Active Managers Dump Apple Exposure Before Earnings: ETF Watch

(Bloomberg) -- Portfolio managers running active exchange-traded funds are betting against Apple Inc. leading up to its highly anticipated earnings release.

The tech giant’s shares have fallen 7 percent in the past nine trading days as worrisome signals trickled out from Apple’s suppliers. So when the company reports after the market close on Tuesday, investors will be keeping a close eyes on iPhone numbers and revenue forecast.

The AdvisorShares New Tech and Media ETF, known by its ticker FNG, uses an actively-managed strategy aimed at providing exposure to the "FANG" investment theme, according to the fund’s prospectus.

The fund has 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 its position completely until March 7, when it took its Apple exposure up to 3.9 percent, only to dump it again in April ahead of earnings. FNG also closed out its Facebook Inc. position in April.

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 from William Spada and Tom Lagerman (Global Data).

To contact the reporter on this story: Carolina Wilson in New York City at cwilson166@bloomberg.net.

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Morwenna Coniam, Eric J. Weiner

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