3 Funds With Double-Digit Stakes in a Single Stock

Equity fund managers don’t merely have to decide which stocks to own. An equally critical task is deciding the percentage of assets to assign each holding. In some cases, carrying a weight close to the benchmark’s level can be a dull but reasonable course to take. If managers don’t have strong convictions about a company’s prospects, but that stock is an important component of the index, holding it around the index’s weight reduces the chance of missing out if the stock soars. And if the stock falls sharply, the index will suffer just as much.

However, as the index weights of the giant technology firms have sharply increased, mirroring those weights can feel anything but low risk for individual investors who own the fund. Their aim is not to beat a benchmark but to accumulate a certain level of savings or income to achieve their personal goals. Index-tracking isn’t the only way a portfolio can acquire a sizable weighting in a stock. One can also develop when managers feel so confident in a company (and in their own ability) that they heavily overweight it even though that results in a substantial commitment. Either way, owning a huge stake in a single company, even a popular and successful one, can carry meaningful risk.

It used to be rare for managers of broad US stock funds (as opposed to sector funds) to hold double-digit stakes in a single stock. Now, it’s not unusual to see them. Sometimes the stakes reach levels well past 10% of assets. Here are three funds with notably high weights in a single stock—or more than one.

Fidelity Growth Company FDGRX

Make no mistake: Fidelity Growth Company is an outstanding fund. Managed by the talented Steve Wymer since the late 1990s, its trailing 10- and 15-year returns through April 2024 landed high in the top decile of the large-growth Morningstar Category.

Wymer has succeeded by taking bold actions. Still, it’s surprising to see that top holding Nvidia NVDA took up 16.2% of the portfolio as of March 31, 2024. In this case, Wymer isn’t matching the Russell 1000 Growth Index, he’s going far above it. In fact, the fund’s stake is double that stock’s weight in the index. Another big position, 8.4% in Apple AAPL, is more indexlike but still unusual historically. Before 2021, the fund rarely had more than 8.0% of assets in any stock.

American Century Ultra TWCUX

Keith Lee and Michael Li have been co-lead managers here since 2008. The fund is on the growthier side of American Century’s large-growth options, and thus it’s not surprising to see the tech heavyweights at the top of its portfolio. Even so, its 10.5% stake in Apple on April 30, 2024, (down from 13.2% several months earlier) was a bit higher than the stock’s weight in the fund’s benchmark, the Russell 1000 Growth Index. A 10.0% stake in Nvidia was also overweight.

The managers’ willingness to load up on high-growth fare has made this fund more volatile than the benchmark. But its 10- and 15-year returns land in the top quartile of the large-growth category.

Akre Focus AKREX

One would expect a fund with “focus” in its name to feature a compact portfolio with high concentrations at the top. And that’s what you get here. But the names and weights are out of the ordinary for a large-growth fund—or, in fact, for any fund. On March 31, 2024, this portfolio had double-digit stakes in four different stocks, led by Mastercard MA at 14.0% and Constellation Software at 12.3% (The others were Moody’s MCO and KKR & Co. KKR.)

Such hefty positions aren’t the only concerns here, though. The transition from firm founder Chuck Akre to younger managers and analysts has been rocky, featuring several unexpected departures. The investment team currently consists only of manager John Neff and two research analysts.

This article first appeared in the April 2024 issue of Morningstar FundInvestor. Download a complimentary copy of FundInvestor by visiting this website.