Google Inc. was the favorite stock of both mutual fund and hedge fund managers at the end of last year, replacing Apple Inc., according to research from FactSet Research Systems Inc. and Citigroup Inc.
The king of the Internet search was among the top 10 holdings of 19 of the top 50 actively managed U.S. mutual funds and was a favorite among 16 of the top 50 U.S. hedge funds. Those numbers are up from 15 mutual funds and 15 hedge funds at end of the third quarter.
Apple, the erstwhile favorite among the institutional crowd, was on the top list of 14 mutual funds and 10 hedge funds. That, however, is down from 17 mutual funds and 23 hedge funds at the end of the third quarter.
Of the 50 mutual funds studied by Citigroup analyst Tobias Levkovich, 29 were characterized as growth funds and 10 as value funds. Thirty-four of the hedge funds polled were considered growth-oriented and 15 were value funds.
While popularity among the institutional investor community is undoubtedly a good thing for stocks, it also can be an enormous source of price volatility, if and when sentiment changes.
Apple, for example, has slid almost 40% from its peak of $710 last September — in no small part because significant numbers of institutional holders took their profits after riding the stock up for several years.
Google, too, has been a workhorse for investors. It is up more than 15% so far this year, and has more than tripled since bottoming in late 2008. Institutional holders now own 86% of Google shares, according to data collected on the Yahoo Finance website. That compares with 64% for Apple shares.
Fundamental factors such as growing competition and shrinking margins may be underlying reasons for Apple's share price decline, but the exit of fast money certainly greased the skids. With Google's heady rise of late, investors should remember Apple and be mindful that when the darlings of the institutional crowd fall out of favor, it can happen quickly.
Andrew Osterland writes for InvestmentNews, a sister publication of Pensions & Investments.