How Exposed are You to Apple?

Apple Inc. (AAPL) now has a market capitalization of more than $750 billion. That makes Apple easily the largest company, not only today, but of all-time. The next largest publicly traded company is Exxon Mobil Corporation (XOM) which has a market cap of $377 billion. That makes Apple just a mere $4 billion shy of being twice the size of the next largest company in the world.

With Apple's history of stock price appreciation and overall market crushing returns, and no real signs of slowing down when it comes to its business, it is understandable that a large number of money managers own shares of the company in theirs funds. But, what is interesting is the size that Apple represents in a large number of ETF's available to investors.

It is understandable that Apple is the largest holding in sum funds. For example Apple represents 3.89% and 3.87% in the SPDR S&P 500 ETF (SPY) and the Vanguard S&P 500 ETF (VOO) respectively, which are designed to mirror the make-up and performance of the S&P 500 index. Therefore since Apple is twice the size of the next largest company, it explains why it is double to size of Exxon in those ETF's.

Another fund Apple represents a large portion, which in a way makes sense, is the iShares Russell 1000 (IWB) where Apple accounts for 3.44% of the portfolio while Exxon amounts to 1.83% and Microsoft (MSFT) is 1.63%. But, even with this fund, Apple which is 1 of 1,000 companies within the fund represents 3.4% while the other remaining 999 companies only account for 96.6%. Furthermore the iShares Russell 3000 (IWV), which tracks 3,000 different companies has 3.19% of its assets in Apple and 96.8% in the other 2,999 companies.

Maybe a little lop-sided? Yes, but again these fund tracks the Russell 1000 and 3000 indexes and since most indexes are market cap weighted, the large Apple stake doesn’t seem too out of place.
Problem is, most funds don’t have the excuse that they must follow the index.

The Vanguard Mega Cap ETF (MGC) has 4.41% of its assets in Apple while Exxon represents 2.38% and Microsoft is 1.92% of the portfolio. The Vanguard Mega Cap Growth ETF (MGK) is even worse with 9.8% of its assets tied up in Apple while Coca-Cola Company (KO), the funds second largest holding, represents just 2.3% of the fund.

The love for Apple and its overweighting in ETF's doesn’t stop with just large or mega cap funds. Now that Apple pays a dividend, money managers who for years couldn’t buy the stock because it didn’t qualify for their funds restrictions now can, and some certainly love to. The WisdomTree Large Cap Dividend ETF (DLN) has allotted 3.47% of its assets to Apple, which falls in at second, just behind Exxon's 3.48%. What is interesting about this is that while Apple does pay a dividend, its current yield is only 1.5%, compared to Exxon's 3% yield, AT&T's (T) 5.4% yield (the funds 3rd largest holding at 2.88%) or Verizon Communications (VZ) 4.5% yield (the funds 4th largest holding at 2.7%).

Shockingly though, it gets much worse than that when we look at Vanguards High Dividend Yield ETF (VYM) which has 8.11% of its assets in Apple, 4.37% in Exxon, 3.54% in Microsoft and AT&T or Verizon, not even breaking the top ten. This is a fund that holds the name "High Dividend Yield" and its largest asset only pays a 1.5% yield.

I will repeat the question, 'How exposed are you to Apple'? Above I have proven that in a lot of circumstances you are probably more exposed than you would imagine. That only gets compounded if you own a number of funds, which are all heavily weighted in Apple, making your overall exposure to Apple possibly massive.

While some would argue that due to Apple's past performance, over exposure to the company has helped investors, the issue of diversification comes in to play. Most investors have been told that mutual funds, ETF's, indexing al helps reduce single stock exposure while providing adequate diversification. In most cases this is a true statement, but investors need to always fully review their investments and how each will interact with the others.

I will leave you with this thought; If you are currently taking one prescription drug for high blood pressure and a doctor prescribes you a new medication for cholesterol, would you review the warnings and side effects, and react to each other prior to taking the new pill, or would you blindly just take it assuming the drugs will not affect each other?

The same should always go for investing.

Matt Thalman
INO.com Contributor - ETFs

Disclosure: This contributor held positions in Apple and Microsoft at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.