Tuesday’s ETF To Watch: QQQQ

by on July 20, 2010 | ETFs Mentioned:

With markets encountering a rough patch and the consumer confidence index plunging, many investors have stayed away from technology and consumer discretionary names in order to avoid some of the volatility as consumers continue to save instead of spend. Despite this trend, one company has managed to find demand for its products no matter what challenges the economy is facing: Apple (AAPL). Once almost entirely dependent on sales of Mac computers and music through its iTunes platform, the technology giant has now come to dominate the smartphone market and the tablet computer segment as well. In fact, according to stock analysis at Trefis, Mac computers and iTunes make up less than 20% of their price target for AAPL, while iPhones and iPads combine to make up close to 55%.

These two products, the iPhone and the iPad, have dominated the headlines over the past quarter but for very different reasons. The iPad has been a big success, thus far selling over 3 million units in under 80 days and thoroughly crushing most initial estimates of analysts [also see Three Tech ETFs In Focus As Apple Releases iPad]. The iPhone 4 has also done well in its release, but this has been overshadowed by an antenna problem that has stolen the spotlight from an otherwise popular product (it has sold over 3 million units since the launch).

All eyes will be focusing in on the technology powerhouse later today when the company reports its Q3 earnings. The company is notorious for under-promising and over-delivering in terms of earnings reports; since Sept. 2006, Apple has topped its quarterly EPS guidance by an average 40%, and its revenue guidance by an average 8%. So look for Apple to handily beat the consensus estimate of $3.11 a share and $14.75 billion in revenues.

Given Apple’s role as a technology bellwether and a force in the consumer electronics market, the PowerShares QQQ Trust (QQQQ) is the ETF to watch for today. The fund tracks the NASDAQ-100 Index, which consists of 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization levels. The fund has almost 20% of its assets in Apple, which makes up by far the largest single holding in the fund (the next highest comes in at 4.6% for Microsoft). QQQQ, which charges an expense ratio of 0.2%, is up almost 20% over the past 52 weeks but has posted a loss of 2.3% so far in 2010. Hopefully for investors in QQQQ, today’s announcement by Apple will go a long way in terms of boosting prices and optimism for the rest of 2010 [also see Rare Earth Metal Shortage Could Sink These Three ETFs].

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Disclosure: No positions at time of writing.