SPDR Dow Jones Industrial Average ETF's DIA concentrated lineup and share-price-weighting scheme reduce the appeal of the fund's high-quality portfolio of industry leaders. It receives a Morningstar Analyst Rating of Neutral.

The fund replicates the Dow Jones Industrial Average Index, one of the oldest U.S. equity indexes. An index committee selects 30 stocks that best represent the U.S. equity market for index inclusion, with the exception of the utilities and transportation industries. The committee focuses on highly visible names with stable businesses and consistent growth. The resulting portfolio consists of profitable stocks that boast durable competitive advantages. The committee-based approach also allows more flexibility around reconstitution and generally keeps turnover under wraps. Despite its share-price-weighting scheme and concentrated portfolio, index performance has historically been highly correlated with the broader market.

Weighting constituents by their share price has no sound economic rationale. This approach is an artifact of the index’s late-19th-century origin and prevents very high- or low-priced shares from being added, even if they meet the committee's subjective criteria. The index assigns greater weights to holdings with higher share prices, regardless of their market caps or business fundamentals. This approach was convenient in an era without abundant computing resources, but it is far from best practice today.

The portfolio claims some of the market's strongest companies, but admitting just 30 stocks introduces significant stock-specific risk. More than 50% of assets are routinely allocated to the fund's top 10 holdings. UnitedHealth Group UNH takes the top spot, collecting nearly 10% of the portfolio alone as of Jan. 31, 2023. 

This fund does have its benefits. The index’s emphasis on stable and profitable companies has paid off during volatile periods. However, the index’s subjective construction and archaic weighting methodology may hurt its chances of delivering better risk-adjusted returns than the  large-value Morningstar Category average over the long term.

Analyst Rating

Old dog, same tricks.

Associate Analyst

Zachary Evens

UnitedHealth Group

Goldman Sachs

Microsoft

Home Depot

Caterpillar

Amgen

McDonald's

Visa

salesforce.com

Boeing

The fund provides exposure to a concentrated subset of U.S. market leaders. However, its share-price-weighting scheme and small lineup constrain the portfolio and elevate active risk, warranting a Below Average Process rating. 

The Dow Jones Industrial Average Index is a share-price-weighted index that tracks a selected group of 30 blue-chip U.S. stocks, excluding utilities and transportation companies. A three-person index committee singles out industry leaders from the S&P 500 to form the portfolio. Criteria are subjective, as the committee cites a firm's reputation, longevity, and investor interest among the factors it considers. This results in a portfolio of profitable and stable large-cap companies that aim to represent the entire U.S. stock market. The index reconstitutes on an as-needed basis at the committee's discretion, which has limited turnover. 

The fund is structured as a unit investment trust, which has some drawbacks. The portfolio managers cannot reinvest dividends or use derivatives to equitize cash. They are also prohibited from engaging in securities lending to generate additional income to offset expenses. 

The index's share-price-weighting scheme, 30-holding limit, and its committee’s subjective criteria put arbitrary constraints on this portfolio. The index does not consider some stocks whose share prices are very high or very low in order to protect the balance of the share-price-weighted portfolio, even if they meet the committee's other criteria. As of Jan. 31, 2023, 19 S&P 500 constituents had share prices above that of the fund's largest holding, UnitedHealth Group UNH, and 30 had a share price below the fund's smallest position, Intel INTC. While no guarantee of admission, these 49 names include recognizable companies like BlackRock BLK, Costco COST, and Ford F.

Below Average

Process

This portfolio is managed by the same team that manages State Street’s other equity index portfolios, under the leadership of Michael Feehily. Many members of the team have long tenures with State Street and are well-equipped to deliver strong index-tracking performance, supporting an Above Average People rating.

State Street’s equity index team is one of the largest in the industry, including 25 managers in the United States and 25 in other markets. On average, each manager runs between 20 and 25 portfolios. A dedicated index research team helps them prepare for index rebalancing and corporate actions, while its centralized global trading desk handles trades so managers can focus on index-tracking. Their workflow is largely automated to improve efficiency and minimize risk. SSGA uses an independent risk management team that reviews portfolios regularly. Tracking error is heavily emphasized in the management process and is one of the key components of manager evaluation.

Above Average

People

State Street Global Advisors is under new leadership but continues to move along the positive trajectory established by former leaders. SSGA maintains its Above Average Parent Pillar rating.
Cyrus Taraporevala, who oversaw much of SSGA’s recent transformation, retired from the CEO position in December 2022 and passed the baton to his successor, Yie-Hsin Hung. She inherited a business that’s become more disciplined with its fund lineup. Fees have come down, while product development remains focused on fixed-income and sustainability funds, and many of SSGA’s launches have echoed that intention.
The seeds that SSGA planted over the past several years have been bearing fruit. It built out a low-cost series of portfolio building-block ETFs in the U.S. bearing the “SPDR Portfolio” branding. SSGA launched these later than its industry rivals, so they aren’t as large. But they’re competitive, with solid management and low fees, which helped them consistently take in new money over the past several years.
SSGA continued to overhaul its ETF business in Europe with most of its recent fixed-income and sustainability fund launches. Many of these funds track indexes and charge relatively low fees. With operations in the U.S. and Europe standing on a firm foundation, SSGA will put more focus on its Asia-Pacific business—the smallest regional segment of its business.

Parent

SPDR Dow Jones Industrial Average ETF

DIA tracks a price-weighted index of 30 large-cap US stocks, selected by the editors of the Wall Street Journal.

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