Google has taken a bite out of Apple's mutual fund dominance. According to research from Citigroup, Google is now the "most owned" company among large mutual funds. Apple, which previously held the top spot, dropped to fourth place.
The research looks at the holdings, as of the end of the fourth quarter of 2012, of the 50 biggest stock mutual funds. A company scores a point for each time it is one of a fund's top 10 holdings. Google scored 19 points to slip into first place.
The move corresponds with increasing skepticism on the part of investors about Apple and a roughly corresponding amount of optimism about Google. "Apple has lost its appeal ... and Google has retaken its spot," says Eric Kuby, chief investment officer at North Star Investment Management Corporation. Given that trend, Kuby says Google's growing presence in mutual fund portfolios should not come as a surprise. "I think mutual fund managers ... follow the momentum stock," he says.
So far this year, Google is up 13 percent. Meanwhile, Apple prices have fallen by more than 16 percent. Morningstar analyst Brian Colello says growth investors in particular have been selling off their Apple shares. "I think part of what you've seen is that growth investors have exited," he says. "They're concerned about future innovation. But value investors haven't piled in yet either because there are questions about capital allocation and there are questions about technology [stocks] in general."
Kuby attributes Apple's recent struggles to a realization on the part of investors that they had been overly optimistic about the company's prospects in recent years. "This pullback to these levels seems to be reflection of the fact that [Apple has] had some missteps. It's not exactly clear what their strategy is going forward, [and] they have some competition."
Colello maintains, however, that Apple, particularly at its current levels, is an "attractively priced" option. "We recognize why investors may be nervous. There's concern about a lack of innovation," he notes. Still, he thinks the market is "a bit too pessimistic right now."
Google, by contrast, has been capturing investors' attention in recent months. "[T]the company has shown superb execution to date, more or less maintaining share in a fast-growing market. We are also positive about its progress in display, which is set to generate more ad revenue than search by 2015," Zacks Investment Research notes in a recent report about Google. "Google's search market share, focus on innovation, strategic acquisitions and proactive approach to mobile should continue to generate strong cash flows."
Still, the report notes that there is reason to be cautious, and as a result, Zacks rates Google as "neutral," meaning that the company doesn't recommend buying or selling. "[W]e recognize the growing competition, legal hassles and changing margin profile of the business and therefore reiterate our Neutral recommendation on the shares," the report states.
According to the Citigroup research, Philip Morris International and Wells Fargo tied for the No. 2 spot on the list of the most-owned companies. By sector, the largest stock mutual funds favored information technology companies, according to Citigroup. Next came healthcare, financials, and consumer discretionary.
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