Apple surge no different to Nokia, says JOHCM team
US, global and even UK funds have been piling into the creator of the iPad and iPhone, but some managers have questioned its staying power.
The popularity of Apple could merely be a flash in the pan, according to the team behind the FE five crown-rated JOHCM UK Opportunities
fund, which has decided against holding the company in its new global offering.
and FE Alpha Manager John Wood
, who this week announced the launch of JOHCM Global Opportunities, believe Apple shares many of the characteristics of Nokia in 2007.
The new fund has a significant overweight in the technology sector, but Leyland says there is no chance of him adding Apple to the portfolio, even though it makes up more than 2 per cent of the fund’s MSCI AC World Total Return benchmark.
"We much prefer the software companies than the hardware companies," explained Leyland.
"Software companies are realising the best way to monetise is a subscription and support service rather than through a licence which expires. This allows them to retain business for longer."
"Hardware companies on the other hand are all about brand and can go in and out of fashion very quickly. For this reason, Apple didn’t make it through our screens."
Wood added: "Five years ago you would have asked ‘why don’t you hold Nokia’, and we all know what happened there."
The decline of Nokia is well documented: the company’s share price is down around 90 per cent over five years, following strong performance in the early- and mid-2000s.
Wood says the same risks – namely, an improvement in competition – that led to Nokia’s fall from grace also face Apple.
Richard Troue, fund analyst at Hargreaves Lansdown, agrees.
"Any company that relies on people liking their products is a risk," he said. "It could go out of fashion tomorrow, and once that happens it’s very difficult to get it back."
"If Microsoft’s new tablet is a resounding success, Apple will have to react," he added.
The company is held by 160 funds in the IMA unit trust and OEIC universe. Of the 98 funds in the North America sector, 66 – or 67 per cent – include Apple in their top-10 holdings.
Twenty-six per cent of Global funds hold the company in their top-10, and even FE Alpha Manager Ian McVeigh’s Jupiter UK Growth
portfolio has a big stake in it.
Performance of fund versus sector and index over 5yrs
Source: FE Analytics
Wood and Leyland's JOHCM Global Opportunities fund is set to open to investors on 29 June 2012
. The managers will look to emulate the performance of its FE five crown-rated UK equivalent, which tops the risk-adjusted returns table in its UK All Companies sector over five years.