One of the main pillars of compliance with investment advisers and investment funds is to stay within the guardrails. If you’ve told your investors you’re doing a particular type of investing, do that type. If you’ve told your investors that you won’t do something, don’t do it.
Obviously, if you’ve told your fund investors that you will not invest more than 25% of the fund assets in one industry, don’t invest more 25% of the fund in one company. Obviously… Obviously?
The Upright Growth Fund ignored this obvious position. (At least according to the Securities and Exchange Commission.) The fund had a disclosed a fundamental policy to invest no more than 25% of its total assets in one industry. From at least November 24, 2021, through September 29, 2023, the fund invested more than 25% of the Fund’s total assets in a single company, Company A. (A stands for Apple. According to my screening, over 75% of the fund is invested in the technology sector.)
I get that you can slice up the technology sector into many different and discrete industries. That’s probably too broad of a class. But more than 25% in a single company? Do you argue that Apple is actually in several different industries: semi-conductor (Macs), telecom (iPhones), entertainment (Apple+), data storage (iCloud), etc. So the more than 25% in Apple should be sliced into the different industries?
Ugh. Just do what you told investors you would do. Respect your own words. Diversify your holdings like you said.
The worst part is that it’s a second offense. In November 2021, the SEC issued a settled order that found a violation of the concentration policy between July 2017 and June 2020 by concentrating more than 25% of the fund’s total assets in one industry. Back in 2021 it was over-concentrated in pharmaceuticals, then was over-concentrated in pharmaceuticals and semiconductor. You would think that after the first violation, the firm would have fixed the problem. Apparently not.
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