Katie Marsal
The heads of major hedge funds are so bullish on shares of Apple that they wish they could buy more, but doing so would put them at too great a risk with less diversification.
The conundrum for hedge fund managers was spotlighted on Monday by Reuters, which noted that 174 funds hold large stakes of Apple in their diversified portfolios. Typically, funds have self-imposed guidelines that prevent them from holding 5 percent of their stake in any single company.
Some have a large stake, like the $136 million Burnham Fund, which has 15 percent of its money allocated in Apple. And John Burnham, the fund's manager, would like to buy even more, but doing so would put too much of his stock's performance based on a single company.
Still, he and others think shares of Apple remain greatly undervalued, even though they are up more than 12 percent so far this year.
Among the most bullish on Apple is activist investor Carl Icahn, who oversees diversified holding company Icahn Enterprises L.P. Last month, Icahn issued a note saying he believes shares of AAPL should be trading at $216 today, based on their current revenue stream and cash position.
For years now, Apple has been a popular choice among hedge fund investors, many of whom have gained considerably from Apple's recent performance on the market. Over the last two years, post-split prices on Apple have more than doubled, though AAPL is currently trading about $10 lower than its all-time high of $133.60.
Last November, one major hedge fund manager said that he believes Apple could achieve a trillion-dollar market cap. Currently, the market values Apple at about $723 billion, making it by far the largest company in the world by capitalization.
Malcolm Owen
Amber Neely
Andrew Orr
Christine McKee
41 Comments
That's why they call it "hedging". You're mitigating risk. "Stock prices have reached what looks like a permanently high plateau." Economist Irving Fisher on October 21, 1929 - 3 days before the crash. You only make a profit after you sell out. Just ask Bernie Madoff's ex-clients.
[quote name="sog35" url="/t/185259/hedge-fund-managers-want-to-buy-more-apple-stock-but-fear-risk#post_2692998"]This makes ZERO sense. So these hedge funds won't buy more Apple but will buy more loser stocks to midigate risk? How is buying loser stocks helping? Pure stupidity. If I wanted market gains I would just buy an index fund that cost virutally ZERO in fees. If I'm paying a hedge fund 2% and 20% each year I expect much more. And that includes having the balls to be over-weight on stocks they think are winners. [/quote] They are between a rock and a hard place. By definition they are supposed to spread to avoid risk and yet as you say they lose because of it. I was just doing the math, our original purchase of AAPL, which our broker was dead against due to over weighting, is running at almost exactly a 1600% gain based on today's price. The stock our broker retained where he wanted and invested for safety is running 3%. In the end I guess it is a crap shoot for them.
Unfortunately the fact that so many funds have hit their limit on the amount of AAPL shares they can own means the stock will be challenged moving forward. No matter how well the company does going forward those funds can't buy more and thus this problem limits the upside potential of the stock. I personally have a ton of exposure to AAPL but its worth noting that the "law" of large numbers isn't completely based on vapor...
[quote name="sog35" url="/t/185259/hedge-fund-managers-want-to-buy-more-apple-stock-but-fear-risk#post_2692998"]This makes ZERO sense. So these hedge funds won't buy more Apple but will buy more loser stocks to midigate risk? How is buying loser stocks helping? Pure stupidity. If I wanted market gains I would just buy an index fund that cost virutally ZERO in fees. If I'm paying a hedge fund 2% and 20% each year I expect much more. And that includes having the balls to be over-weight on stocks they think are winners. [/quote] Of course it makes sense. There is never a guarantee of anything. While I can hold a lot of Apple for a long time, the only person I'm responsible to is myself. When Apple was at $86 a number of years ago, the dropped to ablut 56, it bothered me, but I held it. When it was $205 and dropped to $78, I held it, and bought some more. When it was 703, and dropped to around $390, I held it. But fund managers need to answer to their clients. If a holding drops by a good deal, that's a problem. So they need to mitigate that by holding a diversified portfolio. Some funds are non diversified, holding just a few investments, but that's fairly rare. Even so, when you are a professional manager, you need to balance your investments. There is absolutely no way to have predicted Apple's performance over the past 12 years, or so.
[quote name="sog35" url="/t/185259/hedge-fund-managers-want-to-buy-more-apple-stock-but-fear-risk#post_2693014"] by who's defintion? Like I said if I want a low risk investment I would do an index fund that cost almost ZERO in fees. If I need to pay these clowns 2% and 20% every year I expect them to take RISKS so they can materially outperform the market. You don't out perform the market by refusing to buy winners and load up on losers. [/quote] Who wants 20% a year? The mafia! I don't know any fund that demands that much. 6% is more like it, and as far as I'm concerned, since I've only made my own decisions since I was 13, I would never use one. But hedge funds generally do well enough. Otherwise, they wouldn't exist. Could they do better? Sure. But again, there's no way to know in advance. I've been confident in Apple for a long time, but, as I said, I have only myself to answer to.