Apple is one of the hottest picks on Wall Street presently, and fund managers like John Burnham, who already has a big amount invested in the stock, want to buy a larger stake. Burnham, manager of the $136 million Burnham Fund, has more money invested in Apple than any other diversified fund, says a report from Reuters by David Randall.
Fund managers exceeding self-imposed limit for Apple
However, that obsession with Apple is putting Burnham and other fund managers running diversified funds in an interesting place, as they want to get more of Apple, but for that, they will have to compromise their self–imposed risk reducing guidelines. Those guidelines do not allow them to hold more than 5% of their assets in any one company, says the report.
The Odey Special Situations Fund was down 0.27% for April, compared to its benchmark, the MSCI World USD Index, which was up 4.65%. For the first four months of the year, the fund is up 8.4%, while its benchmark returned 9.8%. Q1 2021 hedge fund letters, conferences and more The Odey Special Situations Fund is Read More
“I think they are doing everything right and it’s still a cheap stock based on earnings and revenue,” says Burnham.
Burnham and 174 fund managers are walking a double-edged sword by piling up Apple stock in their portfolios. Their quest is to check any unexpected drop in Apple shares from upsetting their portfolios along with booking profits from a company that is up 12% this year, says Randall.
Apart from Burnham, who has more than 15% of his fund’s assets in Apple, Mark Mulholland’s Matthew 25 fund has 15.3% of its assets invested in the iPhone maker, says the report.
Is this in favor of investors?
Stock traders frequently adopt the strategy of putting a major portion of their funds in one stock to outperform the market. However, diversified funds such as Burnham holding more than 10% of their portfolio in one company is unusual, according to Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.
Rosenbluth added that investors may be unaware of the risks being taken by their fund managers. He noted that generally fund managers start booking profits when a stock hits 7% of their portfolio, says the report.
Under the law, diversified mutual funds can pick shares of a company as long as its total weight does not exceed 24.9% of their portfolio. Also they are not required to sell shares if it appreciates above that level, according to Jay Baris, an attorney at Morrison & Foerster in New York.