Apple: Smart Beta ETFs’ Favorite Pick

August 15, 2017

Apple is a value stock. It’s also a growth stock, a momentum pick, a quality name and even a dividend darling.

When it comes to smart-beta ETFs looking to dice the market in factor slices, Apple is everywhere.

Apple is the largest company in the U.S., with a market capitalization of more than $823 billion, which makes it one of the top holdings in just about all market-cap-weighted U.S. large-cap equity ETFs.

It’s the biggest single holding in the two largest U.S.-listed ETFs: the SPDR S&P 500 (SPY) and the iShares Core S&P 500 ETF (IVV). Collectively, these two ETFs command some $360 billion in total assets, 8% of which is tied to Apple stock.

Plenty Of Apple To Go Around

But Apple is also found in strategies that go the smart-beta route. Today the company represents nearly 15% of the iShares Edge MSCI Multifactor Technology ETF (TCHF)—one of the biggest allocations to Apple in ETFs anywhere—and it’s found in the John Hancock Multifactor Technology ETF (JHMT), among many others.

What’s interesting is that the narrower in focus you go in the smart-beta ETF world, the more exposure to Apple you find. Apple is one of the biggest holdings in the iShares MSCI USA Value Factor ETF (VLUE), at nearly 10%. VLUE looks at fundamental metrics such as earnings, revenue and book value in search of undervalued stocks in each sector.

Apple is also in the iShares Russell Top 200 Growth ETF (IWY), at 9.3%, a fund that picks stocks based on two main growth factors: medium-term growth forecasts and historical sales per share growth. Apple offers value and growth—an unusual combination.

Factor-Model Efficacy

“The case of Apple calls into question the efficacy of many factor models. After all, it should be impossible for a stock to be both value and growth at the same time,” FactSet Director of ETF Research Elisabeth Kashner said. “But it turns out that Apple is an interesting case because of the relationship of Apple to the tech sector, and of the tech sector to the overall market.”

Specifically with regard to VLUE and IWY, the former’s underlying MSCI index looks for value stocks within each sector, “taking into account that price-to-book for a typical tech stock may be much higher than that of a financial stock,” Kashner added.

The Russell benchmark underlying IWY, meanwhile, picks stocks based on two main growth factors: medium-term growth forecasts and historical sales per share growth. By Russell’s methodology, Kashner notes Apple “is a growth stock only.”

The takeaway here is that MSCI and Russell have different metrics for value and growth. 


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