Which Funds Have the Biggest GE Stakes?

Among the big-name stocks being brought low by the financial crisis, few are better-known or more widely held than  General Electric (GE). For decades GE was arguably the quintessential blue-chip stock--it has been in the Dow Jones Industrial Average for more than a century, longer than any other stock, and for most of the past decade it jockeyed with  Microsoft (MSFT) and  ExxonMobil (XOM) for the title of world's largest market cap. But GE's finance arm, which fueled much of the firm's impressive growth in the 1980s and 1990s, has suffered amid the financial meltdown. On February 27, GE slashed its dividend by two thirds, and GE Capital has raised billions of dollars of new capital in an effort to strengthen its balance sheet and maintain its credit rating.

All this has taken a severe toll on the stock. GE's share price is down about 70% over the past year, including more than 40% since the beginning of 2009. (It was down even more before the recent market rally.) That decline has had a significant effect on mutual funds, nearly 1,000 of which own at least some GE stock, and 120 of which have at least 3% of their portfolio invested in GE.

We thought it would be interesting to see which funds have the biggest GE stakes, and how those stakes have affected those funds' relative returns. The following table shows the 10 funds with the largest percentage of their portfolio in GE (as of the most recent portfolio), along with each fund's category, the size of its asset base, its total return over the past year (as of March 12), and its percentile ranking in its category over the past year.

Funds with the Biggest Current GE Bets
	Category	Size ($Mil)	GE %	Total Returns 1 Yr	% Rank Category 1 Yr
Vanguard Industrials Index (VINAX)	Misc. Sector	163.8	15.55	-53.60	85
ProFunds Industrial Ultra Sector (IDPIX)	Large Blend	1.2	11.97	-70.05	99
Fidelity Select Industrial Equip	Misc. Sector	47.2	11.41	-55.08	89
ICON Industrials	Mid-Cap Blend	56.0	8.20	-55.02	92
Hennessy Total Return (HDOGX)	Large Value	40.7	6.10	-41.85	19
Academy Core Equity	Large Blend	2.1	6.08	-49.83	92
Wasatch Strategic Income (WASIX)	Mid-Cap Value	13.1	5.54	-45.88	54
Pacific Advisors Growth	Large Growth	2.7	5.51	-45.48	87
UBS U.S. Large Cap Val Eq	Large Value	42.8	5.51	-49.28	81
Legg Mason Partners Capital	Large Blend	338.6	5.33	-42.34	33
Data as of 3-12-2009.

For the most part, these funds have not done very well over the past year, with seven of the 10 ranking in their category's bottom quartile. (That figure would be 12 out of 15 if we extended the list, as the next five funds also have bottom-quartile returns over the past year.) The top four funds on this list are all industrial sector funds, and their losses have been especially steep. That's not too surprising given how badly the recession has hammered industrial stocks, and GE has lost more than most in that sector. (Only a handful of commodity-related stocks have lost more.) Of course, GE isn't solely responsible for these funds' poor returns, but it hasn't helped.

The other poor performers on the list have also tended to be heavy in underperforming areas of the market. Pacific Advisors Growth , for example, is heavy in energy and industrials, and UBS U.S. Large Cap Value Equity  is overweight relative to its category in financials, industrials, and energy. The best-performing fund here, Hennessy Total Return (HDOGX), is a highly concentrated fund using a "Dogs of the Dow" strategy, in which it holds the highest-yielding stocks in the Dow Jones Industrial Average. The fund has been hurt by its positions in  Bank of America (BAC) and  Citigroup (C) in addition to GE, but those have been offset by numerous blue-chip holdings that have held up much better, such as  Verizon (VZ),  AT&T (T), and  Home Depot (HD).

Large, relatively stable blue chips, as long as they're not financial or energy stocks, have been among the market's better performers in this downturn, because they're perceived as relative safe havens in a time of uncertainty. GE used to be widely seen in those terms, before the financial crisis dragged the stock down even further than other industrials. As an illustration, consider the funds that were the largest holders of GE one year ago. The following table shows the 10 funds that had the largest percentage of their portfolio in GE stock as of March 2008. In addition to category and size, we show the percentage each fund had in GE a year ago, the percentage it has in GE now (as of the most recent portfolio), and its percentile ranking in its category over the past year as of March 12.

Funds with the Biggest GE Bets in March 2008
	Category	Size ($Mil)	March 2008 GE %	Current GE %	% Rank Category 1 Yr
Vanguard Industrials Index (VINAX)	Misc. Sector	163.8	20.13	15.55	85
ICON Industrials	Mid-Cap Blend	56.0	18.09	8.20	92
Fidelity Select Industrial Equip	Misc. Sector	47.2	15.96	11.41	89
ProFunds Industrial Ultra Sector (IDPIX)	Large Blend	1.2	14.27	11.97	99
Old Mutual Focused (OBFVX)	Large Blend	56.9	8.98	0.00	9
Fidelity Select Industrials (FCYIX)	Misc. Sector	83.3	8.29	1.69	70
Fidelity Congress Street	Large Value	39.8	8.02	3.88	2
Wells Fargo Advantage U.S. Value	Large Value	89.4	7.25	3.03	25
W.P. Stewart & Co. Growth (WPSGX)	Large Growth	24.1	6.97	0.00	7
Vanguard Mega Cap 300 Val In (VMVLX)	Large Value	139.4	6.65	4.60	67
Data as of 3-12-2009.

The first four funds here are the same as in the first list, although they are in a different order. Their stakes in GE are now smaller than they were a year ago, but that's no surprise given how much the stock has gone down. There's also another industrial sector fund, Fidelity Select Industrials (FCYIX), which has sold most of its GE position over the past year. It has trailed the miscellaneous sector category over the past year, but by a lesser amount than the top four funds.

In contrast to those underperformers, four of the funds on this list have top-quartile returns over the past year, and three rank in the top decile. Interestingly, two of these three, Old Mutual Focused (OBFVX) and W.P. Stewart & Co. Growth (WPSGX), have completely sold their GE positions during that time. Both are concentrated funds holding fewer than 30 stocks and have slightly different strategies; the Old Mutual fund focuses on stable mega caps, while the W.P. Stewart fund is more growth-oriented, with almost no financial or energy exposure.

Several other funds that barely missed being among the top 10 GE holders a year ago fit a similar profile: They're concentrated funds focused on predictable blue-chip stocks, their GE stakes are now significantly smaller than a year ago, and they've outperformed their peers over the past year. For example, Valley Forge  and ING Corporate Leaders Trust (LEXCX) (ranked 11th and 14th) both hold fewer than 25 stocks, mainly large caps, and have lost much less than the average large-value fund over the past year. Both do still own GE, but it's a much smaller part of their portfolios than it was a year ago. On the other hand, Snow Capital Opportunity (SNOAX) has maintained a big GE position (5.95% a year ago, 5.16% now), and has trailed 94% of its large-value peers over the past year.

Of course, the presence or absence of GE is not the only factor in these funds' performance, and there are exceptions to all these generalizations. But it does seem clear that GE's status as a safe, reliable blue-chip stock for widows and orphans has been severely tarnished. It's still very widely held, but it's no longer as popular with cautious fund managers looking for stable market leaders. Whether it can regain its former status remains to be seen.