Active Managers Take a Beating, Thanks to Apple
Active managers in both the mutual and hedge fund industries are badly underperforming their peers, and they have a mutual malady: heavy ownership of flailing tech giant Apple.
The Cupertino, Calif.-based maker of electronic gizmo wizardry is the fourth-most owned company by the top 50 mutual funds and the fifth-most owned by hedge funds.
"The deterioration in performance really commenced after March," Thomas J. Lee, chief market strategist at JPMorgan Chase, said in an analysis. "This is when cyclicals began to meaningfully outperform defensives, and the underperformance has worsened steadily since. This is primarily driven by the scarcity of managers beating their benchmarks."
Much of the blame lies, though, in the performance of Apple.
In the $2.7 trillion hedge fund industry, it is the only stock of the 30 most-owned issues that delivered negative performance in the first quarter and one of only seven that are negative in the second quarter.
The company's troubles have been due to several factors, not the least of which has been a difficult management transition since the death of founder Steve Jobs and a dimmed reception for new product launches.
The company's flagging fortunes have coincided with the latest leg of awful performance from active fund managers.
Active managers run portfolios of individual stocks that they buy and sell in hopes of beating returns for individual indexes, which passive managers trace.
Some 68 percent are missing their benchmarks—about half that total by 2.5 percentage points or more—with the worst of the group in small caps, where 80 percent have missed the Russell 2000 benchmark, according to JPMorgan.
During the past 12 months, active managers have suffered their worst performance since 1998.
Of the group, hedge funds continue to take a beating.
The HFRX Equity Hedge Index has returned just 5.6 percent in 2013, less than half the S&P 500 gain.
"Interestingly, hedge fund and market performance continue to diverge, probably reflecting the 'hedged' nature of short positions climbing in a bull market environment, limiting the upside of the gains in hedge fund long holdings," Tobias Levkovich, chief market strategist at Citigroup, said in an analysis.
Outside of Apple, hedges have been stuck in low-returning discretionary and information technology names that have limited gains.
The top two holdings—Priceline.com and AIG—have delivered superb returns of 33 percent and 26 percent respectively, but other heavily owned stocks have struggled. News Corp andGoogle round out the top five.
In terms of sectors, info tech leads the rankings for mutual funds, while consumer discretionary is tops for hedge funds.
_ By CNBC's Jeff Cox. Follow him
@JeffCoxCNBCcom on Twitter.