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Are Apple ETFs in for Trump Trade Ahead?

Sanghamitra Saha

Apple AAPL has been on a tear, with a year-to-date return of 66.7% (versus 27.9% of the Nasdaq 100). The momentum has been pretty strong ahead of the holiday season as the iPhone maker advanced 9.4% in the past month versus a 4.5% uptick in the Nasdaq 100. Decent growth prospects, expectations of solid holiday season sales and encouraging product launches have been driving the stock this year in spite of the ebb and flow of trade tensions.

Adding to the optimism, President Donald Trump said on Nov 20 that he is mulling over the exemption of the U.S. tariffs on imports of China-made Apple products from China. Apple chief Tim Cook has reportedly sought relief for China-made Apple Watches, iPhone components and other consumer products from U.S. tariffs. Before this, U.S. trade regulators had approved 10 out of the 15 requests for tariff exemptions filed by Apple.

Notably, Apple depends on China to get most of its iPhones manufactured. Almost 20% of Apple’s revenues come from China, where sales are on the decline. In May, Morgan Stanley analyst Katy Huberty estimated that a 25% tariff on the iPhone could result in a price increase of $160 for iPhone XS. And if Apple could swallow the taxes and refrain from raising prices, it could cause a 23% decline in its earnings per share in 2020. And forget price hike, Apple is already offering steep price discounts.

So, if Trump exempts Apple products from tariffs as long as the trade tensions do not subside, Apple’s shares will likely enjoy new-found optimism. And the timing couldn’t be better than this as holiday bells are ringing.

A survey conducted by Piper Jaffray shows that Apple is the 'top-listed consumer brand for teens' this holiday season. Apple Watch devices and AirPods are likely to serve as great holiday gifts. In any case, Apple wearables have been seeing solid growth.

Demand for iPhone 11 has been strong if we go by Apple’s supplier Hon Hai Precision Industry Co.’s quarterly results. J.P. Morgan also expects Apple to sell 3 million more iPhones than expected in the final quarter of 2019 (read: Should You At All Dump Apple ETFs Following Buffett?)

To tap the trade-induced optimism, investors can play Apple-heavy ETFs as the basket approach lessens company-specific risks.

ETFs in Focus

Below we highlight five funds having Apple as the top or second firm with a double-digit allocation and a Zacks Rank #1 (Strong Buy) with a Medium risk outlook:

Select Sector SPDR Technology ETF XLK

This most-popular technology ETF has $24.9 billion in AUM and charges 13 basis points (bps) in fees per year from investors. AAPL occupies the second position and makes up for roughly 19.3% of assets (read: ETFs to Buy on Phase 1 of U.S.-China Trade Deal).

Vanguard Information Technology ETF VGT

This fund also targets the broad tech sector with Apple as the top firm holding 17.4%. It has amassed $23.6 billion in its asset base and charges 10 bps in annual fees (read: 3-Year Scorecard of Trump Presidency: 5 ETFs Up At Least 100%).

MSCI Information Technology Index ETF FTEC

With AUM of $2.9 billion, the product allocates 17.9% to Apple. The ETF has 0.08% in expense ratio.

iShares Dow Jones US Technology ETF IYW

This ETF provides investors exposure to the broad technology sector, charging investors 42 bps in annual fees. Here, Apple is the second firm, accounting for 17.1% allocation. The fund has AUM of $4.6 billion.

Invesco QQQ QQQ

This ETF provides exposure to the largest domestic and international nonfinancial companies listed on Nasdaq based on market capitalization, with Apple as the first firm, which accounts for 12.15% share in the basket. It has $83.3 billion in AUM and charges 20 bps in fees per year.

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Apple Inc. (AAPL) : Free Stock Analysis Report
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
Technology Select Sector SPDR Fund (XLK): ETF Research Reports
 
iShares U.S. Technology ETF (IYW): ETF Research Reports
 
Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports
 
Invesco QQQ (QQQ): ETF Research Reports
 
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