By Tim McLaughlin
BOSTON May 1 Fidelity Contrafund manager Will
Danoff, the biggest active shareholder in Apple Inc,
cut his stake in the iPhone maker 12 percent in the first
quarter and cited "heightened concern" about increasing
Danoff, whose $92 billion Contrafund has beaten 94
percent of peers over the past 15 years, is considered one of
the most savvy stock pickers among mutual fund managers.
"Given our heightened concern surrounding the increased
competition Apple was facing, we continued to trim our stake in
the company during the period," Danoff said in a first-quarter
Apple's shares have climbed nearly 10 percent in the last
week since the company announced it would increase its dividend
and share buybacks to $100 billion. On Tuesday, Apple issued $17
billion of bonds, the largest non-bank deal in history, to fund
some of the increases.
But the stock remains off 37 percent since hitting an
all-time high of $705.07 in late September. Apple's shares were
down about $3.90, or nearly 1 percent, at $438.55 in late
morning trading on Nasdaq.
Danoff said investors continue to express concern about the
company's decreasing profit margins as well as increasing
competition from device makers including Samsung Electronics Co
He began trimming his Apple stake late last year, but had
said he still found the stock to be relatively cheap and
remained upbeat about the company's cash generation prowess. In
January, for example, Danoff wrote that Apple was generating $1
billion of free cash flow per week, according to a Fidelity
Viewpoints interview posted on Jan. 16.
Contrafund owned 10.1 million Apple shares at the end of
March, down from 11.56 million at the end of 2012, according to
Boston-based Fidelity's latest disclosure.
Danoff was hardly alone in trimming his Apple position. Some
870 institutional investors pared their Apple holdings in the
most recent reporting period, while 419 sold off their entire
positions, according to Thomson Reuters data. That compared with
254 investors initiating Apple positions and 1,185 adding to
Contrafund held $4.5 billion in Apple stock at the end of
March. Its largest holding was a $5.1 billion stake in Google
Contrafund returned 9.18 percent in the first quarter,
underperforming the 10.61 percent advance of the S&P 500 Index.
But over the past 15 years, Danoff has outperformed the S&P 500
by 3.3 percentage points per year.
Apple was the fund's largest detractor in the quarter,
Danoff said in his overview. Still, he said he continued to
believe that smartphones represent one of the most robust
product cycles in the tech sector.
He also favors biotech companies, overweighting on Biogen
Idec Inc, which is known for its multiple sclerosis
drugs. That stock was the fund's single-largest contributor to
relative performance during the quarter, rallying more than 30
percent on the approval of Tecfidera, an oral drug used for
treating MS, Danoff said in his overview. Contrafund owned $1.7
billion worth of Biogen shares in the first quarter.
Overall, Danoff said he continued to find cheap stocks,
particularly in relation to bonds, where blue-chip companies
boast free cash flow yields of 5 percent to 7 percent. That is
well in excess of the 1.65 percent yield on the 10-year Treasury
Contrafund's largest weighting is in the tech sector, where
Danoff is betting on companies that disrupt the software
industry with cloud computing offerings. Danoff, for example,
owned $610 million worth of Salesforce.com Inc at the
end of the quarter.