Dow ETF In Focus As DJIA Tops 20,000 For The First Time Ever
The Dow 20,000 fireworks are setting off this morning, and recall that we did point out buyers in DIA (SPDR Dow Jones Industrial Average, Expense Ratio 0.17%, $14.7 billion in AUM) earlier this week at lower levels.
In fact, these inflows came prior to quarterly earnings release of the #2 weighted member in the underlying index, MMM (6.15%). MMM stutter stepped initially after its earnings release but found some support yesterday on its 50 day MA, and has rebounded more than 1.4% in early trading today.
While the Dow Jones Industrial Average has its critics because of its “price weighted methodology”, while the majority of indices are composed with a “market-capitalization” weighted formula, no one can deny that market observers and investors still pay attention to the Dow itself. And judging by DIA’s rich asset base of more than $14.7 billion, many are looking for index exposure here.
With year-to-date inflows of over $1.38 billion with the month of January having not concluded yet, it is clear to us that someone, specifically those involved in ETF markets, still care about the DJIA and DIA. Not only does the fact that the DJIA has topped 20,000 seem to be an impetus to attract DIA players here, but also the fact that we are in core corporate earnings season (as mentioned in the MMM example earlier), as bellwether names will be announcing their results soon if they have not already.
Critics of the DJIA of course point out that the index itself is perhaps antiquated, and has its limitations in that if a stock over the long-term continues to rally perpetually, and never splits, then it naturally may have a disproportionate weight in the index.
Thus, it makes sense to constantly re-examine index exposure from a name to name standpoint in the DJIA and DIA in order to get a good gauge on what exactly is moving markets in the present. Unlike the market-capitalization weighted S&P 500 where top weighted index members are as follows: 1) AAPL (3.13%), 2) MSFT (2.47%), and 3) XOM (1.90%), DIA has a much different look as one might expect. Top holdings, again thanks to the price-weighting methodology are as follows: 1) GS (7.85%), 2) MMM (6.15%), 3) IBM (5.80%), 4) UNH (5.66%), 5) BA (5.39%), 6) HD (4.63%), 7) MCD (4.27%). 8) TRV (4.06%). 9) CVX (3.99%) and 10) JNJ (3.98%).
Illustrating the disconnect between “price-weighting” and “market-cap” weighting is the fact that the top ten SPX and DJIA names only share one commonality, which may stun a few folks, and that is JNJ (#4 weighting in SPX and #10 weighting in DJIA).
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was trading at $200.17 per share on Wednesday morning, up $1.33 (+0.67%). Year-to-date, DIA has gained 1.35%, versus a 2.38% rise in the benchmark S&P 500 index during the same period.
DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #6 of 77 ETFs in the Large Cap Value ETFs category.
Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, Paul Weisbruch, does not endorse or recommend any issuer or security mentioned herein.
Paul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and ETFTrends.com for instance.
He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.
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