By Carl T. Delfeld of ETF Passport
The Dow Jones Industrial Average, founded in 1896, has a proud heritage, but is its basket of 30 American companies relevant today? What about the exchange-traded fund or ETF that tracks the Dow, the Diamond Trust Series (DIA) that has amassed 9 billion in assets?
On April 1, 2005, I created an alternative to the Diamond ETF that I call the Chartwell Global GNP 30. Like the Dow and the Diamond ETF, my basket is composed of 30 stocks with good diversification but with the following differences.
While the Diamond is made up of 30 American stocks, the distribution of companies in the Global GNP 30 has evolved into being geographically based on the distribution of global GNP per the 2009 CIA World Fact Book. This means that the target for North America is at 28%, Europe at 29%, developed Asia at 12%, China at 7% and other emerging markets at 24%. If one region seems overvalued, the portfolio shifts incrementally to a region offering better value.
The Dow is price weighted while the companies in the Global GNP 30 are equally weighted. The Dow is for the most part a passive index while the Global GNP 30 is actively managed with a bent for value and a target turnover of about 15%-20% per year. This low level of active management and value-oriented dividend rich strategy is similar to that of Warren Buffet and the Templeton Growth Fund and helps to increase tax efficiency and lower volatility.
The global approach allows me the flexibility to search for the best of breed in each category and oftentimes I pair an American company with an international firm. An example of this is coupling JP Morgan Chase (JPM) with HSBC (HBC).
One example of a core holding in the Global GNP 30 is generic leader Teva Pharmaceutical (TEVA). Israel based Teva has about $14 billion in annual sales and a 24% U.S. market share for un-patented prescription drugs. The company has a net debt of $4 billion versus an enterprise value of $54 billion and trades at about 13 times expected 2010 net earnings.
The Global GNP 30 sector breakdown is currently as follows: finance - 22%, medical - 14%, energy - 14%, consumer staples - 14%, consumer 13%, basic materials - 9%, computer/tech 7%, and transportation - 7%. It has a price to book of 1.9, a price to sales of 1.2 and a dividend yield of 3.04%.
In terms of performance since inception, the Global GNP 30 portfolio, before fees, is up 50.94% versus just 14.73% for the Diamond ETF (DIA). In addition, it did even better against the ETF that tracks a basket of the largest 100 companies in the world, the S&P Global 100 (IOO). IOO is up only 11.30% since April 1st, 2005.
The marketing slogan for the SPDR Dow Industrial ETF (DIA) is "Invest in America: your grandparents did" while the pitch for the Global GNP 30 is "Invest in the world: your children will thank you."
For more information, please contact Carl Delfeld at 719.264.1503 or at Carl@ETFpassport.com
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