Big problem for fund managers: liking Apple too much

admin   •   March 16, 2015   •   2460

Apple CEO Tim Cook speaks during an Apple event in San Francisco, California March 9, 2015.
CREDIT: REUTERS/ROBERT GALBRAITH

(Reuters) – At more than 15 percent of his fund’s assets, John Burnham, manager of the $136 million Burnham Fund, has a larger stake in Apple Inc than any other diversified fund.

“I think they are doing everything right and it’s still a cheap stock based on earnings and revenue,” he says.

Yet that devotion for Apple is a problem for Burnham and some other managers of so-called diversified funds like his – they want more Apple than they can buy under self-imposed risk-reducing guidelines that typically have them holding no more than 5 percent of their assets in any one company.

Burnham and the 174 fund managers like him who hold large stakes of their diversified portfolios in Apple are pulled in two directions: hoping to prevent an unforeseen drop in Apple shares from upending their portfolios, while also benefiting from a company whose shares are up 12 percent this year so far.

“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.

RISKS

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 percent of their portfolios in one company, said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.

“Investors may not realize that their fund manager is taking on a higher amount of risk,” he said.

Most fund managers are inclined to take profits when a stock hits 7 percent of a portfolio, yet there are few set mandates set down by fund firms, Rosenbluth said. He said that he can’t think of any fund families that have to sell if holdings exceed guidelines as a result of appreciation.

Diversified mutual funds are allowed by law to add shares of a company as long as its total weight is below 24.9 percent of their portfolios overall, but do not have to sell shares if they appreciate above that level, said Jay Baris, an attorney at Morrison & Foerster in New York.

BIG BETS

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.

His big weighting in the company is also helping his performance, which may in turn bring in more investor dollars. Burnham’s fund, which also has significant positions in Chipotle Mexican Grill and Williams Companies Inc, is up 4.8 percent for the year to date, according to Lipper, a return about 4 percentage points better than the S&P 500.

Over the last 5 years, the fund has returned an average of 14.3 percent a year, a performance slightly better than average large cap fund. The fund costs $1.36 per $100 invested, a rate slightly above average.

Other fund managers with large stakes in Apple who aren’t selling say that they didn’t set out to have an oversized position in the company.

David Chiueh, the manager of the Upright Growth fund, has 13.4 percent in Apple, the second-largest among diversified funds tracked by Lipper, mostly because shares he bought in 2008 have appreciated, he said. The BlackRock Science and Technology Opportunities Portfolio, the third-largest Apple holder, has an underweight position according to the fund’s chosen benchmark, the MSCI World Information Technology index, a company spokeswoman said.

Other large holders of Apple have started to trim their positions. Mark Mulholland, whose Matthew 25 fund is classified as a non-diversified fund, has 15.3 percent of his portfolio’s assets in Apple.

He expects to trim the position down to 10 percent of his portfolio, in part because the company’s shares do not look as attractive on a valuation basis, he said.

“It’s not a company under duress by any means, but it’s not trading at as big as a discount as it was before,” Mulholland said.

(Reporting by David Randall; editing by Linda Stern and John Pickering)

Taiwan braces for typhoon Bailu, flights cancelled

Robie de Guzman   •   August 23, 2019

Boats are tied securely at a fishing port in Taiwan in preparation for the anticipated arrival of Typhoon Bailu.

Taiwan braced for Typhoon Bailu on Friday (August 23), prompting cancellations of domestic flights amid warnings of floods and high seas on the island.

Typhoon Bailu, categorised at the weakest typhoon level by Taiwan’s weather bureau, was expected to approach the island’s southeastern coast early on Saturday (August 24), weather officials said.

Bailu was carrying maximum winds of 126 km per hour (78 mph) as it approached Taiwan, the weather bureau said, adding that the storm could gain in strength and become the first typhoon to make landfall on the island in more than two years.

Thousands of people were moved to safety, most of them tourists on islands off the east coast, while dozens of domestic flights and ferry services were cancelled.

After passing over Taiwan, the typhoon is expected to cross the Taiwan Strait and hit the Chinese province of Fujian, forecasters said. (Reuters)

(Production: Fabian Hamacher)

Florida scientists induce spawning of Atlantic coral in lab for first time

Robie de Guzman   •   August 23, 2019

(Courtesy: Florida Aquarium)

Scientists in Florida have artificially induced reproductive spawning of an endangered Atlantic coral species for the first time in an aquarium setting, a breakthrough they say holds great promise in efforts to restore depleted reefs in the wild.

The achievement, announced this week at the Florida Aquarium in Apollo Beach near Tampa, borrowed from lab techniques developed at the London-based Horniman Museum and Gardens and used previously to induce spawning of 18 species of Pacific coral, officials said.

Scientists plan to use their newly acquired expertise to breed new coral colonies that can one day repopulate the beleaguered Florida reef system, one of the largest in the world and one decimated by climate change, pollution and disease in recent decades.

The newly cultivated corals should make for even stronger populations than existing colonies because each individual will be bred with characteristics that may be better able to withstand damage, Keri O’Neil, senior coral scientist at the Florida Aquarium told Reuters.

Inducing corals to release their eggs and sperm in aquarium tanks involves controlling their artificial settings to mimic their natural ocean habitat over the course of a yearlong reproduction cycle.

That means carefully regulating water temperature changes from summer to winter, and using special lighting to imitate sunrise, sunset and even lunar cycles that serve as biological cues for the coral in preparing to spawn.

Collaboration between the Florida and London facilities on the project began in 2017 as the situation facing Florida’s reefs grew more dire because of the spread of a new coral affliction dubbed Stony Coral Tissue Loss Disease.

Atlantic pillar coral, which grows in colonies resembling finger- or column-like structures, has been particularly susceptible to the disease and is already classified as virtually extinct in the wild because remaining male and female colonies are too scattered to reproduce.

Corals are a type of marine invertebrate animal, typically living in colonies of tiny sac-like polyps that feed by filtering seawater through a set of tentacles surrounding a central mouth opening.

Corals are sensitive to major changes in water temperature, and the Florida Reef Tract, like other major reefs around the world, has been under pressure from climate change for years as the sea grows steadily warmer. (Reuters)

Bolsonaro says Brazil lacks resources to fight Amazon fires

Robie de Guzman   •   August 23, 2019

The Brazilian government lacks the resources to fight a record number of wildfires burning in the Amazon rainforest, President Jair Bolsonaro said on Thursday (August 22), weeks after telling donors he did not need their money.

Fires in the Amazon have surged 83% so far this year compared with the same period a year earlier, government figures show, destroying vast swathes of a forest considered a vital bulwark against climate change.

On Wednesday, Bolsonaro said, without supporting evidence, that non-governmental organisations were behind the fires.

Questioned again on Thursday about those comments, he said he could not prove that NGOs, for whom he has cut funding, were lighting the fires but that they were “the most likely suspects.”

The firebrand right-wing president has repeatedly said he believes Brazil should open the Amazon up to business interests, to allow mining and logging companies to exploit its natural resources.

Brazil is facing growing international criticism over its handling of the Amazon, 60% of which lies in the country.

Earlier this month, Norway and Germany suspended funding for projects to curb deforestation in Brazil after becoming alarmed by changes to the way projects were selected under Bolsonaro.

French President Emmanuel Macron said on his twitter account the fires in the Amazon forest are an international emergency and should be discussed by the G7 summit that will begin on Saturday (August 24) in Biarritz, France.

Although fires are a regular and natural occurrence during the regular dry season at this time of year, environmentalists blamed the sharp rise on farmers setting the forest alight to clear land for pasture.

Federal prosecutors in Brazil said they are investigating a spike in deforestation and wildfires raging in the Amazon state of Para to determine whether there has been reduced monitoring and enforcement of environmental protections there. (Reuters)

(Production: Pablo Garcia, Leonardo Benassatto, Paul Vieira)

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