John Burnham, manager of the $136 million Burnham Fund who has a larger stake in Apple than any other diversified fund, and some other managers of so-called diversified funds like his, are too much devoted to Apple that it may become a problem for investors. Reuters reports that they want “more Apple than they can buy under self-imposed risk-reducing guidelines” that typically have them holding no more than 5% of their assets in any one company.
“I think they are doing everything right and it’s still a cheap stock based on earnings and revenue”, says Burnham, who along with 174 fund managers like him, hopes to prevent an unforeseen drop in Apple shares from upending their portfolios, while also benefiting from a company whose shares are up 12% this year so far. “Investors may not realize that their fund manager is taking on a higher amount of risk”, said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.
The source explains that holding a concentrated position in one company is one way for stockpickers to stand out as investors move money to passive index funds. Yet it is unusual for diversified funds like Burnham’s to hold more than 10% of their portfolios in one company.
“Your positioning in Apple may hold a big sway in how your fund does overall, particularly in categories like large blend where every basis point counts,” said Laura Lutton, who oversees equity fund research at fund tracker Morningstar. In 2014, for instance, funds that underweighed Apple compared to broad market indexes were the most likely to underperform their peers, she said.
Burham didn’t set out to have such a big stake in Apple, he said. He began buying shares in 2005 when they traded at a split-adjusted level of less than $7 each. Those shares have now appreciated over 2,000 percent. “It’s the world’s greatest company. I just don’t see any reason to sell it,” Burnham said, adding that he thinks that the stock should trade above $200 a share. Shares of the company closed at $123.59 on Friday.
Over the last 5 years, the Burnham Fund has returned an average of 14.3% a year, a performance slightly better than average large cap fund. The fund currently costs $1.36 per $100 invested, a rate slightly above average.