This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

A Fund That Won by Tracking the Dow


Though it is representative of many industries, the portfolio is skewed toward a few holdings because of the benchmark's peculiar weighting system. Under the Dow Jones rules, stocks are weighted according to their share prices. So the biggest holding is IBM (IBM), which has a share price of $199 and accounts for 11% of assets. Microsoft (MSFT) only accounts for 1.5% of assets because its share price is around $27.

This approach is very different from the S&P 500 which weights every stock according to the market value of the shares. In the S&P, IBM and Microsoft both account for about 1.5% of assets. Academic researchers have long argued that the market-cap weighting of the S&P 500 is a better system that accurately reflects the realities of the economy.

The Dow has other peculiarities. It excludes Apple (AAPL) as well as transportation and utilities stocks. The Dow underweights financials compared to the S&P 500. The underweighting helped the benchmark outperform when bank shares collapsed in 2008. For the year, the Dow ETF lost 32%, compared to a decline of 36.8% for SPDR 500.

For investors who want a dose of giant stocks in a more modern package, Morningstar's Alex Bryan suggests Vanguard Dividend Appreciation (VIG). The ETF owns companies that have increased their dividends in each of the past ten years. Holdings are weighted according to their market caps. Stocks in the portfolio include many Dow names, such Wal-Mart (WMT) and Procter & Gamble (PG). Holding 133 stocks, the Vanguard ETF is more broadly diversified than the Dow.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stan Luxenberg is a freelance writer specializing in mutual funds and investing. He was executive editor of Individual Investor magazine.
2 of 2

Select the service that is right for you!

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 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • 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