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Apple's Bear Crash Is Biting These ETFs

Apple's Bear Crash Is Biting These ETFs

Shares of Apple Inc. (NASDAQ: AAPL), still the largest U.S. company by market value, fell 6.1 percent on Friday and have tumbled more than 15 percent over the past month. That puts the iPhone maker's stock well into correction territory.

Actually, by the strictest definition of a correction, which is a 10 percent decline, Apple has treated investors to a correction and a half. In a scenario investors in exchange traded funds became unfortunately familiar with during Apple's nasty 2012 correction, plenty of well-known ETFs are incurring damage largely attributable to Apple's fall.

This is not going to be a treatise on the merits of equal weighting versus the drawbacks of ETFs that weight components by market value. Each methodology has its advantages and disadvantages, but the disadvantages of cap-weighted sector ETFs come to light when marquee stocks such as Apple hit the skids.

Such is life for the Technology Select Sector SPDR (NYSE: XLK), though XLK is far from the only Apple ETF offender. As a cap-weighted tech ETF, XLK allocates a disproportionate share of its weight to Apple.

The iPad maker was 16.2 percent of XLK's weight entering Friday, 700 basis points more than the ETF devotes to Microsoft Corp. (NASDAQ: MSFT), its second-largest holding.

Don't worry about whipping out a calculator or abacus to figure out the impact of Apple's slide on XLK. The ETF has slumped 7 percent over the past month.

Though it tempts with its 0.12 percent expense ratio, tying it for least expensive among tech ETFs, the Vanguard Information Technology ETF (NYSE: VGT) has not been anything to write home about, either.

Vanguard does not update its holdings on a daily basis like other ETF issuers, but data shows VGT had a 16 percent Apple weight at the end of July. That has been enough to send VGT lower by 7.6 percent over the past month.

So, the bottom line here is the larger an ETF's weight to Apple, the more vulnerable the fund is to that stock's whims. The iShares U.S. Technology ETF (NYSE: IYW) came into Friday with a 19.3 percent Apple allocation, or 830 basis points more than its weight to Microsoft. That is enough for a one-month decline of about 8.2 percent.

IYW has lost $69 million in assets over the past month, but -- surprisingly -- just over the same amount has flowed into VGT while Apple has been struggling. XLK has bled nearly $549 million over the same period.


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