Tags: Bogle | Apple | shares | purchase

Bogle: Some Fund Managers Shouldn’t Purchase Apple

By    |   Friday, 16 March 2012 08:22 AM

The huge rally in Apple shares – to the tune of 83 percent annually over the past three years – has led many mutual fund managers to snap them up recently.

It has gotten to the point where at least 50 small-capitalization and mid-cap mutual funds own Apple stock, despite the fact that it has the biggest market cap in the whole world, The Wall Street Journal reports.

And 40 dividend-focused funds have Apple shares, even though the company doesn’t pay a dividend. Even a junk bond fund has joined the party.

That’s not a good thing, says John Bogle, the legendary founder of money management firm Vanguard Group. "It would clearly be inappropriate for a mid-cap fund to hold Apple,” he tells the Journal.

“You've got to say that manager is violating his reason for being. I can't help but believe that is going to end up in disappointment for his shareholders. I don't know when, but it will."

The problem is twofold. First, the fund managers are branching out beyond their area of expertise, which can often be a recipe for disaster.

And second, many shareholders in the funds would have no idea they own Apple shares unless they carefully examine the fund’s shareholdings documents.

Moreover, fund managers buying Apple now may be getting their timing exactly wrong. Investors such as hedge fund manager Doug Kass say the shares are a bubble that’s ripe to burst.

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Friday, 16 March 2012 08:22 AM
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