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Apple’s Ascent to $700B and its ETF Impact


It feels like 2012 all over again, but Apple (AAPL) shareholders will certainly take. The iPad maker’s 12.6% year-to-date gain has pumped its market value to nearly $724 billion at this writing, making California-based Apple the first U.S. company to sport a market cap north of $700 billion.

And that makes Apple the centerpiece of a conversation that was rehashed thousands of times several years ago: The stock’s growing prominence in an array of well-known, heavily traded exchange traded funds.

While alternatively-weighted ETF have over $400 billion in assets across nearly 480 funds, cap-weighted funds still dominate the ETF landscape. Translation: Owners of some popular ETFs, such as the Technology Select Sector SPDR (XLK) , the largest technology sector ETF, are seeing their Apple exposure increase as the company’s market value does the same. [A Look at Alternative ETF Weighting]

Increased weights to Apple are happening in short for cap-weighted ETFs. XLK is a prime example. On Jan. 27, the day Apple reported fiscal first-quarter results, XLK entered the day with a 16.5% weight to Apple. At Tuesday’s close, XLK’s Apple allocation had ballooned to 17.7%, 900 basis points above the ETF’s weight to Microsoft (MSFT), its second largest holding.

The iShares U.S. Technology ETF (IYW) had an Apple weight of just under 19% heading into Jan. 27. Apple now accounts for 20.3% of that ETF’s weight, more than double the fund’s allocation to Microsoft, also IYW’s second-largest holding. [Apple ETFs Quiet Ahead of Earnings]

The Vanguard Information Technology ETF (VGT) is another “Apple ETF” that investors should keep an eye on too see how much the stock’s footprint in that fund has grown. It is likely a substantial increase. Unlike rival ETF issuers, Vanguard does not update its funds’ holdings on a daily basis, opting to do so once a month. VGT’s latest holdings update, from Dec. 31, 2014, shows an Apple weight of 15.3%. With the stock’s 12.6% gain this year, VGT’s Apple exposure is now likely well over 16%.

Predictably, Apple’s ascent is also re-exposing performance gaps between broad market ETFs heavy on the stock and comparable funds with smaller weights to the iPhone maker. For example, the PowerShares QQQ (QQQ) , the NASDAQ-100 tracking ETF, came into Wednesday with an Apple weight of 14.7%. QQQ is up 1.3% this year compared to a 0.3% gain for its equal-weight equivalent, the First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) . Apple has a weight of just 1.09% in QQEW, meaning eight stocks heavier weights in the fund.

The lesson here, and it has been taught before when shares of Apple have declined, is that Apple’s upside is great for ETFs like QQQ. When the stock declines, equal-weight ETFs like QQEW prove less bad. [Low Apple Weights Not Hindering Some Nasdaq ETFs]

Technology Select Sector SPDR


Tom Lydon’s clients own shares of QQQ, Apple and Microsoft.