Tech ETFs: Watch Your Apple Weight

By ETFDatabase | January 24, 2013 AAA

Few sectors of the economy have proven to be Wall Street game changers over the years, as our highly interconnected global market sometimes leaves little room for uncorrelated returns. Technological innovation and development, however, is perhaps one of the most crucial corners of the market, as this industry continues to be one of thefew "growth" frontiers left in the economic landscape. But with such a high potential of lucrative returns, there is arelativelyhigh associated risk.While many other economic sectors, like healthcare and utilities, are associated with consistent returns given the relatively stable nature of their operations, the technology sector is far from predictable. But for those willing to stomach the risk, there are multiple ETF options that focus on this attractive sector . Whether you are looking for hyper-targeted exposure to nanotechnology or semiconductor stocks, or simply want to cast a wide net over the space, ETFs provide the ideal vehicle for easy and cost efficient access. A close look under the hood of these funds, however, reveals several factors investors should be mindful of.


Does Your ETF Have Too Much Apple?

Though many of the broad-based products offer a relatively deep breadth of holdings, there is one commonality found among almost all of the mega tech ETFs: Apple (AAPL). Allocations to this booming company range from as little as under 1% to a whopping one-fifth of a portfolio's total assets, meaning that the performance of these ETFs are highly dependent on a single stock. Thoughsignificanttilts towards Apple have certainly not harmed ETFs in recent years as the company continues to establish itself as a dominantpresencein the tech space any signs of trouble could have seriousramificationson bottom lines returns .

The table below highlights five of the most popular technology ETFs, revealing the closely tied relationship between Apple allocations, assets under management and performance history :

  • Technology Select Sector SPDR
  • Information Tech ETF
  • Dow Jones U.S. Technology Index Fund
  • S&P Global Technology Index Fund
  • Goldman Sachs Technology Index Fund

Though there is nothing inherently wrong with technology ETFs allocating a significant portion of assets to one of the top companies in the space, it is important for investors to realize the dependence of Apple in these popular broad-based funds.

Disclosure: No positions at time of writing

comments powered by Disqus
Related Analysis
  1. Is Canada’s Lagging Energy Sector A Good Bet?
    Stock Analysis

    Is Canada’s Lagging Energy Sector A Good Bet?

  2. ADP Report May Not Be Enough - Ahead of Wall Street
    Stock Analysis

    ADP Report May Not Be Enough - Ahead of Wall Street

  3. Technical Look At eBay Inc
    Stock Analysis

    Technical Look At eBay Inc

  4. Priming the Pump for Q3 Earnings - Ahead of Wall Street
    Stock Analysis

    Priming the Pump for Q3 Earnings - Ahead of Wall Street

  5. Traders Have Seen This Movie Before
    Stock Analysis

    Traders Have Seen This Movie Before

Trading Center