Getting a Handle on Dow ETFs as DJIA Eyes 20,000

The Dow is composed of the 30 largest companies in the U.S. across a number of sectors. Holdings are selected by the editors of the Wall Street Journal. Since the index follows price-weighted methodology, components with higher prices will have a larger impact on the daily movements in the Dow, which has drawn some criticism over its somewhat arbitrary weighting method. Daily changes in the Dow are calculated by adding prices of the 30 Dow stocks and then divided by the “Dow Divisor.”

Currently, DIA’s top holdings include Goldman Sachs Group (NYSE: GS) 8.3%, 3M Co. (NYSE: MMM) 6.1%, International Business Machines (NYSE: IBM) 5.8%, UnitedHealth Group (NYSE: UNH) 5.6% and Boeing Company (NYSE: BA) 5.5%. Sector weights include industrials 19.7%, financials 17.9%, information technology 17.0%, consumer discretionary 14.3%, health care 12.8%, Energy 7.1%, consumer staples 6.7%, materials 2.5% and telecom services 1.9%.

In contrast, the S&P 500 is more diversified, with its largest holding Apple (NasdaqGS: AAPL) account for a little over 3%. Additionally, The S&P 500 overweights information technology, with more evenly spread out weights in its other sector positions.

Meanwhile, the newer DJD weights positions on dividends, with top holdings including Chevron (NYSE: CVX) 5.7%, Verizon Communications (NYSE: VZ) 5.3%, Caterpillar (NYSE: CAT), 5.0% Boeing (NYSE: BA) 4.8% and International Business Machines (NYSE: IBM) 4.4%. Sector allocations include industrials 18.9%, information technology 18.4%, healthcare 13.4%, consumer staples 11.4%, financials 11.0%, energy 9.5%, consumer discretionary 9.5%, telecom services 5.3% and materials 2.6%.

Due to its weighting methodology, DJD comes with a slightly higher 2.47% 12-month yield, compared to DIA’s 2.26% 12-month yield. However, DIA shows a cheaper 0.17% expense ratio, compared to DJD’s 0.30% expense ratio, which diminishes the positive effect from the dividend-focused ETF’s higher yield.