Apple Inc. (AAPL): The Culprit For This Dragging ETF Performance

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September 27, 2013 3:05pm NYSE:RYT NYSE:SPY

carrying percentage weightDouglas Davenport: If you pay attention to only the Technology Select Sector SPDR (NYSEARCA:XLK), you’d think tech stocks have performed poorly compared with the benchmark S&P 500 Index (NYSEARCA:SPY) over the past year and a half.


The problem is, a rival exchange traded fund, Guggenheim S&P 500 Equal Weight Technology (NYSEARCA:RYT), has handed investors’ heady returns.

The chart below shows the relative performance of the ETFs against the S&P 500 since April 2012. I emphasize that the chart shows relative performance versus the benchmark, not total returns. (Technology Select Sector SPDR is represented by the black line, and Guggenheim S&P 500 Equal Weight Technology is the red line.)


Click for larger version

Stocks in the $11.3 billion Technology Select Sector SPDR are market-weighted, meaning the bigger the company, the bigger share of the ETF it accounts for. The $229 million Guggenheim S&P 500 Equal Weight Technology Fund is equal-weighted, as the name says, so each company makes up the same percentage of the fund. Equal-weighted ETFs provide a more accurate depiction of the industry’s performance.

The better-known Technology Select Sector SPDR has been steadily trailing the broader S&P 500 since September 2012. But not the Guggenheim S&P 500 Equal Weight Technology Fund, whose total return is 30 percent over the past year.

The culprit for Technology Select Sector SPDR’s anemic showing is Apple Inc. (NASDAQ:AAPL), which has slumped 28 percent over 12 months.

The iPhone maker’s huge $440 billion market value — and equally large following by investors and the media — has a way of overshadowing everything else occurring in the sector. Apple is an enormous tree that towers over the forest.

The chart below makes evident Apple’s undue influence, showing the relative performance of Guggenheim S&P 500 Equal Weight Technology (red line), Technology Select Sector SPDR (black line) and Apple (green line) against the S&P 500.


Click for larger version

It’s plain to see: When Apple has outperformed, so has Technology Select Sector SPDR. And when Apple has underperformed, the ETF has followed suit. In fact, Technology Select Sector SPDR is sort of a proxy for Apple.

As we can see, the two exchange traded funds are completely different animals. Investors who don’t understand Technology Select Sector SPDR’s composition may wonder why they’ve been badly lagging the broader stock market even as tech stocks have generated big gains this year.

Doug-DavenportThis article is brought to you courtesy of Douglas Davenport

Money and Markets is a free daily investment newsletter published by Weiss Research, Inc. This publication does not provide individual, customizedinvestment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. We cannot guarantee the accuracy of third party advertisements or sponsors, and these ads do not necessarily express the viewpoints of Money and Markets or its editors.


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