Everyone wants a piece of Apple these days, but at $600 a share, it’s pricey. Exchange-traded funds with significant exposure to the tech giant may be a way for some investors.
“Technology ETFs have been great ways to take part in Apple's stellar run so far this year,” says Morningstar ETF analyst Robert Goldsborough.
About a dozen exchange-traded funds have exposure to Apple of 10 percent or more, according to ETF Database. Among them: Dow Jones U.S. Technology Index Fund , Focus Morningstar Technology Index ETF , Technology Select Sector SPDR , PowerShares QQQ , S&P Global Technology Index Fund , and Vanguard Information Tech ETF .
With price tags running from $30 to $80, as of Thursday afternoon, these ETFs are up about 20 percent so far this year. Apple shares are up 48 percent over the same period.
Notably, PowerShares QQQ, which has 16 percent exposure to Apple, has had $3.9 billion in new cash come in so far this year, according to Matt Hougan, president of ETF Analytics.
Although he sees this huge inflow of funds into QQQ as mostly an indication of investors’ confidence in the broader market, Hougan says there is some Apple overlay as well: “The Apple halo extending over the broader tech and markets rise.”
Hougan says investors who are thinking about using exchange-traded funds to play the Apple boom should ask themselves what they are really buying into: Is it “The technology renaissance? The mobile device boom? Or Apple's specific creativity, brand and ability to execute?” If the answer is one of the first two, ETFs are a good way to play it. If the answer is the last one, buy Apple stock, says Hougan.
Morningstar’s Goldsborough, who likes the idea of using tech ETFs to play Apple, says investors should keep in mind their relative lack of diversification.
“One of the whole points behind an ETF is the notion of getting a relatively diversified basket of names; these ETFs have become fairly top-heavy recently because of Apple's meteoric rise, and that obviously has removed some of the diversification benefits,” says Goldsborough.
According to Goldsborough, technology ETFs are suitable for either a short-term or long-term investment. “Despite Apple's run, tech is not especially richly valued right now, so one could envision owning one of these until it becomes fully valued (which could play out over six, nine, 12 or even 18 months),” says Goldsborough.
There are concerns that ETFS are too complex and risky for retail investors. But Hougan dismisses such concerns: “ETFs are inherently safer than buying a single stock. Apple's been an amazing investment, but it's neither cheap nor unknown at this point. I'd be worried about people buying closer to the top than the bottom. Single stocks can be very volatile, and no company dominates forever,” says Hougan.
Questions? Comments? Email us at email@example.com and follow me on twitter @kfrayter