Summary
- DGT is a global equity ETF spread across 150 equal-weighted holdings.
- DGT is more than 22 years old, has outperformed SPY, QQQ and ACWI since the start of the pandemic, but sits at a mere $100mm in AUM. What gives?
- I don't know why investors are ignoring DGT, but I've decided not to. I'm following it, and rating it a Hold for now, primarily due to broad stock market conditions.
By Rob Isbitts
SPDR Global Dow ETF ( DGT ) is a good example of what happens when investing fundamentals get overwhelmed by big market budgets, and their strong influence over investor perception about ETF investing. Over the past 20 years, the S&P 500 has replaced the Dow Jones Industrial Average as the common definition of "the stock market." During that time, US stocks have trounced non-US markets. And, State Street, the provider of the first-ever ETF ( SPY ) back in 1993, has made its living primarily off of that iconic S&P 500 tracker, as well as its sector SPDR series.
That has left some ETF "orphans" including DGT. It is well-constructed, has outperformed a popular group of peers since the start of the pandemic, and provides deeper global access than many "global" ETFs. Yet it has been largely ignored. I don't know why, but as a contrarian investor at heart, I had to check it out. I did, and I'm now a fan and follower of DGT.
Strategy
DGT tracks the Dow Jones Global Dow Index, which aims to track the performance of blue-chip stocks around the world. The index has 150 companies, which span US, International and Emerging Markets. The index has some additional filters beyond market capitalization. It aims to include companies based in part on their importance to the global economy. It is an equal-weighted index.
ETF Grades
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Offense/Defense: Offense
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Segment: Broad Equity
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Sub-Segment: Global
Technical Ratings
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Short-Term (next 3 months): D
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Long-Term (next 12 months): C
Rating scale: A = Excellent, B = Good, C = Fair, D = Weak, F = Poor
For a detailed description of MII's proprietary technical rating system, see disclosures at bottom of this report.
Holding Analysis
As an equally weighted index of 150 stocks, the only way a single stock accounts for more than 1% of DGT's assets is if it vaults higher in price after the ETF's annual September reconstitution and rebalance. Historically, the index turns over its holdings at a rate of 12% per year. In other words, of the 150 stocks in the index, about 18 are replaced in a typical year.
Strengths
I don't usually devote much time to past performance when reporting on ETFs for the first time. But given that so much investor behavior is rooted in buying yesterday's winners and hoping they will continue to outperform, I found this chart interesting. I went back to 2/19/2020, the day the S&P 500 topped as the Covid-19 pandemic arrived. That's exactly 3 years ago.
DGT not only outperformed the industry-standard ACWI index, but also the US Dow S&P 500 and Nasdaq 100 ETFs. Yet DGT sits at $100mm in AUM. Interesting, and a good statement about how marketing and perception drive ETF asset flows to a large degree. After all, this time period is one of the most telling of our lives when it comes to investing. It includes a 33% S&P 500 crash in 5 weeks, a historic rebound rally, and a year in which stocks and bonds each fell hard, yet with sharp bear market rallies throughout.
DGT has a lot more going for it than past performance since the pandemic started. It out-yields the S&P 500 consistently, and it offers global diversification, which could help during weak periods for the US Dollar.
Weaknesses
DGT is an equity ETF, so it certainly can drop in value by significant amounts. The fund has been around since way back in the year 2000, so it has endured a pair of major bear markets (no, 2022 is not yet the start of a "major bear market - bears can get much worse).
Opportunities
DGT may have some positive markets trends coming toward it, after years of being relegated to being a "global" ETF in a US-dominated equity market. Non-US stocks appear to be cheaper than their US counterparts based on several measures. The current DGT portfolio sells for less than 12x trailing earnings, and just 1.1x sales. Furthermore, 48% of the fund is invested in the US, which is quite a bit lower than many "global" ETFs that are really US ETFs in disguise.
Threats
The stock market is in a bear cycle, and that extends around the globe. So, it is possible that continued outperformance of DGT versus the "headline" stock indexes could be more about losing less, rather than making more. In addition the fund is not terribly liquid, even after more than 20 years in business. The low asset base is accompanied by a daily dollar volume of just over $600,000.
Conclusions
ETF Quality Opinion
It appears that investors have left DGT behind. This ETF never reached $200mm in assets, and it peaked on that aspect way back in 2007. I'm not going to leave DGT behind. I'm going to keep an eye on it.
ETF Investment Opinion
DGT is a Hold, given broader market concerns. But this could be one of those hidden gems down the road.
Modern Income Investor's proprietary technical rating system was created by the firm's founder, Rob Isbitts, a chartist for more than 40 years. The ratings emphasize risk management, and the belief that while any investment can appreciate in price at any time, each investment carries a different level of potential for major loss. The balance of reward and risk is calculated each night for thousands of securities, using a formula that analyzes price trend, strength of that trend and key price levels. It analyzes data over multiple time frames to produce a short-term rating (looking 3 months out) and a long-term rating (looking 12 months out).
For further details see:
DGT: A Forgotten Global ETF That Deserves More Attention