It is a dilemma more mutual fund managers are wrestling with due to the company's nearly 48 percent gain this year. Those who bought Apple well below its current price have seen the value of their investment balloon, sometimes to more than 10 percent of their fund's assets.

That effectively turns a brilliant decision into a concentrated stake, undercutting the benefits of diversification and making some mutual funds riskier.

As Apple stock has marched higher, well-timed bets on the company have helped some growth-oriented and blended mutual funds outperform the broad market. But in doing so, many of those funds have now tied investor dollars closer to the performance of a single company.

This isn't much of an issue when it comes to funds that market themselves as narrow bets on technology. But many funds whose broad holdings could be the core of a (401)k or similar retirement plan - Fidelity's $14.7 billion Blue Chip Growth and the $28.7 billion T. Rowe Price Growth fund among them - are stocking up on Apple.

Apple makes up nearly 9 percent of Fidelity's $80.8 billion Contrafund, for instance. The fund is the sixth-most popular holding in 401(k) plans nationwide, according to BrightScope, a firm that ranks company (401)k plans.

A dramatic fall in Apple's shares, however unlikely that may seem at the moment, would quickly ripple across the retirement accounts of millions of investors who thought they were safer investing in funds than individual shares.

"It adds to the risk profile of a fund to have a significant stake in one stock because it makes them more susceptible to bad news on one or two stocks and they won't be able to cushion the blow with diversification," said Todd Rosenbluth, a senior fund analyst at Standard & Poor's Capital IQ.

Generally in the mutual fund industry, any position over 5 percent of assets is considered a large bet that may influence a fund, said Dan Culloton, a fund analyst at Morningstar.

CONCENTRATED BETS

Shares of Apple have nearly doubled from the $310 they hit in June 2011, and at about $600 a share are up nearly 48 percent in 2012 alone.

Apple, currently the world's most valuable company by market capitalization, now has a weighting of 4.2 percent in the broad S&P 500 portfolio, the benchmark against which the performance of most U.S. mutual funds are judged. That means 4.2 cents of every $1 invested in a S&P 500 index fund will be allocated to Apple shares, before fees.

By definition, actively managed mutual funds have overweight positions in companies they think will outperform the broad market, but usually not more than 5 or 6 percent.

But 46 funds tracked by Morningstar have stakes in Apple that exceed 9 percent of assets, or roughly double the company's weighting in the S&P 500 index. This does not include sector funds that focus on technology or other specialized investment.

The $1.5 billion Oppenheimer Main Street Select fund, for instance, blends value and growth stocks in its portfolio of 34 companies. It had 10.5 percent of its assets, or two and half times the benchmark weight, in Apple as of the end of January, according to Morningstar data.

That concentrated bet is one reason that the fund is up 13.9 percent so far this year, or 2.6 percentage points above the broad S&P 500 index. A dip in Apple's share price and the fund could fall more than the broad market. The fund managers declined to comment.

Fidelity's Contrafund, meanwhile, focuses on growth stocks. It holds 427 stocks, but 8.6 percent of its portfolio, or a total of $6.6 billion, was concentrated in Apple at the end of January. That stake is more than even Apple's weighting of 7.6 percent in the narrower Russell 1000 Growth index, which many growth fund managers use as an internal benchmark.

The Contrafund is up 13.7 percent since the start of 2012. Fidelity declined to comment.

Some reluctance on the part of portfolio managers to sell Apple shares is understandable. Trimming exposure could lead to underperformance for a fund.

"We hear about this a lot from portfolio managers. I have no doubt that they'd like to sell it and take their profits, but you have to be in it to win it and right now Apple's momentum is going up," said Howard Silverblatt, senior index analyst at S&P.

These fund managers usually realize that they are taking on additional risk, Silverblatt said. "What helped you on the way up kills you on the way down."

CUTTING RISK

Some fund managers are taking steps to lower the weighting of Apple in their portfolios.

"We got to the point where it was an inordinate part of our portfolio, and in order to control risk it was only prudent to trim it back," said Robert S. Bacarella, a Wheaton, Illinois fund manager who runs the $49 million Monetta fund with his son.

Bacarella first bought 10,000 shares of Apple in early 2005 when it traded at around $40 per share. In September 2005, those 10,000 shares were worth $536,100 and accounted for 0.9 percent of his portfolio, according to Morningstar data.

Fast forward to December 2011, and Bacarella again had 10,000 shares of Apple. This time, however, their value was nearly $4.1 million, which accounted for 9.3 percent of his fund's weight. He trimmed his shares by 5,000 earlier this year. Apple now makes up 5 percent of his assets.

"This is about risk control. You never know what is going to happen," he said. The sizeable positions built up by other funds would only exacerbate an Apple fall , he added.

"If everyone sees deceleration of earnings growth, what will you do?" Bacarella asks. "I would think that you're going to bail and that will compound to the downside."

(Reporting By David Randall; Editing by Walden Siew, Jennifer Merritt and Tim Dobbyn)

• A Permanent Economic Emergency