NEW YORK (TheStreet) -- A client recently asked why Apple (AAPL) was not in the portfolio. That presented a good opportunity to explain the role that sector ETFs play in a diversified portfolio, how what is under the hood of any ETF is very important and that the client does indeed own Apple by virtue of its large weighting in the tech sector ETF in his portfolio.
Just about every large ETF provider has a broad tech sector ETF and Apple is the largest holding by far in all of them. In the iShares DJ US Technology Sector Index Fund (IYW) Apple currently has a 22.7% weight. In the Technology Select Sector SPDR (XLK) Apple has a 19.7% weighting and in the Vanguard Information Technology ETF (VGT) it has a 14.5% weight.
The huge weighting in one stock, in this case Apple, is neither bad nor good. It simply reflects the fact that Apple has by far the largest market capitalization. The huge weighting does require having some sort of opinion on Apple; it would make no sense to own any of these ETFs while at the same time believing Apple was destined to go out of business quickly.
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