Apple takes $4 billion bite out of ETFs

Devastating run has huge impact on investors following disappointing earnings report

There aren’t many companies that have an impact on ETF investors quite like Apple.

During the past two weeks alone, the company has wiped out in excess of $4 billion in ETF assets following a disappointing earnings report that led to a 16.3 per cent decline. According to a Bloomberg report, the impact of the announcement saw the SPDR S&P 500 ETF Trust take a $1 billion hit in just a few days: while millions of dollars also disappeared from several other popular ETFs.

It is reported that ETFs make up $26 billion in Apple stock – a slip from $30 billion two weeks earlier – around five per cent of the company’s shares outstanding. In fact the stock has more weighting in ETFs than China.

The large weighting of gigantic stocks is one reason why smart beta ETFs have grown in popularity, the Bloomberg report suggests. Smart beta allows for strategies that weight stocks on something other than market cap. As an example it points to the Guggenheim S&P 500 Equal Weight Technology ETF which weights all tech companies equally within the S&P 500 index. When Apple suffered its 16 per cent fall, therefore, there was barely any impact as the stock only carries a 1.3 per cent weighting – the same as all other tech stock.

Another ETF that was able to hold out well was the PowerShares DWA Technology Momentum Portfolio which only slipped by 1.9 per cent as it weights stocks based on their relative performance compared to their peers.

Of course, Bloomberg suggests that smart beta won’t always work out so well – but the Apple example gives a clear indication of why it has become an increasingly appealing alternative to investors.