On February 20, I wrote an article discussing how a number of ETFs were massively overweight Apple Inc. (AAPL), leaving investors with too much exposure to the world's largest company. While I believe Apple is a wonderful company to own, as I am a shareholder, unknowingly investors could very easily be overly exposed to just one company. If you are buying an ETF, mutual fund or index fund it is likely because that one purchase diversifies your investment. But because these funds are so overweight Apple, you may not be as diversified as you may think. Luckily though, the announcement that Apple will join the Dow Jones Industrial Average is sign that investors will have the ability to still buy index funds and not have to worry about being overly exposed to Apple.
Before we get into why Apple joining the Dow is a good thing, let's discuss why Apple is so overweight in different funds available.
The wide majority of mutual funds, ETFs, or simply investors in general, measure their yearly performance by comparing it to the performance of the S&P 500, I have even recommended this. For mutual fund or ETF managers the issue arises from this because they need to have their portfolios perform similar to the S&P 500, or clients will begin defecting from their fund to find greener pastures, in most cases a fund manager who has outperformed or at the very least matched the S&P 500 performance. Continue reading "Apple + Dow Jones = Better Apple Exposure (Part 1)"