The biggest funds often place their bets on biggest stock

A case in point: Fidelity Magellan put $5 billion on GE

Dollars & Sense

March 25, 2001|By Russel Kinnel | Russel Kinnel,MORNINGSTAR.COM

For better or worse, big funds are joined at the hip with their top holdings. I took a look to see which funds had the greatest market value in a single stock.

I should mention, though, that some fund companies give us only two portfolios a year, so you could be looking at a portfolio that's six months old. Therefore, some objects in this rearview mirror appear much larger than they are after six months of Nasdaq misery. If you own one of these stocks, you at least can take heart in knowing that a very good manager has stuck his neck out on the same stock.

It's no surprise that the biggest bet by market value is from the biggest fund betting on the biggest stock. Fidelity Magellan had $5.2 billion in General Electric Co. The third- and seventh-biggest bets also were on GE via Vanguard 500 and Fidelity Growth and Income. (See if you can spot the actively managed funds.)

The second-biggest holding, though, stands out. Janus Twenty had a whopping $3.8 billion riding on Sun Microsystems at the end of October. It's gone from a split-adjusted $55 to $19 since then, so I guess it's a smaller position now.

Did manager Scott Schoelzel dump it quickly when things went bad? I doubt it. You don't dump $4 billion in stock overnight, and the fund's 24 percent year-to-date loss would seem to back that up. Even at its peak, Sun had a smaller float than GE, so this really was a much bigger bet than those GE bets. (But other funds have bets that are larger percentages of a company's outstanding shares.)

This illustrates the fact that concentrated funds are much more vulnerable to asset bloat than those with more diversified strategies. Janus Twenty isn't among the 15 largest funds, yet it was holding a much bigger bet than its larger competitors.

Bill Miller might want to take note. He runs much lower turnover at Legg Mason Value than does Schoelzel, so he probably could handle assets better. All the same, he does have a big chunk of Waste Management. His $804 million investment amounts to 4.7 percent of the company's shares.

Another intriguing but painful tech bet was Vanguard Primecap's bet on Adobe Systems. The fund had $1.6 billion riding on it at the end of September 2000, but you can be sure the managers wish they didn't. The stock fell from a split-adjusted $77 to $26. Managers told Morningstar senior analyst Scott Cooley that they still like Adobe. If I were looking for tech bargains, I might well start by looking at some of the ones these guys favor.

The 20th-largest bet was a much happier story. The $48 billion Washington Mutual Investors had $1.4 billion riding on Bank of America. That amounts to 1.9 percent of the bank's shares, which is actually a greater percentage than Janus Twenty's bet on Sun. So far this year, the stock is up 14 percent. If things turn sour, though, don't bet on Washington Mutual unloading the stock beforehand.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.