One of this week's big rumors involves none other than the
largest U.S. company by market value: Apple (NASDAQ:
AAPL
). On Tuesday, Sanford C. Bernstein & Co. published a research
note saying the iPhone maker is mulling a stock split that could
lead to it being added to the venerable Dow Jones Industrial
Average.
Bernstein said Apple's decision to initiate a dividend earlier
this year makes it more likely the stock could be added to the blue
chip index.
"Apple's initiation of a dividend brings the company in line
with all other Dow components. We note that Apple is currently the
only company above $215 billion in market cap that pays a dividend
and is not included in the Dow," Bernstein analyst Toni Sacconaghi
said in the note, according to Bloomberg
.
How an Apple split, if the event comes to pass, would impact
ETFs remains to be seen. For starters, one ETF that could
immediately be impacted by the split and ensuing speculation that
Apple is headed for the Dow is the SPDR Dow Jones Industrial
Average (NYSE:
DIA
).
Currently trading just over $600 a share, Apple is a tough
addition for the Dow, a price weighted index. IBM (NYSE:
IBM
), which trades for just under $200, is DIA's top holding at 11.4
percent. In theory, if Apple went into the Dow today it would
account for over a third of the index's weight based on its lofty
price tag.
"Apple, with a $600 handle, would have undue pressure on the
DJIA index itself on a daily and intraday basis," said
Paul Weisbruch of Street One Financial
.
The last time the Dow added new constituents was in 2009 when
Citigroup (NYSE:
C
) and General Motors (NYSE:
GM
) were booted during the financial crisis. Cisco Systems (NASDAQ: )
and Travelers (NYSE: ) replaced Citi and GM.
The Bloomberg piece notes Apple declined to comment on the
split, so there is no way knowing what the company's plans are at
this point. On the other hand, it is not unreasonable to speculate
that if Apple engineers a 10-for-1 split of its shares at $600,
thereby reducing the price to $60, retail investors that have been
kept at bay by the stock's huge price tag would flood into the
stock.
Since most passively managed ETFs use a weighted methodology
based on the market capitalization of the funds' holdings, Apple
would still be the largest holding in marquee ETFs such as the
PowerShares QQQ (NASDAQ: ) and the Technology Select Sector SPDR
(NYSE: ).
Taking things a step further, it is important to note that have
been used as proxies on Apple because the funds have large weights
to the stock and reasonable price tags.
To that end, a possible argument is that QQQ, XLK and the
iShares Dow Jones US Technology Index Fund (NYSE: ), the ETF with
the largest weight to Apple, would initially suffer as investors
depart the ETFs in favor of direct ownership of Apple shares. Not
so fast. It is demand for or selling pressure on an ETF's
underlying components that drives the fund's price action. Assuming
Apple splits 10-for-1 and the retail crowd comes running into the
stock, IYW, QQQ, XLK and other ETFs are apt to benefit, not
suffer.
At the very least, these ETFs might be a little more active than
usual as the Apple split rumor floats around.
"It is also fair to say that as AAPL goes, the entire Tech
sector goes as AAPL has a 19.63% weighting in XLK for instance,
with the next highest weighted stock, IBM, coming in at only 8.14
percent," Weisbruch said in a research note published today. "ETFs
that have significant exposure to Apple that may be very active in
the short term and are certainly worth monitoring include, IYW, the
Focus Morningstar Technology ETF (NYSE: ), the Vanguard Information
Technology ETF (NYSE: ) and the iShares S&P Global Technology
Index Fund (NYSE: )."
For more on Apple and ETFs, click .
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