Watch Your Apple Exposure in Growth ETFs
September 3rd, 2013 at 5:30pm by Tom Lydon
Growth-oriented exchange traded fund investors take on a good amount of exposure to tech giant Apple (NasdaqGS: AAPL).
“Apparently, what growth means varies very widely from ETF to ETF,” Melissa Brown, senior director of applied research at Axioma, said in an Institutional Investor article. “Basically, you’ve got two different definitions of growth. One is more stable growth, which would be steady and not extremely volatile. Then there’s the cyclical growth, where growth may be higher now but probably contains more volatility.”
Growth stocks typically see above-average earnings relative to the overall market. Additionally, these companies would hold back on dividends but reinvest retained earnings into capital projects. Most tech stocks fall under this category.
ETFs like the Vanguard Growth Index Fund (NYSEArca: VUG), Schwab U.S. Large-Cap Growth ETF (NYSEArca: SCHG) and SPDR S&P 500 Growth ETF (NYSEArca: SPYG) lean toward Apple. AAPL is 6.0% of VUG, 5.7% of SCHG and 6.1% of SPYG. [Tech ETFs Surging on Apple]
The Nasdaq-100 ETF PowerShares QQQ (NasdaqGM: QQQ), which has a 13.2% position in AAPL, has been recently outperforming the SPDR S&P 500 (NYSEArca: SPY), which has 3.1% in AAPL. QQQ gained 3.4% over the last three months while SPY was up 0.7%. However, the outperformance could be slowing, with the relative performance of the Nasdaq-100 to the Dow Jones Industrial Average beginning to level out, writes Greg Harmon for Dragonfly Capital.
On the other hand, some growth ETFS have no exposure to Apple due to the way the underlying indices are structured, including First Trust Large Cap Growth AlphaDEX Fund (NYSEArca: FTC), Guggenheim S&P 500 Pure Growth ETF (NYSEArca: RPG) and PowerShares Dynamic Large Cap Growth Portfolio (NYSEArca: PWB). For instance, RPG tilts toward momentum stocks that have done well recently.
In other tech-related news, Microsoft (NasdaqGS: MSFT) wants in on the mobile phone business, acquiring Nokia (NYSE: NOK) for $7.2 billion, Reuters reports. The bid is seen as an attempt to help promote the Windows Phone platform.
“Microsoft cannot walk away from smartphones, and the hope that other vendors will support Windows Phone is fading fast. So buying Nokia comes at the right time,” Carolina Milanesi, an analyst at Gartner, said in the Reuters article. “In today’s market it is clear that a vertical integration is the way forward for a company to succeed. How else could Microsoft achieve this?”
For more information on the tech sector, visit our technology category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own QQQ, SPY, AAPL and MSFT.
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.