Shares of Apple (AAPL) fell more than 3% Monday on above-average volume, possibly indicating that investors are expecting disappointment when the world’s largest company by market capitalization delivers fourth-quarter results after the close of U.S. markets Tuesday.
Investors might also be buying into some sell-side analysts’ less-than-rosy prognostications that Apple will have difficulty meeting or topping December-quarter iPhone sales.
During the December quarter last year, Apple sold 74.5 million iPhones. This year, bullish analysts are forecasting 76 million iPhones will be sold during the December quarter.
However, other market observers see that assumption as too optimistic, making Apple earnings more about guidance than what the company has to say about the recently completed quarter.
Apple is the world’s largest company by market value — its market cap is $680 billion — so Apple earnings have wide-ranging impact across the exchange-traded funds landscape. Many of the largest ETFs on the market today are cap-weighted, meaning the funds’ components are ranked by market value. Due to the fact that Apple has the biggest market cap, it is the largest holding in a plethora of ETFs.
More than 90 ETFs feature some exposure to Apple, and about 10% of that group sport double-digit percentage allocations to the iPhone maker. Here’s a look at the most vulnerable.
AAPL ETFs: Powershares QQQ (QQQ)
A prime example of an ETF that could be affected by Apple earnings is the PowerShares QQQ (QQQ). QQQ, the NASDAQ-100 tracking ETF, has a 12.4% of its portfolio in Apple. That is not the largest Apple weight among ETFs, but with nearly $43 billion in assets under management, QQQ is easily one of the largest ETF that holds shares of Apple.
“Fragile” might be too hyperbolic in describing QQQ ahead of Apple earnings, but the ETF is in a sensitive position going into the AAPL report.
QQQ has surged 9.7% over the past month, but AAPL has gained only 1.2% over the same period. Additionally, QQQ’s recently impressive showing tops the S&P 500 by 280 basis points in that time. Much of that has to do with traders bidding up the likes of Amazon (AMZN) and Microsoft (MSFT), two stocks that combine for 13.3% of QQQ’s weight, in the wake of impressive earnings reports last week from those companies.
QQQ’s bullishness could be reversed if Apple earnings and guidance are not to investors’ liking. The ETF charges 0.2% per year, or $20 for every $10,000 invested.
AAPL ETFs: iShares Global Tech (IXN)
Another ETF that could be moved by Apple earnings is the iShares Global Tech ETF (IXN). Though overlooked relative to other Apple-heavy ETFs, IXN is by no means small, with $890 million in assets under management.
IXN is a also a credible AAPL proxy with a weight of 13.7% to the iPhone maker. That puts IXN in the upper echelon of ETFs with exposure to Apple. Investors should note that “global” in ETF parlance means funds that hold both U.S. and international stocks, though these ETFs are typically U.S.-heavy.
That is the case with IXN, as 78% of its 114 holdings are U.S. companies. Nine of the ETF’s top 10 holdings are American firms.
Geography aside, IXN faces Apple earnings with a comparable amount of vulnerability to QQQ. The iShares offering has surged 10% over the past month, buoyed by gains from Microsoft and Facebook (FB) while fighting off Apple’s lethargy and the inability of International Business Machines (IBM) to shed its laggard status.
IXN charges 0.47% a year, or $47 per $10,000 invested, which is pricey compared to U.S.-focused tech ETFs, including those with big weightings in AAPL.
AAPL ETFs: iShares U.S. Technology (IYW)
Sticking in the same fund family, the iShares U.S. Technology ETF (IYW) is the epitome of an ETF that could be affected, for better or worse, by Apple earnings. IYW’s 18.6% weight to AAPL is the largest among ETFs trading in the U.S.
In fact, IYW’s AAPL is almost 20% bigger than the ETF with the second-largest Apple weight.
Fortunately, IYW’s exposure to Microsoft and Facebook (combined weight of about 18%) has recently been an asset, as those stocks are up 25.3% and 16.3%, respectively, over the past month. But it’s possible that those stocks are now overextended. Combine that with the potential for Apple earnings to disappoint, and IYW could be in a precarious spot over the next several days.
IYW’s annual fee is 0.43%, or $43 per $10,000 invested.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
