The Dow Jones Industrial Average and the Diamond exchange traded fund (DIA) that tracks it is making headlines but a little known global rival demonstrates the power of international exposure.
Lets take a quick look inside the Dow Jones industrial average and then highlight a new global challenger I created that better reflects the reality of current global markets: the Chartwell 30 Global Average.
Charles Dow created the first Dow Jones index in 1896. It included nine railroad stocks, a steamship line and a communications company. In 1916, the industrial average expanded to 20 stocks; the number of components was raised again in 1928, to 30, where it remains today. The Dow is a benchmark that tracks American stocks considered to be the leaders of the economy in a number of industries.
Editors of The Wall Street Journal subjectively pick these 30 large cap companies. Over the years, the editors have changed the mix of companies in the index to ensure that it stays current in its measure of the U.S. economy. In fact, of the initial companies included, only General Electric remains part of the modern-day average.
In the spring of 2005, I was thinking that since the DJIA is made up of exclusively U.S. companies and by definition focused on industrial companies, it did not reflect the performance of large swaths of the U.S. or the rapid growth and accessibility of the global marketplace. There are a lot of good companies in the Dow, but it is no longer a good barometer of either the typical American portfolio or a useful index for investment vehicles like ETFs to track.
I decided to build by own benchmark and basket from the 100 largest companies in the world captured nicely in the iShares S&P Global 100 Index (amex: IOO). From this list of 100 companies, I chose 15 American companies and 15 international companies while doing my best to have some geographic and sector diversity. Some of the international companies in the index are HSBC, Nokia, Toyota Motor and BHP Billiton. I weighted all the companies evenly, just like the Dow does, and called the basket the Chartwell Global 30 Average.
The Chartwell Global 30 is up 54% since August 4th, 2005, compared with 38% for the Dow Jones Industrial Average. During the last 12 months it is up 39%, versus 33% for the Dow; so far in 2007, it is up 19.2%, versus 13.4% for the Dow. I have also set up the Chartwell Global 30 as a portfolio and brought in my first client one year ago.
The Dow Jones industrial average was revolutionary at inception and has a well deserved storied past that parallels the evolution of the American economy. But for the era of the global economy and investor, it's time for a new revolution and the Chartwell Global 30.
Wednesday, July 18, 2007
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