Photo: Screenshot/Matt Galligan
Unless you spent Wednesday under a rock, you probably heard about the unveiling of the iPhone 5. If you don’t plan on waiting in line for the phone, you might have drowned out the news.But if you own a mutual fund, chances are you have more invested in the new gadget’s success than you might realise.
By all accounts, it will be a sleek-looking phone. USA Today has the specs: “Apple says the new device a little taller than its earlier models and is the thinnest and lightest iPhone ever made—18% thinner, in fact, than its immediate predecessor, the iPhone 4S. And the iPhone 5 is one-fifth lighter than the 4S. It is made entirely of glass and aluminium.”
But why does any of this matter to mutual fund investors? The simple answer is that fund managers have long had a love affair with Apple. In fact, sometimes it’s hard to find a fund that invests in large-cap stocks that doesn’t have at least some exposure to Apple.
In many cases, this exposure is quite significant. According to Morningstar, for instance, 12 mutual funds and ETFs have at least 20 per cent of their portfolios invested in Apple. Many more have comparably large positions.
In some cases, the heavy exposure to Apple comes from funds that have a technology focus. Take, for instance, Putnam Global Technology, which as of the end of the second quarter had more than 23 per cent of its portfolio tucked away in Apple stock. Its next-largest holding, Microsoft, accounted for less than 10 per cent.
The fund with the largest exposure to Apple, measured in shares owned rather than percentage of holdings, is the Fidelity Contrafund, which owns 1.33 per cent of all Apple shares. Apple is the fund’s largest holding, and as of the end of July, it accounted for more than 9 per cent of its portfolio.
Since 2009, Apple has been a great investment. That year, its stock price increased by a whopping 146.9 per cent. This year, it’s up 66 per cent. In other words, if your fund has significant exposure to Apple, chances are you’re not complaining about the results.
Still, any time managers rely so heavily on a single company, it’s worth asking some questions. For starters, there are concerns about diversification. Funds with concentrated positions stand to gain a lot if their managers choose wisely. But the opposite is also true: If management gets it wrong, the chances for big losses are magnified.
Another thing to consider: If you like Apple and own a fund that is heavily invested in it, you can get similar benefits by owning the stock directly. The upside: You’ll save on management costs.
The bottom line: The iPhone 5 is Apple’s latest attempt to capture an even larger share of the smartphone market. Of course, it’s way too early to know exactly how consumers will react to the new product launch. But whether you’re a customer pushing to the front of the Apple store or an investor saving for retirement, it’s worth keeping an eye on how one company could affect your financial future.
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