Worried About Apple? Here's How to Protect Your Portfolio

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Apple closed Monday with its worst five-day losing streak in more than three years, falling 8.8 percent over that period. The stock also ended down 9.9 percent from its record intraday high of $644 on April 10.

Although the stock has recovered some of its losses Tuesday, where can investors turn if they want to protect themselves from a continued Apple downturn?

Equal-Weight Investing

Equal-weight exchange-traded funds give the same weight to each holding in the index, rather than assigning weightings based on other fundamentals such as market cap , stock price and revenue.

Apple’s surge over the past months has been a blessing for indexes such as the Nasdaq 100 and the S&P 500 Tech sector — the tech giant has had a large impact on those indexes due to its strong price performance and disproportionate weighting.

In fact, Apple makes up nearly 18 percent of the Nasdaq 100 and almost 22 percent of the S&P 500 Tech sector. That’s advantageous to the indexes when Apple’s stock goes up, but it can be a curse when Apple sees long-term weakness.

So if Apple’s drop in the past week is indeed the start of more struggles ahead, equal-weight investment products can be an option for investors to help mitigate the impact of any potential significant decline in the stock.

Apple’s impact in an equal-weighted ETF are drastically reduced. For example, in an equal-weighted Nasdaq 100 ETF, Apple’s weighting would be just 1 percent compared to 18 percent in the adjusted market cap-weighted Nasdaq 100.

Since there are 71 stocks in the S&P 500 Tech Sector, Apple would have a 1.4 percent weighting in an equal-weighted ETF based on the S&P Tech sector versus 22 percent in the normal, market cap-weighted index.

Theoretically, equal-weighted ETFs would outperform the corresponding market cap-weighted ETFs if Apple’s stock continues to steadily drop. However, those equal-weighted ETFs would underperform if Apple rose.

The market cap-weighted ETFs PowerShares QQQ and the Technology Select Sector SPDR are some of the most popular ETFs around. But investors could turn to equal weight alternatives such as the Direxion Nasdaq-100 Equal Weighted Index Shares and First Trust Nasdaq-100 Equal Weight Index Fund (both for the Nasdaq 100) and the Guggenheim S&P 500 Equal Weight Technology ETF (for the S&P Tech sector) to protection against more downside pressure on Apple’s stock.