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Is Apple Weighing Down Your Portfolio?

Apple posts June-Q operating EPS $1.85 that was ahead of our estimate by a penny though sales growth of 33% was below our forecast. While he maintained his 12-month target price of $150, S&P Capital IQ Equity Analyst Angelo Zino views negatively the iPhone and iPad shipments and thinks growth is likely to decelerate.

For example the September quarter's revenue guidance was below S&P Capital IQ consensus. However, the S&P Capital IQ Hold recommendation, reiterated this morning, is supported by the company's ample net cash balance ($26/share) and Zino's view of long-term prospects in China. Apple shares traded lower today following results.

S&P Capital IQ conducts holdings analysis to support our ranking of more than 800 equity ETFs. So Zino's qualitative view on Apple plays a meaningful role in our research of many ETFs. In addition, Apple has an S&P Capital IQ Quality Ranking of B+ and a high-investment-grade Standard & Poor's Credit Rating that impacts an ETF's risk considerations.

Apple is a top-10 holding in 98 equity ETFs according to S&P Capital IQ. Besides being the largest stock ETFs tied to the S&P 500 index like Vanguard 500 Index (VOO) and the Russell 1000 like iShares Russell 1000 (IWB), the technology giant is more heavily weighted in popular tech-laden products.

For example, it was 18% of assets in Technology Select SPDR (XLK), a market-cap weighted ETF that has some tech sector diversification to Microsoft (MSFT) and Facebook (FB). Yet it is heavily reliant on Apple and was dragged down amid the selloff.

For investors that want a more diversified technology ETF, an equal-weighted approach is worthy of attention. Guggenheim S&P 500 Equal Weight Technology (RYT) is one of them. It holds all the technology stocks in the S&P 500 in largely equal proportion regardless of market cap and rebalances quarterly. This means that Electronic Arts (EA) was recently a larger position at 1.8% than Apple (1.6%) despite having a market cap of just $23 billion or less than 5% of AAPL.

Of course equal weighting approaches work both ways and investors can miss out on gains achieved by some of the largest companies. For example, XLK has a sizable 9% stake in the Google share classes (GOOG) and (GOOGL).

Google jumped sharply last week after reporting stronger the expected results and subsequently S&P Capital IQ downgraded its recommendation on GOOGL to hold, from strong buy. RYT has a 2% stake.

Reports on these and other ETFs can be found here.

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