The Dow Jones Industrial Average is one of the most widely followed U.S. equity benchmarks. It is also one of the most maligned. Professional investors argue the S&P 500 is a more useful of U.S. equity market because, well, that index holds 500 stocks (actually a few more) compared to the Dow's 30 stocks.
Plus, the Dow has been widely assailed for its price-weighting methodology, meaning whichever stock has the highest price tag in the index, currently Goldman Sachs Group Inc./b> GS, is the index's largest component. THis methodology has prompted criticism that the Dow and the SPDR Dow Jones Industrial Average ETF DIA are antiquated.
Fortunately, a new ETF refreshes investing in the Dow. The Guggenheim Dow Jones Industrial Average Dividend ETF DJD seizes on one of he Dow's biggest advantages, that being all 30 members pay dividends, by weighting the Dow's 30 stocks by trailing 12-month dividend yield. The new ETF tracks the Dow Jones Industrial Average Yield Weighted Index.
A Different Methodology: Weighing By Yield
Weighting by yield creates significant differences between the new Guggenheim and DIA. For example, as of December 8, the only stock that would be a top 10 holding in both Dow ETFs would be McDonald's Corporation MCD, the world's largest burger chain.
As of December 14, DIA's top 10 holdings combined for about 51 percent of the ETF's weight, but at the end of November, the top 10 members in DJD's underlying index combined for less than 47 percent of that benchmark's weight, according to S&P Dow Jones data.
Weighting by yield makes, as of December 8, Chevron Corporation CVX, DJD's largest holding, although the second-largest U.S. oil company is merely the traditional Dow's 14th-largest holding. Chevron and Verizon Communications Inc. VZ, DJD's second-largest holding, each have trailing 12-month dividend yields of around 5 percent.
Allocation Differences
DIA allocates a combined 54.4 percent of its weight to the industrial, consumer discretionary and technology sectors. DJD's top three sector weights – industrials, technology and healthcare – combine for less than half of the new ETF's weight.
New spins on venerable U.S. equity indexes is not a new concept for Guggenheim. After all, the issuer introduced investors to an equal-weight version of the S&P 500 nearly a decade ago with the Guggenheim S&P 500 Equal Weight ETF RSP. RSP is now home to $9.5 billion in assets under management and has notched consistent outperformance of cap-weighted S&P 500 funds.
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