This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Carrying Apple in the ETF Basket

NEW YORK (TheStreet) -- A client recently asked why Apple (AAPL - Get Report) 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.

First You Screw Up, Then Lie and Finally Die

The technology sector currently comprises 20% of the S&P 500. An investor who benchmarks to the S&P 500 might reasonably allocate 18% to 22% to tech. Keeping the example simple, a 20% allocation to IYW would result in a 4.5% portfolio weight in Apple, a 20% weight in XLK would result in a 3.9% weight in Apple and a similar exposure to VGT would put 2.9% of the portfolio in Apple.

In the mutual fund industry a so-called concentrated portfolio has 30 to 40 holdings which implies an average weighting for each stock of 2.5% to 3.3%, so the exposure to Apple available in the sector ETFs is substantial and the performance of the three sector ETFs reflects that fact.

7 Companies That Keep on Growing

Year to date, IYW is up 21%, XLK is up 18.5% and VGT is up 20% compared to an 11% gain for the S&P 500. Obviously all three funds have benefitted from the 56% gain in Apple. The reason for the lag in XLK is that this fund actually combines the tech sector and the telecom sector and telco stocks have generally lagged the rally in the broad market this year.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
XLK $41.94 0.05%
IYW $101.50 0.02%
AAPL $93.24 -0.41%
FB $117.81 -0.21%
GOOG $701.43 0.82%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs