Yesterday, Todd Rosenbluth, senior director of ETF and Mutual Fund Research at CFRA, noted on his Twitter feed:
He's absolutely right. But there are also 1,401 equity ETFs on the market; 133 funds represent just 9% of the total equity ETF universe, meaning Apple isn't exactly ubiquitous.
But the factoid caught my eye for another reason.
ETF.com readers may recall that Apple is one of Scott Galloway's so-called “four horsemen," or companies that have become so large, so successful, that we as investors and consumers let them play by different rules than everybody else on the market.
The other three horsemen are Amazon, Facebook and Google, with Galloway in recent interviews designating Microsoft as a fifth unofficial horseman (see: "These 4 Stocks Are Breaking The Market").
These companies engage in market-breaking behavior, argues Galloway. They pay fewer taxes than other companies, experience less government scrutiny, invade customer privacy with impunity and escape anti-trust laws or regulations. And, says Galloway, we love them for it.
So when I read Todd's tweet, I began to wonder just how frequently the four-sometimes-five horsemen showed up in investors' portfolios. Are we exposed to these market-breaking companies in ways we aren't even aware of?
In Search Of Whinnies
I pulled the top equity ETFs by assets to determine what percentage of their top 10 holdings comprise Apple, Amazon, Google, Facebook and/or Microsoft.
To ensure I only considered the most popular, well-used ETFs, I limited my sample size to ETFs with $1 billion or more in assets under management (an arbitrary cutoff, to be sure, but I had to stop somewhere).
I also did not look at any holdings in the portfolio beyond the top 10, which may have caused me to miss holdings in the five horsemen companies that fell below the cutoff.
Also, I skipped over leveraged/inverse ETFs, and I considered Alphabet (that is, Google's parent company) Class A and Class C shares together. This is important, because it caused Google to represent a larger percentage of many ETFs' top 10 holdings than perhaps a first glance at the listings would indicate.
As of Nov. 2, 2017, I found 262 equity ETFs with more than $1 billion in assets. Of those 262 ETFs, 60— or 23%—had at least one of the five horsemen in their top 10 holdings. (For a full listing, see the table at the end of this blog.)
In other words, one in four equity ETFs include at least one company that's exhibiting market-breaking behavior. No wonder Galloway's so worried.
The Horsemen Are Everywhere
One thing that immediately jumped out: the horsemen tend to ride as one, so to speak.
For the vast majority of equity ETFs, either all five companies appear together in the top 10, or none of them do. The main exceptions are for quirks of classification: Amazon, for example, is classified under the Global Industry Classification Standard (GICS) system as a consumer discretionary company, not a technology stock (more on that in a minute).
The horsemen appear across a broad range of fund segments. You might expect them to show up in large-caps and tech funds—but they also appear in growth and value ETFs, fundamentally weighted ETFs, even momentum and dividend plays. Pretty much the only equity ETFs they don't reliably appear in are international ETFs and sector slices.
Some examples of just how pervasive the horsemen are: