ETF Trends
ETF Trends

Major U.S. equity benchmarks finished 2014 in the green, extending a lengthy bull market, but the last few days of trading were nothing to write home about. With Wednesday’s 1% loss, the S&P 500 turned negative for December while the Dow Jones Industrial Average is off 1.3% over the past week.

For all its flaws, namely the weighting methodology that makes the highest-priced stocks its biggest component, the Dow is still a widely followed index and the SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) is still a $13.1 billion ETF. [Danger for the Dow ETF]

The Dow and DIA finished 2014 on a three-day losing streak, just the seventh time the blue chip index completed a year on a three-day skid. For investors considering a stake in DIA, the Dow’s previous year-end three-day slides are merit examination.

“As shown, back in 2005 (following 2004’s three-day losing streak to end the year), the Dow traded down to start the new year, and it ended the year in the red as well.  Overall, though, the Dow has gained on the first trading day of the new year in four of six instances, and it has been up 4 of 6 times over the first three trading days as well,” according to Bespoke Investment Group.

Chart Courtesy: Bespoke Investment Group

In 2014, DIA rose 9.7% as 23 of its 30 components traded higher. However, that modest gain highlights the problem of weighting stocks by price. Some of DIA’s highest-priced stocks, think IBM (NYSE: IBM) and Chevron (NYSE: CVX) as two examples, were also among the ETF’s biggest duds in 2014. However, smaller holdings such as Intel (NasdaqGS: INTC) and Microsoft (NasdaqGS: MSFT) were among the 16 Dow stocks that gained at least 10% last year.

Investors pulled almost $590 million from DIA last year, but all of the ETF’s holdings are dividend payers and the ETF pays a monthly dividend. [More Monthly Dividend ETFs]

Visa (NYSE: V), Goldman Sachs (NYSE: GS) and 3M (NYSE: MMM) are DIA’s three largest holdings, combining for 22.3% of the ETF’s weight.

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.