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Mutual Fund News

What are mutual funds holding? Not Apple, apparently

dberman@globeandmail.com

David Berman writes for Inside the Market (tgam.ca/inside-the-market), which offers up-to-the-minute analysis of stock trends and market-moving news throughout the trading day.

Can't wait for the release of quarterly regulatory filings that will give you the latest investment moves from institutional money managers? Then here's another approach: Goldman Sachs Group Inc. has pried the lid off 642 mutual funds, with a combined $1.7-trillion (U.S.) in assets, to get a look at hot stocks, cold stocks and overall trends.

There's tremendous value here for anyone who sees money managers as the so-called smart money, or investors who are always a step ahead of everyone else. And for contrarian types who prefer to do the opposite of what the pros are doing? They can avoid the most popular names.

Before we get to the most over- and underweighted stocks, Goldman Sachs also has a few general observations on what fund managers have been doing over the past year. (That's right, any glimpse into the holdings of others comes with a big caveat - the information is a tad stale.)

1. Mutual funds favour equities over bonds: A net $71-billion flowed out of bonds in 2013, marking the first outflow since 2004.

2. Large-cap "core" equity funds, which blend growth and value strategies, favour financials and are warming up to consumer discretionary stocks. They aren't too keen on utilities.

3. Large-cap "value" funds look for cheap, out of favour stocks, like consumer discretionary. They aren't keen on financials, utilities and energy stocks.

4. Small-cap "core" funds favour cyclical sectors such as industrials, materials, consumer discretionary and energy.

But the individual holdings are probably far more interesting to anyone who's wondering what's hot and what's not - especially when you see that Apple Inc. is being shunned by core funds and growth funds, but hasn't been embraced by value funds.

By contrast, Mark Hulbert pointed out that Apple remains a stand-out favourite among the model portfolios of the 200 advisers he tracks through Hulbert Financial Digest.

A note on the lists below: By underweight and overweight, Goldman Sachs is simply comparing a stock's average exposure to its weighting in the relevant benchmark index.

Large-cap core funds

Top overweighted stocks are JPMorgan Chase & Co., National Oilwell Varco, CVS Caremark Corp., Qualcomm Inc. and American Express Co.

Top underweighted stocks are Exxon Mobil Corp., Apple Inc., AT&T Inc., General Electric Co. and Amazon.com Inc.

Large-cap growth funds

Top overweighted stocks are Google Inc., Gilead Sciences, Priceline.com Inc., Visa Inc. and Amazon.com Inc.

Top underweighted stocks are Microsoft Corp., International Business Machines, Verizon Communications, Coca-Cola Co. and Apple Inc.

Large-cap value funds

Top overweighted stocks are Comcast Corp., MetLife Inc., Target Corp., Capital One Financial, Allstate Corp.

Top underweighted stocks are Exxon Mobil Corp., Berkshire Hathaway Inc., Procter & Gamble, General Electric and Johnson & Johnson. (Apple is also underweighted, but it is No. 12 on the list.)

Small-cap core funds

Top overweighted stocks are American Equity Investment Life Holding Co., Approach Resources, Neenah Paper Inc., Littelfuse Inc. and DXP Enterprices.

Top underweighted stocks are CoStar Group Inc., Athenahealth Inc., Ultimate Software Group, Isis Pharmaceuticals and Alnylam Pharmaceuticals Inc.

Sure, the latest stock picks from Warren Buffett, John Paulson and George Soros get more attention when their holdings are revealed each quarter.

But mutual funds provide a far more expansive picture of where the money is going. Now all you have to do is decide whether you want to follow it or move against it.

© 2007 The Globe and Mail. All rights reserved.

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