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Despite Low Apple Allocations, Some NASDAQ ETFs Hit Records


One of the most oft-cited reasons for another year of laggard performances from high-fee active managers is that these supposedly super stock pickers have been under-allocated to Apple (AAPL).

Somehow, someway, active managers have been underweight the largest U.S. company by market value as the shares have soared over 45%. The iPad maker is one of just 76 S&P 500 stocks sporting a year-to-date gain of at least 30% and Apple’s bullishness has stoked talk of returns to pre-dot com bubble highs for the NASDAQ Composite and the Powershares QQQ (QQQ) . [Tech ETFs Can Keep Climbing]

Proving that the underweight Apple posture is not the only issue hampering active managers this year, some NASDAQ ETFs with light Apple allocations have already been touching all-time highs. That is true of the First Trust NASDAQ-100 Equal Weighted Index Fund (QQEW) and the Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE) , two ETFs that are equal-weight alternatives to QQQ.

True to its equal-weight roots, QQQE allocates just 1% to each of its 100 holdings, meaning Apple and Microsoft (MSFT), another out-performing tech stock fund managers have been woefully under-allocated to, combined for just 2% of the ETF’s weight at the end of the third quarter.

Predictably, QQQE’s low weights to Apple and Microsoft have the ETF lagging QQQ, but the equal-weight offering is still up 16.5% this year, outpacing the S&P 500, NASDAQ Composite and Russell 1000 Index along the way. [NASDAQ the Equal-Weight Way]

Another ETF exposing the fallacy of active management’s lagging performance being mostly attributable to being underweight Apple and Microsoft is the First Trust Nasdaq-100 Tech Index (QTEC) . The $332.4 million QTEC, which debuted in April 2006, only holds the 41 technology stocks found in the NASDAQ-100.

In a year when biotechnology ETFs are the top sector performers, it would appear QTEC would be at a significant disadvantage. After all, the ETF features no biotech stocks and allocates barely more than 5% of its combined weight to Apple and Microsoft. [A Different Way to the NASDAQ-100]

QTEC allocates 38.1% of its weight to semiconductor stocks, a positive trait in a year in which Intel (INCT) is up more than 43%. That healthy semiconductor exposure has helped QTEC gain 22.5% this year, topping the NASDAQ-100, NASDAQ Composite and S&P 500 along the way. Without much help from Apple and Microsoft, the ETF hit another all-time high Friday.

Direxion NASDAQ-100 Equal Weighted Index Shares


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