The dominance of one stock exists in a couple of other sectors as well. For example the large energy sector ETFs are heaviest by far in Exxon Mobil (XOM). The iShares DJ US Energy Sector Index Fund (IYE) allocates 25% to XOM, the Energy Select Sector SPDR (XLE) has 18% in XOM and the Vanguard Energy ETF (VDE) has 23% in XOM. This also occurs with AT&T (T) and Verizon (VZ) in telecom sector funds.
Clearly the tech sector ETFs have benefitted from the huge lift in Apple as that stock has become the largest company by market cap in the world by a wide margin. It should also be clear that a reversal of fortune for Apple will then become a drag on the performance of these funds. In the past, becoming the world's largest stock has not been a positive. It ended badly for Cisco (CSCO), Microsoft (MSFT), General Electric (GE) and Petrochina (PTR) although it did not seem to signify any sort of top for Exxon Mobil.If an investor would build a portfolio of individual stocks, they would do some form of research on each stock. The examples of Apple and Exxon Mobil means that there must also be some stock research even in an all-ETF portfolio.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV