It's amazing just how fast Wall Street can turn on a firm. Once known as the market's stock that could do no wrong, tech company Apple (Nasdaq:AAPL) - and its investors - are finding out the hard way what happens when momentum falls off the cliff. As Apple is reporting less-than-expected earnings and lower sales numbers, institutional investors have begun dumping the company in spades, and shares of the tech giant have plunged from $700 a share all the way down to the $450 mark.

The problem is that more than just direct Apple shareholders have been punished by the firm's 40% drop from the peak it reached last fall. The tech company is one of the largest holdings of many exchange traded funds (ETFs), as well as mutual funds and other investment vehicles.

With uncertainty still plaguing the Cupertino, Calif. firm, investors in a variety of funds could be in for a bumpy ride.

Top Investment Trends For 2013: We go over a few investment trends for you to think about for 2013.

Twenty-Three Percent
You may not have directly purchased shares, but odds are you own Apple stock somehow.

Like it or not, as a former "world's largest company" crown-wearer, the tech stock is everywhere. According to fund industry researcher Lipper, roughly 23% of all equity funds hold Apple shares. That means the company can be found in not only domestic and tech sector funds, but also global- and international-based funds. Even some of the funds specializing in managed futures or alternatives have exposure to the iPad maker. This works out to be roughly 1,120 different funds as of its most recent portfolio reporting. What's scarier is that slightly more than one in 10 funds have at least 10% of their total assets in Apple stock.

Investors in ETFs are particularly vulnerable. As Apple grew in size and market cap, it continued to climb to the top of many indexes' top holdings. The worst offender for overexposure to Apple could be the popular PowerShares QQQ (Nasdaq:QQQ), which has a shocking 18.2% weighting in Apple. According to Lipper, the Qs - or Cubes, as it is nicknamed - has fallen 5% since Apple's peak.

It's easy to understand how a tech-oriented fund has too much exposure to Apple, but what about value- or dividend-focused funds? Apple is in there too. For example, the new FlexShares Morningstar U.S. Market Factor Tilt Index ETF (ARCA:TILT) - which over-weights value stocks in a total stock market index -counts the tech firm has its largest holding. Have a broad-based global ETF like the SPDRMSCI ACWI IMI (ARCA:ACIM) as a core holding? Apple is the second-largest holding in that fund. Overall, Apple accounts for roughly 4% of total ETF float.

The abject lesson here is that the tech firm finds its way into many investors' portfolios without them even knowing it.

SEE: 3 Ways To Indirectly Invest In Apple

Is It a Problem and What to Do
Given that it's everywhere - this article doesn't even look at Apple exposure in actively managed funds - the question for investors could be, "Is too much Apple a bad thing?" The answer isn't so simple. As it was growing, Apple's rising share price did wonders for investors. Performance for the tech sector in 2012 would have been flat if it wasn't for Apple's returns. Now we are seeing the reverse of those trends. The S&P 500 is up nearly 8% year to date, but its results would be much better if Apple was excluded. So it cuts both ways. Over the long term, it might not matter. At one time - back in the 1980s - IBM (NYSE:IBM) actually accounted for more of the S&P 500 than Apple did at its peak. Its shares rose and fell, yet the index has been resilient over time. So for broad-index ETF investors, the answer might be to do nothing.

For those in the tech world, high concentrations in funds like the iShares Dow Jones U.S. Technology Sector ETF (ARCA:IYW) could continue to prove to be dangerous. For these investors, an equal-weighted tech ETF like the Direxion NASDAQ-100 Equal Weighted ETF (ARCA:QQQE) or Guggenheim S&P 500 Equal Weight Technology ETF (ARCA:RYT) prevent Apple from gaining too much exposure in their indexes and balances out all the tech players.

SEE: A History Of Apple Stock Increases

The Bottom Line
While you may not directly own it, odds are your ETF has some Apple exposure in it. That hasn't been a problem, as shares have risen over the last few years. However, with issues beginning to show themselves, that exposure could be a source of underperformance in the months ahead.

At the time of writing, Aaron Levitt did not own any shares in any company mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: iShares Asia 50

    Read more about BlackRock's iShares Asia 50 Fund, an ETF that follows the four "Asian Tiger'' nations plus China.
  2. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  3. Mutual Funds & ETFs

    ETF Analysis: WisdomTree International LargeCp Div

    Learn more about the WisdomTree International LargeCap Dividend fund, an income-based international equities ETF that focuses heavily on the United Kingdom.
  4. Mutual Funds & ETFs

    ETF Analysis: United States Gasoline Fund

    Learn about the United States Gasoline Fund, the characteristics of the exchange-traded fund, and the suitability and recommendations of it.
  5. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  7. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  8. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Cali AMT-Free Muni Bond

    Learn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!