As you can see from Friday’s chart, a new indicator, called the Global Dow, was recently added.
For some details as to what this index covers and how it has fared this year, MarketWatch featured this story:
The Global Dow launched on Tuesday — the first addition to the Dow Jones Averages family of indexes in 75 years.
Like its famous progenitor, the Dow Jones Industrial Average, stocks in The Global Dow are selected by senior editors of The Wall Street Journal. Joining them for this new index were Dow Jones Newswires senior editors in the three major regions of the globe.
WSJ’s Managing Editor Robert Thomson introduces the new international index, the Global Dow. (Nov. 11)But unlike the Dow everyone is familiar with, The Global Dow (GDOW) is much bigger — 150 stocks rather than 30 — and its components are weighted equally rather than by price. All 30 Dow industrial stocks are included in The Global Dow, as well as some from the Dow Jones Transportation and Utility averages.
The biggest difference, however, is in concept and purpose. The Global Dow tracks leading companies from around the world in all industries, selected not just for current size and reputation but also for their potential.
The Global Dow covers both developed and emerging markets, recognizing that far-flung areas of the world are becoming more closely linked and more interdependent, and that wealth creation is no longer concentrated in a few countries. In addition, it includes companies from emerging sectors, such as alternative energy.
While the index reflects the global stock market as it is today, in terms of industries and geography, care was taken to bring in some of what we think will be the leading global corporations of tomorrow.
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There is another motivation for creating The Global Dow: More institutional investors are beginning to recalibrate their equity portfolios to a worldwide perspective. Some individual investors are, too. In the past, they usually placed 80% or more of their equity investment capital into domestic stocks and the remainder in “international” (outside their home country). But with the U.S. share of global market capitalization down from more than half several years ago to 46% as of Oct. 31, forward-looking investors are rethinking their allocations.
Our goal was to come as close as we could to replicating the makeup of the global market, using the Dow Jones Wilshire Global Total Market Index (tracking 12,769 stocks in 65 countries) as a guide. But we allowed ourselves some flexibility to accommodate our goals of including emerging markets and budding industries.
We succeeded in that The Global Dow fluctuates very similarly to the DJ Wilshire Global — 0.99 correlation over three years, with 1.0 being a perfect lockstep relationship. The Global Dow’s correlation over the same period to the Standard & Poor’s Global 100 (the competing index that on the surface seems to be the most similar) is 0.97.
But The Global Dow isn’t an exact mirror of the DJ Wilshire Global. The Global Dow is a bit underweight in the Americas (the U.S. is at 42% instead of 46%) and puts greater emphasis on Europe at 32% versus 27% for the DJ Wilshire Global. Asia/Pacific is a smidgen heavier in The Global Dow at 21% rather than 20%.
In developed/emerging terms, The Global Dow has 91% of its allocation to 20 developed markets (versus 93% in the DJ Wilshire Global) and 9% in five emerging countries (against 7%). The five are Brazil, China, India, Mexico and Russia. Dow Jones considers South Korea and Taiwan, both of which are represented in The Global Dow, as developed markets.
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Of course, The Global Dow hasn’t escaped the current bear market. This year through Oct. 31, it is down 42.16% on a total return basis, compared with 40.69% for the DJ Wilshire Global and 35.94% for the S&P; Global 100. But back-testing shows The Global Dow with an annualized return of 10.47% over the five years ended Oct. 31, versus 2.62% for the DJ Wilshire Global and minus 0.36% for the S&P; Global 100.
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With the financial crisis and global recession, this might appear to be a dubious time to introduce The Global Dow. But we’re doing so intentionally, so it can trace both the bottoming of world markets and their recovery.
[Emphasis added]
Before you get all excited about these new possibilities, read the last two paragraphs again. This index, just like any other, can do well in bull markets but is a loser when the bear rears its ugly head.
I am sure that an equivalent ETF will be added in the near future, and I will include it in my data base once enough historical data exists (about 9 months). That allows us to analyze its trends and momentum figures before it can even be considered a “buy” candidate at the time the next trend change occurs.