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Apple Turns Sour for Some Big Funds

Here's a look at how Apple's fourth-quarter retreat has affected some widely held, actively managed stock funds.

Dan Culloton, 01/10/2013

About nine months ago, I noted that Apple AAPL had been "among the biggest factors explaining the difference between top- and bottom-performing large-blend and -growth funds for the year to date as well as the trailing 12-month and trailing three-year periods."

That's still true. Since the worm turned for Apple in September, however, we've seen just how much some funds had relied on the technology giant for their results.

Apple was a juggernaut for most of 2012, rising 33%, making it by far the biggest contributor to the returns of funds that had made substantial commitments to the stock--including some of the largest and most widely held funds in the industry.

Then September happened. Chalk it up to concerns about increasing competition in the tablet and mobile phone markets, efforts to realize substantial capital gains before taxes increased this year, or just reversion to the mean for a stock that had delivered above-average results for a long time. Nonetheless, Apple took a tumble. From Sept. 19, 2012, through Jan. 8, 2013, the stock shed nearly a fourth of its value, taking down many portfolios that had above-average holdings in the maker of the iPhone, iPad, iMac, and iWhatever-is-next. In the long term, this time period may amount to no more than a blip on Apple's and these funds' records. However, curiosity about how some of the industry's largest funds with big helpings of Apple have handled the stock's recent slide drove me to take a deeper look.

Big Bites of Apple
As one might expect, the typical technology-sector fund, which can hardly avoid having Apple among its top holdings, has lost about 3% since September. Most non-technology-sector funds with double-digit commitments to Apple also have taken it on the chin. Below is a list of the non-sector funds with the biggest allocations to Apple as of their most recent portfolios. All of them had double-digit stakes, and most have done worse than their benchmarks and peers since Apple's September peak through Jan. 8, 2013. But the big Apple stakes didn't help many of the listed portfolios outperform before the stock stumbled at the end of the third quarter either, suggesting something was probably amiss elsewhere in their portfolios. Meanwhile, Janus Twenty D JNTFX, Janus Forty JDCAX, and Matthew 25 MXXVX posted top-decile returns in 2012, but most of that seemed to come before Apple's apex, since they have been weaker since then. This indicates that a good portion of their good returns relied on Apple.

Apple Bites Big Funds
More widely held funds with bigger asset bases haven't been immune from Apple's recent contraction. Three of the 10 largest funds with the biggest helpings of Apple have lagged their benchmarks and peers since the peak: Fidelity Growth Company FDGRX, Harbor Capital Appreciation HACAX, and Fidelity Blue Chip Growth FBGRX. Apple has by far been the biggest detractor to their returns, but they also suffered the relative lack of industrial, consumer cyclical, and financial stocks, such as rebounding banks like Citigroup C; these names were present to a greater degree in some other large funds that have fared better in recent months.

Four of the industry's largest funds with Apple overweighting relative to the broad market have failed to beat their respective categories since Apple's recent top but have beaten the Russell 1000 Growth Index: MainStay Large Cap Growth A MLAAX, Fidelity Advisor New Insights FNIAX, and Fidelity Contrafund FCNTX (which are near-clones), and T. Rowe Price Growth Stock PRGFX.

Dan Culloton is an associate director of fund analysis for Morningstar and editor of Morningstar's Vanguard Fund Family Report, a monthly newsletter that offers independent, no-holds-barred guidance on the pros and cons of this dominant fund family. Click here for a free issue of the Vanguard Fund Family Report.
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