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A Deeper Look Into the Only Dow Jones Industrials ETF

Friday, September 23, 2016 11:01
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(Before It's News)

When it comes to “Old School” ETFs, most think of “Spyders” and “Diamonds,” of course. Today, let’s take a deeper look into the well-known and tenured SPDR Dow Jones Industrial Average ETF (NYSE:DIA).

The DIA (or “Diamonds”) currently counts $12.5 billion in assets under management with an expense ratio of 0.17%. The fund has seen considerable inflows this week, to the tune of about $850 million entering via creation activity, and after all these years, still remains the only way to get ETF exposure to the popular benchmark Dow Jones Industrial Average.

The Dow is a price-weighted index, not market capitalization weighted, which makes it quite a bit different from most other benchmark indices in the marketplace. Apple Inc. (NYSE:AAPL), for example, which has the largest market capitalization of any company in the world, also has the largest individual weighting in the S&P 500 Index. In turn, it also is the most heavily-weighted stock in SPX-linked ETFs, and represents 3.08% of the holdings of SPY (SPDR S&P 500, Expense Ratio 0.09%), for example.

AAPL made waves last year when it was “finally” added to the Dow Jones Industrial Average in March of 2015, but this was only after a considerable stock split so it could be shoehorned into the Dow. Being price-weighted, the Dow Jones Industrial Average — and of course DIA — holdings are simply constructed in descending order based on stock prices of the thirty components.

Even with AAPL’s more than 5.2% rally just in the trailing one month period, the stock still only weighs in at number 10 in the DJIA and DIA, at 4.27%. AAPL falls behind the following “higher priced” stocks at the moment, in ascending order:

9) TRV (4.35%), 8) MCD (4.37%), 7) JNJ (4.45%), 6) HD (4.79%), 5) BA (4.91%), 4) UNH (5.25%), 3) IBM (5.81%), 2) GS (6.25%), and 1) MMM (6.70%).

This list may surprise some in terms of the exact portfolio exposure that the DJIA and DIA currently offers via its index construction and limitations, i.e. MMM being the top weighted member presently (a $178 stock). This analysis also begs the question of “what would happen if any of these stocks underwent a stock split at any point in the future,” and like in the case of AAPL, a split would immediately lower the portfolio exposure to that name proportionally to the split itself.

DIA-2016-09-23

The DIA fell $0.85 (-0.46%) to $182.81 in Friday afternoon trading. Year-to-date, the DIA has gained 5.08%.


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.

About the Author: Paul Weisbruch
paul-weisbruchPaul 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.

You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)

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