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Apple Teaches Another Lesson In ETF Weighting

Summary Apple’s stock price fell in response to disappointing numbers. Due to its large market capitalization, the company’s moves will affect sector ETFs, notably those that track the tech industry. Alternatively, investors can use ETFs that track equal-weight methodologies to diminish the effect AAPL has on a tech sector investment. By Todd Shriber & Tom Lydon Shares of Apple (NASDAQ: AAPL ) fell 4.3% Wednesday, and at one point during the session, the iPhone maker was lighter by $60 billion in market value, after the company “disappointed” Wall Street by reporting that fiscal third-quarter profit rose “slightly” to $10.7 billion from $7.74 billion on revenue of “just” $49.61 billion. Apple’s Wednesday woes are, predictably, having a dour effect on the exchange traded funds that feature heavy allocations to the iPad maker. For example, the Technology Select Sector SPDR ETF (NYSEARCA: XLK ), the largest technology ETF by assets, has an almost 18% weight to Apple, enough to have the fund trading lower by 1.5% today. XLK’s Wednesday decline, and those of rival technology ETFs with significant Apple weights, reminds investors of the potential dangers of owning a fund with large weights to just one or two stocks. “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 S&P 500 ETF (NYSEARCA: VOO ) and the Russell 1000 like the iShares Russell 1000 ETF (NYSEARCA: IWB ), the technology giant is more heavily weighted in popular tech-laden products,” according to S&P Capital IQ. The PowerShares QQQ Trust ETF (NASDAQ: QQQ ), the NASDAQ-100 (NDQ) tracking ETF, entered Wednesday with a roughly 14% weight to Apple, enough to send that ETF lower by more than 1%. The $2.9 billion iShares U.S. Technology ETF (NYSEARCA: IYW ) is perhaps the epitome of an “Apple ETF” with a 20.9% weight (as of July 21) to the stock. That big Apple weight was enough to drag IYW lower by almost 2% yesterday. As S&P Capital IQ notes, there are ways to maintain tech sector exposure via ETFs while mitigating Apple or any other single stock risk. The First Trust NASDAQ-100 Equal Weight Index ETF (NASDAQ: QQEW ) and the Direxion NASDAQ-100 Equal Weighted Index Shares ETF (NYSEARCA: QQQE ) are equal-weight alternatives to QQQ. No stock accounts for more than 1.2% of QQEW’s weight and QQQE had 1% weight to its constituents at the end of the second quarter, according to issuer data . Those ETFs lost about a third of a percent yesterday. The rub is that when Apple performs well, QQQE and QQEW will lag QQQ. Even with Wednesday’s slide, Apple is up more than 13% this year, helping QQQ to a 9% gain, better than double the returns of QQQE and QQEW. The $954.2 million Guggenheim S&P Equal Weight Technology ETF (NYSEARCA: RYT ) has a weight of less than 1.6% to Apple. That is less than the ETF’s weight to Facebook (NASDAQ: FB ), eBay (NASDAQ: EBAY ) and Visa (NYSE: V ). S&P Capital IQ has market weight ratings on QTEW and RYT. Direxion NASDAQ-100 Equal Weighted Index Shares ETF (click to enlarge) Tom Lydon’s clients own shares of Apple, Facebook and QQQ. Disclosure: I am/we are long QQQ, AAPL, FB. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Oracle Q4 Disappoints: 3 Tech ETFs To Watch

Tech bellwether Oracle (NYSE: ORCL ) reported lackluster fourth-quarter fiscal 2015 results (ending in May) after the closing bell on Wednesday. The company missed the Zacks Consensus Estimate for earnings and revenues due to negative currency translations and sagging traditional software sales. Oracle Q4 Earnings in Focus Earnings per share came in at 74 cents, lagging the Zacks Consensus Estimate by 8 cents. Revenues declined 5% year over year at $10.7 billion and were well below our $10.95 billion estimate. While the company’s shift to the Web-based cloud computing business is paying off, the gains are unlikely to make up for the declines in the software business. Additionally, a strong dollar remain as a headwind to the company’s performance. Excluding the impact of unfavorable currency rates, revenues would have risen 3%. Cloud software platform sales climbed 29% from the year-ago quarter and accounted for 4% of total revenue. Oracle will continue to benefit from the new generation of cloud computing and Big Data and steal market share from Salesforce.com Inc. (NYSE: CRM ), the only major software company competing in the cloud segment. For the fiscal first quarter, the world’s largest database software maker expects revenues to grow in 5-8% range in constant currency and earnings per share between 56 cents and 90 cents. The midpoint of the earnings guidance is well above the Zacks Consensus Estimate of 58 cents. Based on earnings and revenue miss, Oracle shares tumbled as much as 7.1% in after-hours trading. The sluggish trading is expected to continue in the days ahead given that the stock has a Zacks Rank #4 (Sell) and a poor Zacks Industry Rank in the bottom 34% at the time of writing. ETFs in Focus Given this, ETFs with the highest allocation to this software giant will be in focus in the days ahead. Investors should closely monitor the movement in these funds and avoid these if the stock drags them down: iShares S&P North American Technology-Software Index Fund (NYSEARCA: IGV ) This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 57 securities with Oracle taking the third spot at 8.47% of total assets. It is quite popular with AUM of over $1.2 billion while volume is moderate as it exchanges nearly 99,000 shares a day. The product charges 47 bps in annual fees and has gained about 10.4% so far this year. IGV has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. First Trust NASDAQ Technology Dividend Index Fund (NASDAQ: TDIV ) This fund provides exposure to the dividend payers within the technology sector by tracking the Nasdaq Technology Dividend Index. The product has amassed about $692.7 million in its asset base while trades in volume of around 171,000 shares per day. The ETF charges 50 bps in annual fees. In total, the fund holds about 110 securities in its basket. Of these firms, ORCL takes the sixth position, making up roughly 4.3% of the assets. In terms of industrial exposure, the fund allocates one-fifth portion in semiconductor and semiconductor equipment, followed by technology hardware, storage & peripherals (16.6%) and software (16.5%). The fund is relatively flat so far this year. iShares Dow Jones U.S. Technology ETF (NYSEARCA: IYW ) This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 139 stocks in its basket with AUM of $3.1 billion while charging 43 bps in fees and expenses. Volume is moderate as it exchanges nearly 531,000 shares in hand a day. Oracle takes the ninth spot in the basket with nearly 4% of assets. The product is heavily skewed toward the software and services segments, as these make up for just less than half of the portfolio. Tech hardware and equipment, and semiconductors and semiconductor equipment take the remaining portion in the basket. The fund has added nearly 4% in the year-to-date time frame and has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook. Original Post

Funds Experience $2.8 Billion In Aggregate Net Outflows

By Patrick Keon The positive performance by the indices came on the heels of negative performance by both for the month of January. The Dow was off 3.6% for the month, while the S&P 500 retreated 3.1%. It was the worst monthly performance for each index since January of last year. A contributing factor to this January’s poor performance as well as the bounce at the start of February was oil. Slumping oil prices caused by oversupply had weighed on the markets. But last week sentiment on the street suggested oil prices may have bottomed, and the demand for energy stocks was the driving force behind the markets’ rally. In this past week’s fund-flows activity, Lipper’s fund macro groups had overall net outflows of $2.8 billion. Money market funds (-$9.9 billion) and equity funds (-$7.1 billion) paced the way for the net outflows, while taxable bond funds (+$13.7 billion) accounted for the lion’s share of the net inflows. Municipal bond funds took in $589 million net for the week. The net inflows into taxable bond funds were split between those to exchange-traded funds (ETFs) (+$8.6 billion net) and mutual funds (+$5.1 billion). On the ETF side, investors were buying iShares Short Treasury Bond ETF ( SHV , +$2.0 billion), iShares 7-10 Year Treasury Bond ETF ( IEF , +$1.3 billion), and iShares 3-7 Year Treasury Bond ETF ( IEI , +$927 million). For mutual funds, Lipper’s Core Plus Bond Funds classification led the way with positive flows of $2.3 billion. Equity ETFs (-$5.7 billion net) accounted for the bulk of the equity outflows, while equity mutual funds saw $1.5 billion leave. SPDR S&P 500 ETF ( SPY , -$2.2 billion) and iShares US Technology ETF ( IYW ,-$1.2 billion) experienced the biggest outflows among the ETFs. Net outflows on the mutual fund side were fairly evenly split between non-domestic equity (-$869 million) and domestic equity (-$608 million) funds. Municipal bond mutual funds took in $422 million net during the week. Once again, funds in the national municipal categories (+$464 million) were the main recipients of the positive flows. Lastly, money market funds saw their coffers reduced by $9.9 billion net during the week. Institutional money market funds (-$6.4 billion) were responsible for the bulk of the outflows. Are you Bullish or Bearish on ? Bullish Bearish Neutral Results for ( ) Thanks for sharing your thoughts. Submit & View Results Skip to results » Share this article with a colleague