Tech ETFs In Focus As Apple (AAPL) Reports Earnings

by on July 20, 2010 | ETFs Mentioned:

Earnings season is upon us yet again, giving anxious investors plenty to chew on as equity markets look for direction in the second half of the year. The first week of this critical stretch saw a number of reports come in all over the board; some bellwethers posted solid numbers and guidance while others disappointed investors with dismal outlooks and soft growth projections [see ETF Winners And Losers From Week One]. Thus far, the tech and financials sectors have been battered; Intel reported strong earnings, but IBM turned in light revenues and Texas Instruments shares sank after missing estimates.

In perhaps the most anticipated report of the week, Apple (AAPL) disclosed Q3 earnings after the market closed today. Analysts had predicted the company to report revenues of $14.75 billion and EPS of $3.11; AAPL crushed those marks, producing revenues of $15.7 billion and EPS of $3.55 for the latest quarter, keeping its streak of beating the Street intact [see Tuesday’s ETF To Watch: QQQQ]. Despite the negative press as of late surrounding some of its new products, the company reported strong iPad and iPhone sales figures. Moreover, Macbook sales increased by roughly 38%, a nice boost from a smaller part of the Apple product line. Commenting on the runaway success of the iPad, Apple noted that the tablet computer “is not following a typical early-adopter curve and then taking a long time to cross into the mainstream.”

Unlike the majority of the tech sector, Apple’s products are tailored to the consumer markets, with the Macbook, iPhone, iPod, and iPad developed mostly for individual use as opposed to corporate adoption. As such, Apple’s positive earnings reports may give hope to investors hoping that the next leg of the recovery effort will be fueled by consumer spending. In after hours trading, Apples share price jumped nearly 3%, perhaps setting the stage for a broader equity market rally after the opening bell on Wednesday. Below, we outline three ETFs that not only have a substantial holding in Apple, but also focus more on the consumer segment of the tech sector [for more ETF ideas, sign up for our free ETF newsletter]:

HOLDRS Internet Architecture (IAH)

Like most HOLDRS, IAH is concentrated in only a handful of securities–15 to be exact [see all of IAH's holdings here]. The fund’s top three holdings are IBM (33%), Apple (21%), and Hewlett-Packard (20%). After taking a hit following IBM’s earnings report, IAH figures to get a boost on Wednesday, and could be positioned to benefit from a tech rally in the second half of the year [see Five Facts About HOLDRS Every ETF Investor Must Know ].

iShares Dow Jones U.S. Technology Index Fund (IYW)

This ETF tracks the Dow Jones U.S. Technology Index, a benchmark that measures the performance of the technology sector of the U.S. equity market. IYW’s top holdings include  Microsoft (12%), Apple (9.6%), and IBM (8.9%). From a sector perspective, this ETF focuses on the hardware (57%), software (27%), and telecom (14%) sectors of the market [see IYW's technicals here].

PowerShares QQQ Trust (QQQQ)

PowerShares’ QQQQ seeks to replicate the performance of the NASDAQ-100 Index, a benchmark that includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market. Apple comes in as this fund’s top holding, accounting for 19% of ETF assets. Unlike the two previous ETFs, QQQQ spreads its assets out relatively evenly across several market sectors, with a tilt towards hardware (38%). This fund also has some exposure outside of the U.S.; foreign stocks account for about 10% of assets [see QQQQ's fundamentals here].

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Disclosure: No positions at time of writing.