Equal-Weight Nasdaq ETF to Get Around the Apple Factor
January 24th at 8:38am by Tom Lydon
While the broad technology exchange traded funds are being weighed down by the pessimistic outlook on Apple (NasdaqGS: AAPL), the largest component stock in the sector, equal-weight tech ETFs have been outperforming their market-cap counterparts.
Apple shares were down about 10% in Thursday’s premarket after the Wall Street darling reported quarterly results that disappointed bullish investors.
The stock is off about 16% for the three months ended Jan. 23.
Apple beat consensus revenue estimates and delivered net income higher than its guidance, but disappointed on iPhone and iPad sales, said Morningstar analyst Brian Colello.
“So it wasn’t the sort of blow-out quarter that you might normally expect and maybe what bullish investors were hoping for in light of all of these new product launches. The bigger issue, I think, was the forecast for the March quarter, their fiscal second quarter. That was much lighter than expected,” Colello said. “Again, if you had a blow-out quarter, you could see Apple maybe getting away with a lighter forecast for March, but since the December quarter was in line, that March forecast is especially disappointing.”
For instance, the Nasdaq-100 PowerShares QQQ (NasdaqGM: QQQ) has added 1% over the past three months, whereas the First Trust NASDAQ-100 Equal Weighted Index Fund (NasdaqGM: QQEW) gained 7.7%. [Equal-Weighted Nasdaq ETF Dodges Apple Sell-Off]
Looking at the relative chart of QQEW compared to QQQ, the equal-weight fund started to turn around late September.
The PowerShares QQQ’s top holdings include Apple 15.0%, Microsoft (NasdaqGS: MSFT) 7.2%, Google (NasdaqGS: GOOG) 6.1%, Oracle (NasdaqGS: ORCL) 5.4% and Amazon (NasdaqGS: AMZN). The market-cap breakdown includes large-cap growth 76.9%, large-cap value 8.0%, mid-cap growth 13.2% and mid-cap value 1.8%.
Apple shares have dipped under $500 per share as observers grow worried over cuts in iPhone production. [Apple Continues to Weigh on Tech Sector, Nasdaq-100 ETF]
In comparison, QQEW spreads out its weighting across its 101 holdings, with the largest component, Celgene Corp (NasadqGS: CELG), at 1.2%. Market-cap breakdown includes giant 15.8%, large 34.3% and medium 49.3%.
Investors who continue to believe in the growing power of the top market capitalization companies in the sector would want stick to a market-cap weighted ETF. However, if the top companies stumble or if the market environment favors smaller firms, an equal-weight ETF would also be a good alternative.
First Trust NASDAQ-100 Equal Weighted Index Fund
For more information on the tech sector, visit our technology category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own AAPL and QQQ.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.