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The stock darlings of U.S. mutual funds

What are we looking for?

When you're building a stock portfolio, it never hurts to see which stocks other investors with more experience, more expertise and deeper pockets are holding in their portfolios - and what they may be overlooking.

With that in mind, we take a look at the stocks that appear most often in the top holdings of big U.S. mutual funds - courtesy of the equity research department at Citigroup.

Stocks the mutual funds covet

Tobias Levkovich, head U.S. equity strategist at Citigroup, recently looked at the 50 biggest mutual funds in the United States, to see which stocks most frequently show up in their 10 largest holdings. (Funds routinely publish their top 10 holdings, either monthly or quarterly.) He did a similar analysis of the top 10 holdings of the 50 largest hedge funds.

"The goal is to help us identify larger-cap stocks that may be over- or under-owned within the equity mutual and hedge fund universe," he said in a research report.

Based on the number of funds' top 10 holdings lists on which each stock appears, the most popular stocks are bank Wells Fargo & Co. and drug maker Merck & Co., which each appear on 17 top 10 lists, roughly one-third of the total. Wells Fargo shares top spot despite a 11.5-per-cent drop in its share price in the second quarter.

General Electric Co. fell the most out of favour in the second quarter - it appeared on six top 10 lists, only half as many as in the first quarter.

Mr. Levkovich found that the top mutual fund holdings are skewed toward the information technology sector: 30 per cent of the top 15 stocks on the list are tech companies. Energy stocks are also over-represented, accounting for more than 20 per cent of the top 15.

Unfortunately, there's a lag in the top 10 holdings data; the latest available numbers for all 50 of the largest funds is for the end of the second quarter. As a result, his findings don't reflect the market tumult of the third quarter - which "likely has affected the portfolio mix to some degree," he said.

What's next?

Mr. Levkovich's analysis of hedge fund top 10 holdings revealed some significant differences between the preferences of hedge-fund managers and their mutual-fund counterparts. We'll review his hedge fund holdings list in our next Number Cruncher column.



Market cap% price chg% price chg
(US$-mil)% of mutual funds in top 10 holdings(Mar. 31 to(June 30 to
Company NameTickerS&P Sector(Sep. 2)2Q111Q114Q103Q102Q10June 30)Sep. 2)
Wells FargoWFC-NFinancials127,7321715181917-11.5-13.8
Merck & Co.MRK-NHealth Care99,7971715911156.9-8.3
Apple Inc.AAPL-QInfo. Tech.346,7081615141313-3.711.4
Philip MorrisPM-NConsum. Staples120,1981513108101.72.2
JPMorgan ChaseJPM-NFinancials135,4101415161413-11.2-15.4
GoogleGOOG-QInfo. Tech.169,3491414131613-13.73.6
MircosoftMSFT-QInfo. Tech.216,10113141415152.4-0.8
PfizerPFE-NHealth Care144,0271312151191.4-10.4
AT&TT-NTelecom Services166,1971110810102.6-10.7
Exxon MobilXOM-NEnergy350,75391111910-3.3-11.4
Royal Dutch Shell PLCRDS.A-NEnergy204,95091010109-2.4-7.7
Home DepotHD-NConsum. Discr.50,49098775-2.3-11.2
OracleORCL-QInfo. Tech.136,684812121110-1.6-18.0
Amazon.comAMZN-QConsum. Discr.95,3408847413.52.7
Coca-Cola Co.KO-NConsum. Staples159,914777761.43.6
General ElectricGE-NIndustrials167,0616121099-5.9-16.4
Source: Citigroup, FactSet

© 2007 The Globe and Mail. All rights reserved.

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