors Barrow, Hanley, Mewhinney and Strauss and Westwood. In addition, the firm announced Joseph Chi, Jed Fogdall, and Henry Gray joined the management team of Principal Small Cap Value II PPVIX under subadvisor Dimensional Fund Advisors.

Wells Fargo filed to launch Wells Fargo Advantage Emerging Markets Equity Income on June 1, 2012. The fund will mainly invest in stocks of companies in emerging-markets countries that have sustainable high dividend yields and strong company financial metrics. A shares of the fund will cost 1.65%.

Lazard filed to launch Lazard Multi-Asset Targeted Volatility on May 31, 2012. The firm also announced Nicholas Sordoni, J. Richard Tutino Jr, and Ronald Temple will no longer be named managers of Lazard U.S. Equity Value LEVIX as of May 31, 2012. Christopher Blake will join the management team at that time. Additionally, the fund will change its mandate and its name to Lazard U.S. Equity Concentrated.

Iain Clark will no longer manage Henderson International Opportunities HFOAX as of April 4, 2012. Clark was a co-asset allocation strategist on the fund, which currently has eight other managers (all of which are staying put).

Jeffrey Schwartz joins Joseph Gatz as a comanager at Loomis Sayles Small Cap Value LSCRX. Schwartz will also join Gatz on the Loomis Sayles Small/Mid core segment at Natixis U.S. Multi-Cap Equity NEFSX.

Stone Harbor Investment Partners will replace Principal Global Investors as one of the subadvisors for Principal Global Diversified Income PGBAX on March 30, 2012.

Christopher Orndoff joined the management team of Legg Mason Western Asset Strategic Income SDSAX.

BlackRock Asset Allocation PBAIX will change its name to BlackRock Managed Volatility on May 15, 2012.

Eirene Kontopoulos will join the management teams of Fidelity Stock Selector Small Cap FDSCX and Fidelity Series Small Cap Opportunities. Kontopoulos will comanage the health-care sleeve for both funds.

Allianz AGIC International Growth AIFAX will liquidate on May 21, 2012.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.

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