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Hedge Funds Like Apple; Institutional Investors Differ

Apple Computer was the number one stock play among hedge funds in the third quarter. Institutional investors, though, do not agree.

Apple Computer clearly remained the number one stock play among hedge funds in the third quarter.

Although its shares—currently around $310--are up 60 percent since February alone and about 270 percent since the March 2009 low, at least eight well known firms counted the maker of the iPhone and iPad as their number one holding. In fact, three of them increased their position in the stock during the September period, including Stephen Mandel Jr.’s Lone Pine Capital, David Shaw’s D.E. Shaw and James Simons’s Renaissance Technologies, which nearly doubled its stake.

The other firms which have made Apple its largest position include Ken Griffin’s Citadel, Chase Coleman’s Tiger Global, Mark Kingdon’s Kingdon Capital, John Kleinheinz’s Kleinheinz Capital Partners and Joe DiMenna’s Zweig-DiMenna.

Six other firms count Apple as their second largest holding. They include Lee Ainslie’s Maverick Capital, John Griffin’s Blue Ridge Capital, Philippe Laffont’s Coatue Management, Robert Raiff’s Raiff Partners, Paul Tudor Jones II’s Tudor Investment, and Adage Capital Management, founded by former Harvard Management honchos Robert Atchinson and Phil Gross.

In fact, Tudor is one among at least six firms that took initial positions in the third quarter. They include Jana Partners, which made Apple its fifth largest holding, Viking Capital, Third Point, Trafelet and Omega Capital.

Interestingly, seven of this group of large holders are known as Tiger Cubs—firms whose founders at one time worked for Julian Robertson’s Tiger Management.

In fact, the only major hedge funds to significantly sell Apple shares in the third quarter were Duquesne Capital, headed by former Soros head trader Stan Druckenmiller, who is winding down his fund, and Shumway Partners, headed by Tiger Cub Chris Shumway.

Wall Street’s sell side seemingly supports this aggressive Apple bet. Since October, at least three firms initiated coverage with their highest rating on the stock.

In early November alone Robert W. Baird initiated coverage with an outperform rating and a $410 target price, calling Apple “the unabashed premium provider in the burgeoning smart phone market” and, of course, its position in the iPad market.

Barclays recently reaffirmed its top rating on Apple, citing its “tablet and smartphone leadership.” Citi expects Apple to ship 26 million iPads in 2011, which it says implies a 74 percent share of the tablet market for Apple next year.

One faction on Wall Street is not heavily supporting Apple—institutional investors. According to a new quarterly analysis from Credit Suisse Securities, the tech company is number 15 of the top 15 overweight stocks among institutions as of the end of September.

On the other hand, Apple was the fifteenth most over-weighted stock among hedge funds, according to Credit Suisse. However, none of the 14 higher weighted stocks enjoy as much pervasive support from hedge funds as Apple or play as important a role in the hedge fund’s portfolio as Apple.

In fact, three of the top 15 stocks most overweighted by hedge funds at the end of the third quarter are skewed by the huge holdings of ESL Partners’ Ed Lampert—Sears Holdings, AutoZone and AutoNation. For example, ESL owns 44 percent of Sears’s total outstanding shares, 42 percent of AutoNation and 28 percent of AutoZone.

Just two of the 14 most over-weight stocks besides Apple count a hedge fund as their number one holder: Eton Park is the largest shareholder of Airgas while Scout Capital Management is the largest investor in Coca Cola Enterprises.

And Motorola is the only stock among the 15 besides Apple that a hedge fund lists as its largest holding—both Icahn Holdings and Highfields Capital Management.

In any case, here are the 15 stocks hedge funds were most overweight at the end of the third quarter: Sears, Citigroup, Genzyme, Motorola, Viacom, WellPoint, AutoZone, Airgas, Aon, McAfee, Coca Cola Enterprises, General Dynamics, AutoNation, Pactiv, and Apple.

And which were the least underweight among hedge funds?

Exxon Mobil, General Electric, Procter & Gamble, Johnson & Johnson, AT&T, Chevron, IBM, Berkshire Hathaway, Merck, Microsoft, Cisco Systems, Philip Morris International, Verizon Communications, Pepsico and Coca-Cola.

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