A wholesale outflow from Apple-heavy ETFs occurred in anticipation of their earnings update earlier this week – investors pulled almost $487 million out of XLK, a Technology Select Sector SPDR Fund on the NYSE and the largest ETF in terms of assets, for example. Perhaps most alarming is that these departures have occurred even though XLK is currently hovering near 15-year highs. Apple’s stock fell to about $120 a share during after-hours trading Tuesday night due to fears regarding demand for its high-end smartphones in the fourth quarter, despite sliding past earnings estimates in Q3.
Chris Casano, analyst at Susquehanna Financial, sought to mitigate concerns regarding demand for Apple’s marquee product, noting that only about twenty percent of iPhone users have upgraded to the iPhone Six, a positive indication for sales in Q4. In addition, Apple’s success in China – it more than doubled its year-over-year sales in high-end smartphones – proves that the product is equally viable in emerging markets.
So why are investors dropping ETFs with plenty of Apple weight? Simple: expectations.
Daniel Ernst, senior analyst at Welch Capital, thinks that investors have mispriced the California-based company. “This is not a tiny company,” he said. “Revenues grew thirty-three percent year-over-year. This isn’t like Microsoft, which was down five percent year-over-year. This is up thirty-three percent; I mean, incredible numbers.”
Perhaps most illuminating was Ernst’s observation that “[Apple] stock has always been more volatile than its earning progression.”
In light of this, advisers might encourage clients invested in Apple-heavy ETFs to buck the trend and hold tight. This Apple, it seems, is not rotten to the core.