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Active Managers Shed Apple Weight Before Earnings: ETF Watch

Updated on

Portfolio managers running active exchange-traded funds took their Apple Inc. bets off the table at the wrong time -- right before the tech giant posted earnings that showed a growing services business and featured a bullish revenue forecast.

The AdvisorShares New Tech and Media ETF, known by its ticker FNG, in particular unloaded its Apple position, which had accounted for almost 4 percent of the portfolio. The fund uses an actively-managed strategy aimed at providing exposure to the “FANG” investment group, which also includes Facebook Inc., Netflix Inc. and Google parent Alphabet Inc., according to its prospectus.

Recently, FNG has had a love-hate relationship with Apple. At the beginning of the year, 4.7 percent of the portfolio was in the stock, but it slashed that to 1 percent on Jan. 31, Bloomberg data show. The fund then exited the position entirely until March 7, when it took its Apple exposure up to 3.9 percent. That’s the position it sold off ahead of earnings. It also closed out its Facebook Inc. position in April.

Rollercoaster Ride

Actively-managed FANG fund scoops up and dumps Apple exposure

Source: Bloomberg

Note: Shows exposure to Apple shares in AdvisorShares New Tech and Media ETF (FNG)

Apple’s shares had fallen 7 percent in the previous nine trading days, as worrisome signals trickled out from Apple’s suppliers. But the stock is up 3.6 percent in pre-market trading Wednesday morning.

Actively managed ETFs, which have the freedom to tune their exposure whenever they want, have become a growing corner of the exchange-traded products industry. Like their passive counterparts, active funds still report their holdings each day.

“This is the kind of repositioning before and after earnings that you want to see in an active ETF, because passive funds can’t do it,” said Bloomberg Intelligence analyst Eric Balchunas. “They’re stuck.”

Managers behind the WBI Bull Bear Yield 1000 ETF, or WBIG, also bought up and then dumped Apple shares. WBIG carved out a 6.3 percent exposure on April 3, then cut it completely on April 25.

Some fund managers may have a technical overlay on their stock selection, like breaking down below a major moving average, which can encourage them to exit a position, said Josh Lukeman, head of ETF market making for the Americas at Credit Suisse AG.

“An investor might not realize that the portfolio manager can eliminate a core holding like Apple in front of a large earnings print,” Lukeman said. “So they might not be getting what they bargained for.”

— With assistance by William Spada, and Tom Lagerman

(Updates with Apple’s and pre-market trading in fourth paragraph.)
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