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Three ETFs with the Most Apple Exposure

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Apple Inc, (AAPL - Free Report) ), has been stealing the headlines recently, thanks to a series of events surrounding the world’s most valued company. First, the patent case against arch rival Samsung Electronics was ruled in favor of Apple, and secondly, the launch of its much awaited iPhone 5 in mid-September has kept the company in the limelight.

Although the new iPhone 5 has been viewed with skepticism by most tech experts due to lack of major differentiation compared to its predecessor iPhone 4S, the launch has triggered massive excitement among customers loyal to the Apple brand (read Three ETFs to Play the Tech IPO Boom).

With orders for around two million handsets booked within the first day itself, Apple Inc’s stock has flown near the $700 mark around its all time high levels. At the current market price, its shares are currently trading at a somewhat elevated P/E ratio but still a rate that is quite reasonable given its impressive growth prospects.

Yet as Warren Buffett once said, ‘it is not about buying fair companies at a great price, but great companies at a fair price’ and Apple seems to still be a great example of this. This could be especially true if the company gets a solid boost from the latest iPhone launch and if the firm is able to stave off competition in its highlight lucrative iPad segment (see Why SSDD Is the Top Tech ETF).

Also, the launch of its much awaited iPad Mini is expected to strengthen its foothold in the market for tablets. Traditionally, Apple Inc’s products were targeted mostly towards the high and middle end customers; however, the iPad mini seeks to cater to the needs of those with slightly less to spend on the discretionary front, potentially opening up the company to an even greater user pace.

Nevertheless, investors who still remain skeptical about Apple Inc’s further upside but want a slice of this great company may want to try out the exchange traded fund (ETF) route. We have highlighted three technology ETFs which have the largest exposure to Apple but provide a diversified play on the overall sector as well.

The iShares Dow Jones US Technology ETF (IYW), Technology Select Sector SPDR ETF (XLK) and Vanguard Information Technology ETF (VGT) have 24.38%, 20.29% and 19.1% allocation to Apple Inc., respectively.

The following table compares the performance of these three ETFs with that of Apple Inc, on a one year basis from a risk return tradeoff point of view.

Table 1 (Data as of 13th September, 2012)



Year Till Date Returns

1 Year Returns

Risk (Annualized Standard Deviation)

% of times Correlation more than 0.70 with Apple’s Stock Price Performance





















While it is true that exposure to Apple Inc only, would have generated much more than the ETFs, as the stock comfortably outperforms its ETF followers (read Three Great Tech ETFs That Avoid Apple). However, investing in Apple’s stock would have required an above par risk appetite as it has undergone far more variations in its returns than the ETFs as reflected by their annualized standard deviations.

These are certain characteristics that investors could keep in mind while trying to choose between the individual stock and the ETFs. However, taking a closer look reveals that major differences may not exist between them.

It is important to note, over the past 20 months, the one month rolling correlation of the price performance of IYW bears a correlation of more than 0.70 with the price performance of Apple’s stock price 63% of times. The percentage stands at 59% for VGT and 61% for XLK (see Table 1).

This means that majority of the times, the price performances of these ETFs has a strong correlation with that of Apple Inc. This is especially noteworthy considering the fact that these ETFs hold other S&P 500 heavyweights like Microsoft Corp, IBM Corp and Google Inc in their portfolio (see Zacks # 1 Rank Technology Sector ETF - Vanguard Information Technology ETF).

Therefore it is prudent to note that for more conservative investors have a below par risk tolerance, can easily reap the benefits of being invested in the company through any of these three highlighted ETFs, mainly thanks to their strong correlation with the company. At the same time, it reduces company specific risk which could result in erosion of invested capital arising from sell offs in the individual firm.

VGT and XLK charge investors 0.19% and 0.18% in fees and expenses. Contrary to this, IYW charges investors a hefty fee of 47 basis points annually. VGT, the youngest of these three ETFs, has been able to amass $2.65 billion in total assets. On the other hand, IYW has the least amount of total assets ($1.93 billion) among the three, mainly thanks to the hefty premium that it charges (see more in the Zacks ETF Center).

However, compared to VGT and IYW, XLK has the biggest asset base of $10.48 billion. Its core focus on the largest technology companies coupled with a low expense ratio has enabled XLK to win investor confidence. Also, XLK has the largest Average daily volume of 8.8 million shares, compared to roughly 185,000 shares for VGT and approximately 186,000 shares for IYW.

In terms of total number of holdings VGT holds the maximum number of securities. It has a portfolio of 416 stocks. IYW also has a fairly large portfolio of 152 securities. However, XLK holds a concentrated portfolio of 81 biggest technology stocks from the S&P 500 (see Two Telecom ETFs Outperforming the S&P 500).

In terms of dividend yield, all three ETFs pay out paltry yields. VGT, XLK and IYW have yield of 0.67%, 1.34% and 0.58% respectively, suggesting that while any of the three have strong holdings in Apple, they don’t offer much as a yield destination.

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