2023-09-18 23:56:50 ET
Summary
- SPDR Global Dow ETF is a smart beta equity ETF that represents both DM and EM companies with a pivotal role in the global economy. The portfolio has been recently recalibrated.
- DGT has a rather standard country mix, having, aside from most of the net assets allocated to the U.S., overweening exposure to Europe and Japan.
- DGT might be a solid choice for investors who select stocks fastidiously and demand a similarly careful approach from passive vehicles they would buy into.
- The downside here is that its past performance is not supportive of a Buy thesis. I also do not see an FX opportunity here.
- I would opt for an overall neutral view, with a Hold rating as a golden mean.
International ETFs can serve multiple purposes. For example, they can be helpful in achieving a lower weighted-average Price/Earnings ratio as non-U.S. companies typically offer more appealing valuations. Also, they are, in essence, an instrument to bet on the paths of central banks diverging as regulators rethink the inflation question, thus opening the door for opportunities in FX markets. However, betting against the USD outright is not a strategy for everyone, and obviously not for the faint-hearted, as the greenback has been consistently surprising bears, especially in recent years. Moreover, the timing of the first interest rate cut is far from certain, with economic data sending mixed signals.
But there is a golden-mean solution: hybrid funds that do not go all-in on international equities but instead offer equity mixes with sizable exposure to the USD, thus allowing to minimize losses in case the dollar once again surprises on the upside. A nice example is the SPDR Global Dow ETF ( DGT ), which we will be reviewing today.
At first glance, DGT offers a rather standard view of the global equity universe. The fund is heavy in U.S. stocks, with Japan coming in second and the UK in third place. Digging deeper, we see an overweening majority of the holdings priced in the U.S. dollar, about 52.9%, with the euro being the second most important currency, with 16%. We have seen similar proportions in the case of other investment vehicles, like the iShares MSCI ACWI ETF ( ACWI ), which is also overweight in U.S. and Japanese companies. However, it will not be an exaggeration to say that DGT is still unique in many ways. Did this translate into steady returns? Is the fund positioned to succeed going forward? Let us find out.
Strategy: Holdings Must Play A Notable Role In The Global Economy
The Global Dow Index has been the basis of the fund's strategy since its inception in September 2000. Unlike simpler indices, instead of just taking the most expensive companies from both developed and emerging markets and assigning larger weights to those with the largest market caps, the index provider goes much deeper. More specifically, as described in the fact sheet , the 150 constituents "are selected not just based on size and reputation, but also on their importance in the global economy." Companies that have qualified are weighted equally, with an annual rebalancing in September.
What Is Inside The Portfolio?
While I was writing the article, the fund's portfolio changed due to the September rebalancing. I created the following table containing ten key holdings with notable financial data on September 16 (the holdings as of September 14):
Company | Original Ticker | Adjusted Ticker | Country | Weight | Market Cap, $ billion | Valuation Grade | Profitability Grade | P/E TTM | Price / Sales | Revenue TTM | Return on Equity |
NVIDIA CORP | NVDA | ( NVDA ) | U.S. | 1.80% | 1125.85 | F | A+ | 105.96 | 33.22 | 32.68 | 40.22% |
UNICREDIT SPA | UCG | ( OTCPK:UNCRY ) | Italy | 1.26% | 41.25 | A+ | F | 4.91 | 1.92 | 23.3 | 13.72% |
GENERAL ELECTRIC COMPANY | GE | ( GE ) | U.S. | 1.15% | 125.05 | F | A+ | 12.49 | 1.56 | 80.94 | 30.89% |
META PLATFORMS INC | META | ( META ) | U.S. | 1.04% | 802.11 | D | A+ | 35.17 | 6.52 | 120.53 | 17.36% |
MITSUBISHI UFJ FINANCIAL GROUP | 8306 | ( MUFG ) | Japan | 1.00% | 105.03 | D+ | A | 9.86 | 2.58 | 41.17 | 8.92% |
NETFLIX INC | NFLX | ( NFLX ) | U.S. | 0.99% | 178.36 | D- | A | 42.22 | 5.50 | 32.13 | 20.26% |
MITSUI + CO LTD | 8031 | ( OTCPK:MITSY ) | Japan | 0.96% | 56.31 | C+ | A+ | 7.76 | 0.63 | 95.2 | 17.33% |
MITSUBISHI CORP | 8058 | ( OTCPK:MSBHF ) | Japan | 0.95% | 72.32 | - | - | 11.25 | 0.52 | 144.61 | 11.72% |
PETROCHINA CO LTD | 857 | ( OTCPK:PCCYF ) | China | 0.95% | 200.22 | - | - | 6.44 | 0.32 | 427.86 | 10.87% |
BOOKING HOLDINGS INC | BKNG | ( BKNG ) | U.S. | 0.93% | 114.13 | D | A+ | 27.18 | 6.22 | 19.34 | 267.13% |
Created using data from Seeking Alpha and the fund; financial data as of September 16
We see that NVDA was its major position, owing to its spectacular performance amid the AI rally. However, since then, the fund has posted an updated portfolio, with weights already reset. I downloaded a new daily holdings file from its website on September 18 (16:12, Eastern Time, to be precise); in the file, it is mentioned that the holdings were as of September 15. So, NVDA is no longer the leader, now being only in 127th place with its weight trimmed to just 63 bps. Below is the new cohort of key stocks (there are 154 holdings in total). As we can see, NVIDIA was dethroned by Anglo American, a preeminent London-based mining company with a massive portfolio of assets producing copper, nickel, platinum, etc.
Name | Ticker | Adjusted Ticker | Country | Weight, % |
ANGLO AMERICAN PLC | AAL | ( OTCQX:AAUKF ) | UK | 0.738921 |
BOOKING HOLDINGS INC | BKNG | ( BKNG ) | U.S. | 0.725138 |
RIO TINTO PLC | RIO | ( RIO ) | UK | 0.710283 |
TOYOTA MOTOR CORP | 7203 | ( TM ) | Japan | 0.709479 |
VODAFONE GROUP PLC | VOD | ( VOD ) | UK | 0.707469 |
TAKEDA PHARMACEUTICAL CO LTD | 4502 | ( TAK ) | Japan | 0.706465 |
TESLA INC | TSLA | ( TSLA ) | U.S. | 0.704772 |
CVS HEALTH CORP | CVS | ( CVS ) | U.S. | 0.704077 |
MIZUHO FINANCIAL GROUP INC | 8411 | ( MFG ) | U.S. | 0.699370 |
VESTAS WIND SYSTEMS A/S | VWS | ( OTCPK:VWDRY ) | Denmark | 0.699278 |
Created by the author using data from DGT and Seeking Alpha
I have also spotted a few additions and removals. For example, while AbbVie ( ABBV ) and PepsiCo ( PEP ) were added, Carrefour ( OTCPK:CRRFY ) was removed.
Overall, even though U.S. names are now underrepresented in the top 10 group, they nonetheless account for the bulk of the net assets. Other countries are far behind, with only 16% of stocks represented priced in the euro and 10.3% priced in the Japanese yen.
In terms of sectors, financials, industrials, and consumer discretionary are the top three, with little change from the pre-rebalancing version.
Performance Discussion
The market environment surrounding DGT's debut was anything but opportune, as investors who bought into the fund shortly after its launch in September 2000 saw their theoretical $10,000 allocated plummet to $5,535 in September 2002 amid the dot-com bubble crash. And the way back to the $10,000 amount was long and torturous as the portfolio reached its initial size only in August 2006. Here, it is worth noting that the iShares Core S&P 500 ETF ( IVV ) recovered by April 2006 already and has been much racier since then, also performing better during the Great Recession, with $10,000 (invested in October 2000) shrinking to $5,973 in February 2008, while the same amount deployed to DGT fell to $5,368.
Another displeasing fact is that its simpler and less picky peer ACWI, which was incepted in March 2008, also performed better during the GFC, already fully recovering by February 2011, most likely owing to its market-cap-driven weighting schema, while the $10,000 amount that was allocated to DGT returned to its original size only in July 2013.
Overall, we see that the more value-oriented SPDR Global Dow ETF underperformed both IVV and ACWI during the April 2008-August 2023 period. Its risk-adjusted returns were also the weakest.
Portfolio | DGT | IVV | ACWI |
Initial Balance | $10,000 | $10,000 | $10,000 |
Final Balance | $23,812 | $46,220 | $26,487 |
CAGR | 5.79% | 10.44% | 6.52% |
Stdev | 16.98% | 16.12% | 17.34% |
Best Year | 26.20% | 32.30% | 32.35% |
Worst Year | -31.01% | -30.46% | -33.84% |
Max. Drawdown | -46.45% | -46.18% | -51.39% |
Sharpe Ratio | 0.37 | 0.65 | 0.41 |
Sortino Ratio | 0.53 | 0.96 | 0.58 |
Market Correlation | 0.92 | 1 | 0.96 |
Created using data from Portfolio Visualizer
Over the October 2000-August 2023 period, its annualized return was almost 2x lower compared to IVV.
Portfolio | DGT | IVV |
Initial Balance | $10,000 | $10,000 |
Final Balance | $22,870 | $48,316 |
CAGR | 3.68% | 7.12% |
Stdev | 15.90% | 15.28% |
Best Year | 26.20% | 32.30% |
Worst Year | -37.53% | -37.02% |
Max. Drawdown | -51.56% | -50.78% |
Sharpe Ratio | 0.21 | 0.43 |
Sortino Ratio | 0.3 | 0.61 |
Market Correlation | 0.92 | 0.99 |
Created using data from Portfolio Visualizer
However, there are positives to mention as well. For example, the weighting schema likely saved the fund from a much steeper decline last year, when it beat IVV and ACWI by 10.13% and 10.34%, respectively, with a negative total return of 8.03%.
Investor Takeaway
DGT is a smart beta equity ETF that represents both DM and EM companies with a pivotal role in the global economy. The portfolio has been recently recalibrated, with weights reset.
DGT has a rather standard country mix, having, aside from most of the net assets allocated to the U.S., overweening exposure to Europe and Japan. On a side note, this is not necessarily a drawback since, as we discussed in the note on the Cambria Global Value ETF ( GVAL ), unique approaches to country selection rarely translate into outperformance.
The ETF might be a solid choice for investors who select stocks fastidiously and demand a similarly careful approach from passive vehicles they would buy into. The downside here is that its past performance is not supportive of a Buy thesis, at least in my view. I also do not see an FX opportunity here. For example, the European Central Bank has recently increased the key policy rate once again, which is technically bullish for the euro. However, this is hardly sufficient as traders switched focus to slowing growth, so it is tough to justify an EUR/USD rate above around 1.07, a level where it is oscillating currently.
Regarding fees, the 50 bps expense ratio looks completely adequate for a multi-country ETF, but juxtaposed to ACWI's 32 bps, it obviously looks a bit elevated, especially considering DGT underperformed this peer in the past as discussed above. In sum, I would opt for an overall neutral view, with a Hold rating as a golden mean.
For further details see:
DGT: Smart Beta Does Not Help Performance Much