Scalper1 News
Summary The fund holds several dividend champions, but the yield on the index and the ETF are still a bit weak. The sector allocation is fairly aggressive even though the individual companies should be safer than the rest of the sector they represent. Concerns about the strong dollar and rising domestic rates make me prefer a more defensive sector allocation. DIA has an interesting allocation strategy that made a great deal of sense prior to the invention of computers. The SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) is an ETF that is often referenced in stock trackers or in articles referencing the entire economy. However, there seems to be little analysis focused on the real ETF despite having over $10 billion in assets under management. I intend to treat DIA like any other equity ETF in this analysis and look at the fund as an investment rather than as a proxy for parts of the economy. Quick Facts The expense ratio is a mere .17%. That isn’t absurdly high for domestic equity, but it is higher than I would have expected for a very large ETF with a remarkably simple allocation strategy. Holdings I put together the following chart to demonstrate the weight of the top 10 holdings: (click to enlarge) The underlying holdings don’t bother me. 3M (NYSE: MMM ) is a great dividend champion and has an exceptionally diversified product line which includes so many brands and household items that there are probably several items created by 3M within a few feet of you. The portfolio is filled with established dividend champions. Okay, Apple (NASDAQ: AAPL ) won’t be confused with a dividend champion any time soon but for the sheer size of the company it would be strange for DIA to exclude them from the group. Sectors (click to enlarge) The sector exposure feels fairly aggressive to me with the top weightings coming from the industrial sector and consumer discretionary. You may notice that health care and consumer staples each appear to be underweight with utilities coming in at a solid 0%. These are three relatively defensive sectors that I would want to be overweighting when the P/E ratios across the market are getting fairly high. With a strong U.S. Dollar weakening exports and driving down expectations for sales and earnings in the domestic economy and an expectation for higher short term rates coming, it feels like an aggressive sector allocation. On the other hand, if I was going to run such an aggressive sector allocation I would want to be overweighting the companies with a long history and a solid dividend. The individual companies look like some of the safer allocations for their respective sectors. Energy That energy allocation is fairly light. I’ll grant that the sector has done very poorly, but I still like having exposure to the larger companies in the sector like Exxon Mobil (NYSE: XOM ). Exxon Mobil and Chevron (NYSE: CVX ) are the two oil exposures here and I like both of them for the long term despite the potential for more pressure on prices in the short term. Strategy It would be absurd to talk about the ETF directly without bringing up the allocation strategy. The Dow Jones Industrial Average is oldest continuing U.S. market index with over 100 years of index history. It simply holds an equal number of shares in each of the 30 companies within the index. The method is a little strange since many ETFs would simply use a market cap weighting. Instead, the weightings are fairly arbitrary as a function of share prices which results in overweighting anything with a high share price and underweighting anything with a low share price. Dividend Yield If we’re going to contemplate DIA as a normal ETF investment, then it is natural to incorporate the dividend yield. The fund dividend yield is 2.31% while the underlying index has a dividend yield of 2.53%. Conclusion The SPDR Dow Jones Industrial Average ETF tracks the oldest continuing index in the United States. The expense ratio isn’t very high, but it is higher than I would expect for the incredibly simple allocation strategy. The simple strategy, which made great sense prior to computers, results in a fairly interesting sector weighting. I find the underlying companies to be less dangerous than the sectors they represent, but as an investment I would prefer something more defensive sector allocations given my concerns about the potential for the market to suffer some setbacks in a challenging macroeconomic environment. Scalper1 News
Scalper1 News