The rise of Apple Inc (AAPL) has been nothing
short of extraordinary over the past few years. The company went
from a tiny computer firm to a global behemoth that dominates a
variety of hardware and broad consumer electronics markets in a
just a few short years.
Now, AAPL is the most valuable company in the world, a dividend
payer, and is poised to continue its reign over the tablet and
phone market in the near future. Thanks to this, the company’s
stock has been a star performer to say the least, adding over 100%
in the past two year period, not too shabby for a mega cap
firm.
However, while the company may appear invincible to some, a few
cracks in the armor are beginning to appear for the computing
giant. Worries are starting to crop up over production issues while
some are also worried over the company facing the current
competition with some forecasting margin compression in the near
term.
Thanks to these worries and a general market pullback as of
late, Apple shares have been falling from their all-time high just
over $705/share. In fact, Apple share prices are now—at time of
writing—in correction territory, down more than 10% from this (so
far) lifetime peak (read Three Great Tech ETFs that Avoid
Apple).
This short-term trend has been pretty devastating for those
investors who were late to the Apple party and it has also started
to kindle a mild panic in those who have been perma-bullish on the
company in the medium term. Beyond direct Apple investors, those
who are heavy in Nasdaq-focused ETFs are also probably starting to
get worried thanks to this recent trend.
After all, the PowerShares QQQ Trust
(QQQ)—which tracks the Nasdaq 100 index-- is one of the
most popular ETFs in the world and one that puts a great deal of
its assets to work in AAPL. The fund has close to $34 billion in
AUM and daily volume of roughly 43 million shares a day while Apple
makes up roughly 19% of the total assets, making it far and away
the top holding in the product.
As a result of this, any movement in Apple seems very likely to
drive the return of not only the Nasdaq at large but QQQ as well.
Given this, investors in QQQ should also be worried about the
performance of Apple going forward (see Three ETFs with the Most
Apple Exposure).
However, investors should also note that there are a variety of
other ways to target the Nasdaq with ETFs that may not be as
dependent on Apple in order to generate returns. For example, two
ETFs come to mind that could offer up solid Nasdaq exposure without
such a heavy Apple concentration at this time:
First up is the Nasdaq 100 Equal Weight ETF from First
Trust (QQEW) which offers up a similar holding profile as
its more popular QQQ counterpart. However, this fund
equally-weights all of the 100 stocks in the basket, leaving Apple
with a weighting below 1% at last check.
Thanks to this lower exposure level to Apple, the fund has been
able to outperform QQQ in the short term as AAPL has fallen from
its lofty heights. Still, the product is extremely heavy in
technology as this segment accounts for roughly 50% of the total
exposure of the fund (see Is It Time For an Equal Weight ETF?).
Beyond this broad equal weight fund, ETF investors also have
another First Trust fund at their disposal (QQXT).
This product targets the Nasdaq-100 ex-Technology, giving the fund
a very different holdings profile with its 57 securities.
Thanks to the absence of technology, Apple is nowhere to be
found at all in the fund, allowing this equal weight product to go
more into consumer and health care instead. Additionally, the
avoidance of AAPL, and the broad tech sector, has allowed QQXT to
outperform both the broad equal weight fund and QQQ over the
trailing one month period.
|
QQQ
|
QQEW
|
QQXT
|
Method
|
Market Cap
|
Equal Weight
|
Equal weight ex-Tech
|
Apple Assets?
|
19.1%
|
0.93%
|
0.0%
|
1-Mo Return
|
-3.1%
|
-2.2%
|
-.25%
|
3-Mo Return
|
5.11%
|
4.25%
|
4.87%
|
6-Mo Return
|
.09%
|
-2.39%
|
3.12%
|
However, despite the recent underperformance of QQQ thanks to
AAPL, investors should note that the product—thanks in large part
to the computing giant and its heavy weight in the Nasdaq—has
outperformed the others by a wide margin over longer time periods
(see The Five Best ETFs over the Past Five Years).
In fact, QQQ has outperformed both QQEW and QQXT in the trailing
three month period and by an extremely wide margin in the trailing
one year time frame as well. Seemingly the only time period of
consequence that has seen QQQ lose out is in the past six month
time frame, in which the ex-tech path was the way to go.
So, for investors who are starting to panic over QQQ thanks to
the recent slump of AAPL, it is important to keep things in
perspective. Yes, it has been a terrible few sessions for Apple,
but clearly a heavy allocation to the company has greatly benefited
investors over the long haul for those who seek Nasdaq-based
exposure.
Furthermore, for those taking an ETF approach, the losses over
the past few sessions have been quite dull when compared to what
investors have seen in the shares of AAPL in the same time period.
Should this situation continue, QQQ could remain a lower risk way
to maintain exposure to the company, especially if troubles
continue at the global computing giant, at least in the short-term
(read The Truth about Low Volume ETFs).
After all, if history is any guide, investors certainly don’t
want to forget about AAPL entirely, as this current slump for the
company may just be a temporary bump in the road. However, since we
cannot be sure if this is the beginning of the end, a lower risk
approach seems like a decent strategy in the short-term, at least
until more clarity is obtained over the future path of this
(potentially former) investment darling.
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APPLE INC (AAPL): Free Stock Analysis Report
FIRST N-100 EQW (QQEW): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
FT-NDQ 100 EX-T (QQXT): ETF Research Reports
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