"Too many investors betting on tax reform and infrastructure plan," said Neena Mishra, director of ETF research at Zacks Investment Research.
State Street Global Advisors, manager of the SPDR Dow, told me back in August that it is a well-known barometer for U.S. large-cap stocks, with one of the longest-standing track records for an investable index, and can provide investors information on the health of the U.S. economy.
All true, but in the era of index funds and ETFs, few investors have bet on that argument.
"XLI [Select Sector SPDR Industrials ETF] is the real Dow Jones Industrial Average to me," said Mitch Goldberg, president of investment advisory firm ClientFirst Strategy. "The ol' Dow is a nice gauge of stock market performance, and it is diversified among a reasonable cross-section of industries. But for an investment? I think there are better ways to slice and dice the stock market that actually give us the exposure we'd want to specific sectors and broad averages. Why would an industrial average have XOM [Exxon Mobil] and DIS [Disney] along with BA [Boeing]?"
In January the Select Sector Industrial ETF was one of the few equity funds to take in more new money from investors than the Dow ETF — $1.5 billion vs. $1.4 billion, according to FactSet Research Systems.
All the usual caveats about why the Dow is not a good investment — at least not relative to all the other options that exist today — still existed even as the Dow shot above 26,000.
- The Dow is a focused index of 30 stocks that is price-weighted, and price weighting is arbitrary and antiquated.
- The S&P 500 provides much more diversified exposure to 500 stocks, and that includes all 30 Dow stocks.
- The Dow's price-weighting approach leads to further concentration: The top 10 holdings represent more than half of the portfolio.
- The price weighting prevents any Dow index fund from holding names with high share prices, like Alphabet.
The Dow does offer exposure to highly profitable industry leaders with durable competitive advantages. But for that last argument to be correct, one would have to believe it applies to General Electric right now, too, a tough pill to swallow when you look at that stock chart.
There are other ways of getting exposure to the Dow kind of companies, such as "quality" or dividend-growth ETFs, including the iShares Edge MSCI USA Quality Factor ETF (QUAL) or the Vanguard Dividend Appreciation Index ETF (VIG).
The Dow ETF has definitely seen more interest as an investment around recent milestones linking the Trump presidency and stock market, and it may in fact have a role for traders buying short-term market rebounds and optimism.
In five monthly periods since the beginning of 2017, $1 billion or more of new money flowed into DIA, including June 2017, when the market was roaring back from the post Comey firing selloff, and August, when the Dow reached the 22,000 mark. December 2017 and January 2018 were the only consecutive months that saw more than $1 billion. But the three-month period starting with Trump's election in November 2016 saw the beginning of a Dow ETF boom.