Apple Bounce Benefits Technology Sector Editor: From its all-time high on 21 September 2012 of $693.21, Apple’s stock declined by 44.8% to a low on 19 April of $382.57. During that decline Apple transitioned from an exciting, high beta growth company (Apple is actually a consumer products company not a technology company), to a value proposition. Since the launch of the iPhone 5 the company has failed to wow the market (or customers) with groundbreaking products, something reflected in slowing sales. In order to allay investor concerns the company recently made the decision to raise its dividend payment by 15% (the company now yields 2.69%), whilst also allocating $60 billion for stock buybacks (up from $10 billion). The company’s lower value has attracted buying from the likes of David Einhorn of Greenlight Capital, a hedge fund which has returned roughly 20% per year since its inception in 1996. According to its latest 13F filing, in the fourth quarter of 2012 Greenlight added to its 1.3 million share stake in Apple by purchasing another 275,000 shares via call options. The stock currently trades at $452.97.

Apple (AAPL) has been rallying since it hit a 52-week low in April, a fact that has benefited the broad market in general and the technology sector in particular. It also gives us another opportunity to demonstrate the disadvantages of cap-weighted indexes compared to their equal-weighted counterparts.

Below we have aligned charts of AAPL, the Technology SPDR (XLK), and the Equal-Weighted Technology ETF (RYT). First we note the decline from mid-September to mid-November, which coincided with a broad market correction. While stocks in general declined, the technology sector really got hammered because of AAPL.


After the November low, the market began to rally but Technology suffered under the continued decline of AAPL; however, note that RYT (equal-weighted) exceeded its September high in January, but XLK (cap-weighted) did not rally past its September high until this week. More important, during that period RYT had nearly double the gains of XLK.


Conservatively speaking, sector exposure is usually best accomplished through a sector index rather than individual stocks, because risk is spread across many stocks. Equal-weighted indexes spread risk even farther, since no individual stock can influence the index more than other components. This is not to say that equal-weighted indexes are always the best choice, but it is a good place to start looking.

Carl Swenlin | president and founder of

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