As a boy, my mother used to warn me that too much apple juice would make me sick. In moderation, it was tasty, good and fine, she said, but if you crossed the line you could wind up feeling queasy.

I was reminded of that when stock in Apple Inc. had its worst one-day percentage decline in a year-and-a-half, and made a lot of mutual fund investors feel nauseous in the process.

Why some tech earnings are great, others lousy

Shares in Apple AAPL, +3.03% closed down 4.2% on July 22 — having dropped as much as 6.7% earlier in the trading day. The company announced a healthy 38% increase in quarterly profits, but that fell short of Wall Street’s oversized expectations for the stock.

Apple is the largest stock in the U.S. market in terms of market capitalization, so when Apple gets the sniffles, the rest of the market is likely to sneeze. Apple’s decline last Wednesday by itself shaved almost 40 points off the Dow Jones Industrial Average DJIA, -1.84% , roughly half of the day’s loss, and a bigger impact on the technology-heavy Nasdaq Composite COMP, -0.13% .

The bigger question is how Apple’s tumble on Wednesday affected investors’ portfolios, and whether it was enough to send a warning shot that average folks who don’t pay too much attention to portfolio composition might be getting too much of their juice from Apple.

“ ‘If you have two or three growth funds, there’s a good chance you own more Apple than you expect.’ ” — Todd Rosenbluth

Mind you, this discussion is not about the investment merits of Apple, which has its diehard fans who can make a case for making it a core holding and who won’t get nervous about a day when the stock moves violently.

Instead, the focus here is on portfolio construction, with Apple representing any big-name, widely owned stock that becomes a staple in fund portfolios.

It’s no surprise that Apple is the largest holding in any fund or exchange-traded fund tied to an index like the S&P 500 SPX, -1.15% or the Russell 1000 — where it’s the largest constituent of the index — but it’s also popular anywhere tech is a big interest.

Investment researcher Morningstar Inc. shows 26 funds with more than 10% of the portfolio tied up in Apple shares, led by Fidelity Select Wireless FWRLX, -0.65% , which has almost one-quarter of its assets in the stock. Apple is a top-10 holding in close to 100 stock ETFs, according to S&P Capital IQ; the company represents 18% of the Technology Select SPDR XLK, +0.83% , for example.

By themselves, those allocations are not a problem. The issue is when an investor has several funds and all of them are heavily invested in Apple.

“If you’re buying an individual stock, then maybe you want to make the choice to go with a lot of Apple, but when you buy a fund you are deferring to the manager, but you also want the benefits of diversification, and the manager’s ability to find attractive stocks,” said Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ. “But if you have a couple of large-growth funds, you probably aren’t getting the diversification you expect, at least when it comes to Apple. … If you have two or three growth funds, there’s a good chance you own more Apple than you expect.”

Sadly, the reason for that has less to do with the way fund managers judge Apple’s prospects as a stock than with how they want the public to view their abilities as a manager.

With Apple being so influential in the growth indexes, having little or no exposure to the stock isn’t a bet most fund managers are willing to make because they will lag the benchmark if they’re wrong. That hurts relative performance, which, in turn, affects inflows. The manager is protecting the franchise — but not necessarily shareholders — by following the herd.

“Too much exposure to one stock makes a fund more dangerous,” said David Trainer, president of New Constructs, which rates stocks, funds and ETFs on a scale from “most attractive” to “most dangerous.”

Trainer noted that many investors and managers have lost sight of what diversification really means, and rely on adding more holdings “as a substitute for diligence.” Investors, he adds, therefore, “have to do their own diligence.”

Luckily, in the case of Apple, this may be easier than with virtually any other stock.

Obviously, the company doesn’t qualify for small- and mid-cap or international funds at all. While it is typically categorized as a growth stock, there are some value managers who slide it into their portfolio based on their loose definition of what qualifies as a “value” pick.

An index investor who doesn’t want to be skewed towards Apple can consider switching to equal-weight funds, which keep stocks in equal measure rather than based on market power.

For active funds, experts suggest investigating if Apple is a top-10 holding.

Said Rosenbluth: “If you don’t see it in the top 10 of all of your growth portfolios or large-cap funds, it’s a good sign that you are reasonably diversified and that your funds aren’t too overlapped on this one stock. If all of your funds have a big slice of Apple, that’s when you either have to worry — and think about making a change — or you have to understand and tolerate that any time there’s bad news on Apple, it’s going to hit you more than most.”