This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

A Fund That Won by Tracking the Dow

Stock quotes in this article: SPY, DIA, XOM, CAT, KO, IBM, MSFT, AAPL, DIV, WMT, PG

NEW YORK ( TheStreet ) -- During the past ten years, S&P 500 index funds suffered through rough markets and then rebounded to deliver solid results. Over the decade, SDPR S&P 500 ETF (SPY) returned 8.0% annually, outdoing two-thirds of large blend mutual funds tracked by Morningstar. The strong record has not gone unnoticed. During the past year, shareholders poured $18.6 billion into the SPDR ETF, according to IndexUniverse.com.

But investors could have done even better with SPDR Dow Jones Industrial Average (DIA), which returned 8.3% annually over the past ten years. The Dow Jones ETF seems particularly notable because it was less volatile than the S&P 500. During recent downturns, the Dow has outdone the S&P 500 by comfortable margins.

Should you dump your S&P 500 funds and shift to the Dow Jones choice? Not necessarily. The Dow average is a peculiar contraption that may not excel in every market. But there is a strong case for shock-proofing a portfolio by putting a limited amount of assets into the Dow.


Charles Dow created his index in 1896 by adding up the prices of 12 stocks. Since then, the benchmark has been expanded to include 30 leading companies that are broadly representative of the U.S. economy. A Dow Jones committee picks the names, seeking to find dominant businesses that should maintain their strong positions because of their competitive advantages.

The committee's judgments are subjective, and there are no mechanical rules dictating when new names must be included. Still, the committee has proven adept over the years, selecting rock-solid blue chips. The ETF now holds such reliable performers as Exxon Mobil (XOM), Caterpillar (CAT), and Coca-Cola (KO).


Though it includes a limited number of names, the portfolio does provide some diversification because holdings are massive multinationals that operate in many businesses and derive much their sales overseas. "The Dow Jones ETF offers a way to own very high quality companies that can do relatively well in downturns," says Alex Bryan, a Morningstar ETF analyst.

The giants in the portfolio may not grow as fast as the latest technology stars, but many of the Dow stocks pay reliable dividends. The ETF yields 2.4%, a nice payout at a time when the S&P 500 yields 2.1%. Because the Dow stocks are not necessarily glamorous, they sell at modest multiples. The ETF has a price-earnings ratio of 12.9, compared to 14.0 for the S&P 500.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASDAQ 4,422.0850 -71.3050 -1.59%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs