As Stock Falls, Apple ETFs Aren't Too Worried

Shares of Apple Inc. AAPL, the world's largest company by market value, are off nearly 9 percent over the past month and Tuesday's loss, just under 3 percent at this writing, comes after Apple violated its 200-day moving average and pre-earnings low on Monday. 

That says Apple is experiencing ominous downside follow through and a close in the red would extend the stock's losing streak to five days. Surprisingly, Apple's almost 9 percent tumble over the past month is not pressuring the exchange traded funds with large weights to the iPhone maker's shares. ETFs such as the Technology Select Sector SPDR XLK and the PowerShares QQQ QQQ have been remarkably resilient in the face of Apple's recent struggles.

Just look at XLK, the largest and most heavily traded tech ETF. Even if the half percent loss the ETF has at this writing holds for the rest of the day, XLK will still be sporting a one-month gain of about 1 percent.

XLK entered Tuesday with a 16.5 percent allocation to Apple, about 735 basis points larger than what the ETF devotes to Microsoft Corporation MSFT, its second-largest holding.

“What does this all mean exactly? It indicates to us that other names and/or sectors are holding the fort so to speak, but the sheer weight of AAPL given its hefty market cap implications not only in the SPX and NDX but other indices undoubtedly are feeling the pressure here as something has to give at some point,” said Street One Financial Vice President Paul Weisbruch in a note out Tuesday. 

“NDX” in that quote refers to the Nasdaq-100 Index, the underlying index for QQQ. QQQ is a cap-weighted ETF that holds only Nasdaq-listed stocks, so it's not surprising that the ETF has an Apple weight of nearly 13 percent, well above the 7.2 percent allocated to Microsoft.

What might be surprising is QQQ's one-month gain of over 3 percent. That says QQQ is being supported by the likes of Amazon.com, Inc. AMZN and its myriad biotech holdings. However, if traders were to dump Internet and biotech names while continuing to do the same to Apple, it is unlikely the Nasdaq Composite, NDX and QQQ could endure that storm. 

“It is hard for us to believe that the stock with the largest market capitalization in the world, covered by what is likely hundreds of analysts on the buy and sell side, would trade this inefficiently in the short term, for the stock ran up about 11% from early July into its quarterly earnings release only to give back all of those gains and then some in a matter of about two weeks,” added Weisbruch.

The iShares U.S. Technology ETF IYW has also been sturdy in the face of Apple's decline. With Tuesday's loss, IYW is looking at a one-month gain of about 0.5 percent, the worst of the ETF's mentioned here.

Figuring out why IYW has been the worst of three ETFs highlighted here is easy: The ETF has a nearly 19.6 weight to Apple. Not only is that almost 900 basis points more than it allocates to Microsoft, it also means IYW has the largest Apple of any large, somewhat well-known ETF.