Some unlikely funds “overweight” Apple

You may not be the type of person who stands in line to get your hands on the first edition of every new Apple product.
But if you’re an investor in mutual funds or ETFs, your returns might depend on the excitement and dedication of those consumers.
Apple Inc. (AAPL) on Tuesday is widely expected to announce new products including iPhones with larger screens as well as a wearable watch-like computer, dubbed the iWatch or “smartwatch.”
The stock’s hefty presence in investment products thought to offer access to growth, value or dividends may blur the lines between the definitions of those widely used investing concepts.
And that blurring may mean many investors have unwittingly taken on extra exposure to the company ahead of its anticipated announcement of product updates, according to Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ.
“Investors that think they’re diversified using dividend, large-cap growth and large-cap value funds are often doubling down and tripling down their exposure to Apple,” Mr. Rosenbluth said.

DIVIDENDS
Despite the fact that Apple has been reticent to offer dividends, the firm started a dividend program in 2012, after Timothy D. Cook took control of Apple from the firm’s late, legendary co-founder Steve Jobs in August 2011.
While Mr. Cook is likely hoping the new watch and other products will help crystallize his legacy as a technology pioneer, it is the firm’s approach to share buybacks and dividends that is the financial hallmark of his tenure, according to David A. Rolfe, chief investment officer of Wedgewood Partners and manager of the $1.9 billion RiverPark/Wedgewood Fund (RWGFX), which has owned Apple since 2010 and has a 7.55% weighting in shares of the company.
Apple’s 1.83% dividend yield is lower than the S&P 500 average of 1.99%, as of August, according to S&P Dow Jones Indices.
But Apple still has taken on a large role in dividend-focused funds like the $9.2 billion Vanguard High Dividend Yield ETF (VYM), which tracks a FTSE group index. Apple is responsible for 7% of that portfolio’s returns.
Apple is found in some 57 funds named for their dividend focus, according to Morningstar Inc.
Investors have been piling into dividend-paying equities in part because of diminished yields in products including bonds, according to some analysts and portfolio managers. Apple’s presence in those dividend-oriented products may represent one of the risks those investors have taken on to earn that yield.
GROWTH OR VALUE?
Apple also has a strong presence across investing “style boxes.”
Growth funds have relatively high exposure to Apple. The tech giant is a top-10 holding in more than 80% of large-cap growth ETFs and 65% of large-cap growth mutual funds. Apple accounts for about 7% of the $15.75 billion Vanguard Growth ETF (VUG), for instance. (A spokesman for the Vanguard Group Inc. did not respond to a request for comment.)
But value mutual funds, too, have loaded up on Apple, many buying shares after April 19, 2013, when the stock hit its lowest point since December 2011.
Those funds have kept a hold of Apple even as it posted a gain of nearly 84% between then and the market’s close last Friday.
While just one of 15 large-cap-value ETFs tracked by the S&P Capital IQ has a top-10 exposure to Apple, more than one-fifth of the mutual fund large-cap-value share classes do. That includes funds like the $33.3 billion American Funds American Mutual Fund (AMRMX), whose stake in Apple constitutes 1.75% of its assets.
“This is a good example of the difference between active investment management and index investing,” said Chuck Freadhoff Jr., a spokesman for American Funds’ parent Capital Group Cos. Inc. “We think investors benefit when a portfolio manager or analyst considers all the factors and then makes a deliberate decision that a stock should be added or deleted from the portfolio based on the fund’s objective.”
A combination of dividend, value and growth funds that include Apple, therefore, could magnify exposures to Apple, whose stock — according to analysts — could dip after the announcement and a long run-up in price.
Apple traded at $98.80 midday Monday in New York, just $4.50 off its highest close ever, which took place last Tuesday, adjusting for stock splits.
“I wouldn’t be surprised if the stock pulls back a little bit — there’s obviously been a big run-up and a lot of anticipation,” said Mr. Rolfe, the portfolio manager. “For long-term investors, tomorrow’s a significant day.”