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Tom Lydon, ETF Trends (180 clicks)
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Technology sector exchange traded funds have all benefited from the lift in Apple (AAPL) as this stock has become the biggest by market capitalization on the globe. Every tech ETFs holds Apple to some degree, giving an example of how important it is to know what stocks a fund holds.

Even within an all-ETF portfolio, some stock research is necessary to effectively invest in the particular sector or asset class. For example, if an investor has an allocation to the tech sector within an ETF portfolio, it is apparent he owns some of Apple indirectly through many funds.

"The iPhone remains the cornerstone of Apple's consumer strategy, and few opportunities loom larger than the global handset market. The iPhone already accounts for more than 50% of revenue, and we expect this percentage to grow during the forecast period with the iPhone and iPad delivering more than 80% of Apple's revenue and gross profit by 2016," Michael Holt for Morningstar wrote in a recent analyst note.

A large weighting to one stock in an ETF, such as Apple, is not good or bad, it is just important to know. The following ETFs all hold Apple as the largest holding:

  • iShares Dow Jones US Technology Index Fund (IYW) 22.7% to Apple; up 21% year-to-date
  • Technology Select Sector SPDR (XLK) Holds Apple at 19.7%; up 18.5% year-to-date
  • Vanguard Information Technology (VGT) 14.5% weighted to Apple; up 20% year-to-date

An investor that wants an allocation to the tech sector through several ETFs would have to support Apple and believe that the company has room for growth. All 3 of the aforementioned ETFs have grown in assets and performance thanks to Apple.

An investor that has weighting in all of these funds would have a lot of weighting to Apple within his ETF portfolio. This is an example of how asset allocation is important. By knowing what an ETF actually holds, investors can avoid over-weighting or under-weighting to various companies. [Technology ETFs with Big Positions in Apple]

The technology sector has fared well across the board from Apple's success. If the company has a downside, then the entire sector would be dragged down with it.

Tisha Guerrero contributed to this article.

Source: How Apple's Huge Market Cap Impacts ETFs

Additional disclosure: Tom Lydon's clients own AAPL.