ETF Chart of the Day: Mega Caps
October 24th 2011 at 5:21pm by Paul Weisbruch, Street One Financial
Equity exchange traded funds have been strong in October, with S&P 500 ETFs climbing very close to their 200-day simple moving average.
The blue chip index is now above the 50% retracement level from the early August sell-off. [S&P 500 ETFs Break Out]
Meanwhile, the Dow Jones Industrial Average has climbed over its 200-day moving average. SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) gained nearly 1% on Monday.
DIA qualifies as a “mega cap” ETF and is based on the Dow index that contains 30 U.S. listed equities and the index itself is calculated using a price weighted methodology.
Mega cap, refers to companies that have market capitalizations that exceed $100 billion.
Critics of the Dow will point to this price weighting as a shortfall, in that it does not provide a true representation of what the “market” is doing, but instead the index is heavily influenced by the higher priced stocks (from a dollars per share standpoint) among the group.
Other ETFs have surfaced in recent years in the U.S. mega cap space with many of these products tracking non-price weighted indexes, but instead equal weighted, fundamentally weighted, or market capitalization weighted methodologies.
Included are OEF (iShares S&P 100 Index), MGK (Vanguard Mega Cap 300 Growth), XLG (Rydex Russell Top 50), MGV (Vanguard Mega Cap 300 Value), MGC (Vanguard Mega Cap 300), IWX (iShares Russell Top 200 Value), IWL (iShares Russell Top 200), NY (iShares NYSE 100), PMA (PowerShares Active Mega Cap), and a newer entry, FMK (First Trust Mega Cap AlphaDEX).
For those portfolio managers that want to focus on blue chip exposure to U.S. equities, and generally these ETFs also offer appealing dividend yields since many of the mega cap companies have long histories of distributing steady dividends, any of the aforementioned ETFs may present a compelling alternative in the space.
SPDR Dow Jones Industrial Average ETF