The growth in popularity of exchange-traded funds, known simply as ETFs, is no secret. What investors may be less aware of, however, is which stocks are the most popular among ETF holdings, and thus most likely the top candidates to drive the bulk of ETF performance. While unaware, investors will likely not be surprised that the top 10 holdings, as measured by total market value owned, across the ETF universe include Apple Inc. (AAPL), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Facebook Inc., Class A (FB), Exxon Mobil Corp. (XOM), JPMorgan Chase & Co. (JPM), Alphabet Inc., Class C (GOOG), Alphabet Inc., Class A (GOOGL), Johnson & Johnson (JNJ) and Berkshire Hathaway Inc., Class B (BRK.B), according to ETF.com.
Top 10 ETF Holdings
(Ranked by Total Market Value Owned)
|Stock||Total Market Value (billions)||Total Market Value Owned (billions)||Avg. Market Value Owned (millions)|
|Facebook, Class A||$519.8||$25||$121.6|
|Alphabet, Class C||$863.6||$21.3||$142.8|
|Alphabet, Class A||$862.8||$20.4||$115.9|
|Johnson & Johnson||$349.3||$20.8||$100.2|
Source: Yahoo! Finance, ETF.com
While Apple takes the number one spot with total market value owned by ETFs of $58.9 billion, it is interesting to note that combining both Class A and Class C shares of Alphabet gives the shares of Google’s parent company the number one spot based on average market value owned, with a combined value of $258.6 million.
Tech Stocks Dominate
In light of conventional wisdom that a well-diversified portfolio provides the best protection against idiosyncratic risk, the fact that six tech stocks—all of the FAANG stocks, including both classes of Alphabet shares, minus Netflix, plus Microsoft—make up the top 10 holdings in ETF portfolios might be reason for investors to take a second look at their overall holdings. While the tech sector has been hot over the past decade, a market downturn could see that heat cool off, causing ETFs to follow the fate of their massive tech-sector holdings. (To read more, see: 6 Reasons Why the Tech Bull Market May End.)
Of course, the other four of the top 10 holdings are much more reassuringly diversified, ranging from the pharmaceutical and (Johnson & Johnson) energy sectors (Exxon Mobil) to banking (JPMorgan) and a diversified multinational holding company (Berkshire Hathaway). Johnson & Johnson and Exxon Mobil, however, unlike the tech stocks above, have been underperformers in recent years.
While ETFs tend to be thought of as more passive, plain vanilla type investments, which track a popular market index like the S&P 500 or Dow Jones Industrial Average, they actually employ a number of different investment strategies. Along with the plain vanilla strategy, the top 10 stocks among ETF holdings are also used in multifactor and active investment strategies. (To read more, see: Exchange-Traded Funds: ETF Investment Strategies.)
Both Apple and Exxon Mobil are most commonly used in a multifactor strategy, which selectively picks stocks with exposure to predetermined factors, such as by overweighting towards growth or value stocks. Among active investment strategies, where an investment manager is constantly involved in buying and selling stocks in order to exploit profitable market conditions, Amazon, Facebook, JPMorgan and Alphabet C shares appear to be the most popular.