The war of words between Apple Inc. (NASDAQ:AAPL) and the European Union got hotter Monday when the EU released a 130-page transcript of its Aug. 30 decision requiring Ireland to recover $14 billion in uncollected income taxes plus interest from the maker of iPhones.
Owners and prospective owners of AAPL stock can’t be too amused by the EU’s meddling, which could seriously alter its after-tax profits in the future.
While both Apple and the Irish government will appeal this decision, it’s hard to feel sorry for a company that over the past decade has paid approximately 3.8% on $200 billion in overseas profits.
Back in September, Apple CEO Tim Cook called the EU decision “total political crap” suggesting both the company and Ireland were being picked on.
“I think that Apple was targeted here,” Cook said about the decision. “I think that [anti-U.S. sentiment)] is one reason why we could have been targeted.
“I think we’ll work very closely together, as we have the same motivation. No one did anything wrong here and we need to stand together. Ireland is being picked on and this is unacceptable.”
Basically, Apple feels that it has paid its fair share of taxes to Ireland — $400 million in 2014 alone. However, page 24 of the EU’s decision said that Apple paid $3.4 million, or just 0.005%, in tax in 2014 on $68 billion in revenue.
“Member States cannot give tax benefits to selected companies — this is illegal under EU state aid rules,” said Margrethe Vestager, the EU’s commissioner in charge of competition policy August 30. “If my effective tax rate was 0.05%, then falling to 0.005%, I would have the feeling that maybe I should have a second look at my tax bill.”
Clearly, there is no love lost between the two sides and this is just going to get nastier.
How to Play AAPL Stock
So, given the absolute uncertainty facing AAPL profits, not to mention the fact Apple has got no new products coming down the pipeline that will light a fire under revenues, it might be wiser to consider some alternatives to owning Apple stock directly; at least until Trump decides to eliminate corporate taxes or at least lowers them to a level similar to Ireland’s 12.5%.
Exchange-traded funds are the answer.
There are nine tech ETFs with an AAPL stock weighting of 10% or more, four of which have assets under management of $1 billion or more. Those of the ones I would focus on.
For those looking for cheap management expense ratios, either the Vanguard Information Technology ETF (NYSEARCA:VGT) or the Technology SPDR (ETF) (NYSEARCA:XLK) make sense at 0.14%.
If you’re looking for the biggest weighting in Apple stock, then you go with the iShares Dow Jones US Technology (ETF) (NYSEARCA:IYW) with just under 16% invested in the Cupertino mega-cap.
Now, if you want global exposure to technology while also getting your fix from AAPL stock, you’ll want to invest in the iShares S&P Global Technology Sect.(ETF) (NYSEARCA:IXN) which has Apple as its number one holding in the 111-stock portfolio at 11.9%. Not too geographically diverse with 79% invested in the U.S., it’s definitely the most expensive option at 0.47%.
And if you want the biggest ETF in terms of assets under management, you go with the XLK.
While they’re all good choices, ultimately, I would go with the XLK because of its liquidity. It trades more than 10 million shares on a daily basis, more than 26 times the volume of the VGT, the next biggest ETF in terms of assets under management at $10.3 billion.
AAPL stock is still one of the best tech stocks to own in my opinion. However, the uncertainty of its tax situation suggests investors err on the side of caution by purchasing one of the four tech ETFs instead.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
