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Recent mutual fund bets on J.C. Penney soured quickly
April 9, 2013 / 6:04 PM / 5 years ago

Recent mutual fund bets on J.C. Penney soured quickly

BOSTON, April 9 (Reuters) - The Hartford Capital Appreciation Fund’s bottom-up investment research on J.C. Penney Company Inc appears to have gotten an old-fashioned beatdown with an ill-timed bet on the retailer late last year.

The $12 billion fund run by portfolio managers at Boston-based Wellington Management Company LLC held a $135 million position in J.C. Penney at the end of February, only to see the stock tumble this week on the implosion of ousted CEO Ron Johnson’s turnaround plan.

The fund initiated its position in J.C. Penney in the fourth quarter and added to it during the first part of this year, according to the fund’s latest disclosures. Wellington portfolio manager Saul Pannell declined to comment.

J.C. Penney shares are down 29 percent in 2013, including the 11 percent drop on Tuesday trading on the New York Stock Exchange.

Hartford Capital Appreciation wasn’t alone, as many other mutual funds jumped into J.C. Penney in the weeks before the company’s latest meltdown, U.S. regulatory filings show.

The Prudential Jennison 20/20 Focus Fund, for example, recently bought 1.35 million J.C. Penney shares that accounted for 1 percent of its assets, according to a fund disclosure for the end of February.

Fortunately, none of the mutual funds appeared to make outsized bets in relation to their assets, but their returns will feel some pain from J.C. Penney. The big headache rests with outspoken hedge fund manager Bill Ackman, whose Pershing Square is J.C. Penney’s largest shareholder, but he may be selling soon.

At the end of February, Hartford Capital Appreciation reported holding 7.7 million shares in J.C. Penney, or 1.2 percent of net assets. The fund was the second-largest mutual fund investor in the retailer behind the Dodge & Cox Stock Fund, which owned 11 million shares, according to Thomson Reuters data.

Hartford Capital Appreciation Fund, in its latest commentary for investors, said its exposure to the discretionary consumer sector increased in the fourth quarter “as a result of our bottom-up investment process.”

As a result, the fund established positions in J.C. Penney and Inc. Priceline shares are up 12 percent this year.

The Hartford Capital Appreciation Fund is up 10.9 percent this year and that performance puts it in the top 19 percent among peer large-capitalization core funds, according to Lipper Inc, a unit of Thomson Reuters.

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