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Investors Business Daily

Business

MATT KRANTZ

You Likely Own A Huge Chunk Of The Worst S&P 500 Stock

Apple Tesla Inc. Todd Rosenbluth ETF Invesco SP Global Market Intelligence

Falling Tesla stock gets most of the attention. But Apple's decline this year is a much bigger deal for a majority of investors.

Apple's market value plunged roughly $350 billion this year — making it the largest drop in the S&P 500, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSurge. In other words, Apple's drop erased more value than 482 companies in the S&P 500 are individually worth. Apple's market value loss this year is 66% larger than Tesla's.

But here's the rough part. Despite this massive drop in value, Apple is still the No. 2 largest position in the S&P 500. It still accounts for nearly 6% of the index, second only to Microsoft at 6.8%. And it's miles ahead of Tesla, now only less than 1% of the index. So you likely own a decent chunk of the stock. And that might be something you want to modify.

"While Apple is (one of) the largest public companies in the world there are ways to get large cap exposure and reduce the exposure," said Todd Rosenbluth, head of research at Vetta Fi.

Why Is Apple Stock Souring?

So far this year, shares of Apple are down 11%. That's not the worst loss on a percentage basis. Tesla, for instance, is down more than 26%.

But given Apple's massive $2.6 trillion market value, an 11% stock drop hits the S&P 500 hard. The S&P 500 gives higher weighting to companies with larger market values. And Apple's influence is even greater in some other popular indexes. Apple holds a 7.7% weight in Invesco QQQ, a $248 billion-in-assets ETF that owns the 100 most-valuable nonfinancial Nasdaq stocks. And it's an even larger 20.4% position in the $61.6 billion-in-assets Technology Select Sector SPDR ETF.

Meanwhile, Apple faces all sorts of challenges. It's the subject of multiple government investigations into its business practices. Already, moves by European regulators prompted Apple to stop using a proprietary charging cable that won't work with industry standards. Meanwhile, sales of Apple's latest product, a virtual reality helmet, are underwhelming. Additionally, it's losing ground to tech rivals in AI as its core smartphone business matures.

Analysts think the company's revenue will only grow by less than 1% this year to $386.8 billion. That's hardly a growth company. But what can S&P 500 investors do to limit the risk to Apple?

What To Do With Apple?

The most straightforward way to stay in the S&P 500 but limit Apple exposure is the $54.1 billion-in-assets Invesco S&P 500 Equal Weight ETF. The ETF strives to put the same weighting in all the stocks in the S&P 500 at around 0.25%. The ETF charges 0.2% annually, which is much higher than straight S&P 500 funds.

But that's a lower fee than charged by some active ETFs, where human portfolio managers are choosing to underweight Apple. The $7.2 billion-in-assets Capital Group Dividend Value only puts a 2% weight in Apple, Rosenbluth says. But the ETF charges 0.33% annually.

If you're looking to stay in technology stocks, but looking for less Apple exposure, look at the $3.8 billion-in-assets Invesco S&P 500 Equal Weight Tech ETF. Both Invesco equal-weight ETFs "own Apple but have similar exposure to more moderately sized companies to spread the risk around," Rosenbluth said.

And if you're looking for lower volatility, consider ETFs like Invesco S&P 500 Low Volatility and iShares MSCI USA Minimum Volatility. Both "have less than 1% exposure to the tech giant," Rosenbluth said.

It's important to note, Apple could rally back. Analysts expect it to, calling for a roughly 18% gain in the stock in next 12 months. And even with the Apple sinking position, the S&P 500 is still up 6% this year. But for now, Apple is a stock many investors would rather avoid.