Murdoch Plans Global Dow Index, Like It or Not
By Dan Burrows
August 7, 2008
SMARTMONEY IS HALF owned by Dow Jones, which is itself owned by News Corp. (NWS1), so when Chairman Rupert Murdoch unveiled plans this week for a new global index to complement Dow Jones’s famed U.S. industrial average, our initial reaction was, “Great idea, boss!”
That was quickly followed by the realization that the investing world probably doesn’t need another benchmark — and that that won’t much matter as to its success.
A spokeswoman for Dow Jones said the company is still working on the methodology for the Global Dow and plans to announce the full details when it launches sometime in the fourth quarter. The components, as they are with the Dow Jones Industrial Average, will be chosen by the editors of The Wall Street Journal.
With new exchange-traded funds sprouting like mushrooms there are sure to be some takers. Expect to see at least three ETFs based on the Global Dow — one to track the benchmark, one that’s leveraged to double its performance and an ultra-short version to capture gains when it tanks.
And why stop there? A passively managed mutual fund would do well to grab some inflows. Why shouldn’t Fidelity or T. Rowe Price (TROW2) offer up no-load funds indexed to the Global Dow for 401(k) plans?
Never mind that the investing landscape is practically polluted with competition. Dow Jones Indexes, MSCI (MXB3), Russell, S&P, FTSE — they’ve got developed and emerging markets covered in any number of combinations and permutations. In case you were wondering, MSCI offers an index that covers the world, excluding Australia (which, curiously, is the home of our beloved chairman).
We suspect the Global Dow, like the doomestic Dow, is more about marketing than licensing. But that doesn’t mean it can’t avoid some of the Dow’s problems in its constitution to be more useful. The biggest knocks on the Dow are that it’s too narrow and that it’s weighted by share price rather than market cap. You can buy the Diamonds ETF (DIA4) to track the Dow, but why bother? With only 30 companies, there are far more diversified ways to get exposure to blue-chip stocks. Meanwhile, the price weighting gives International Business Machines (IBM5) more influence on the index than Exxon Mobil (XOM6), even though the energy giant boasts more than twice the market value of the technology company.
What little Dow Jones has said about the new index gives us some hope that it will do a better job representing the global market than the Dow industrials do the U.S. Murdoch made clear that developing markets, emerging economies and alternative energy will factor prominently in its construction.
And if they mess it up on the first go round, there’s always room for improvement. Of the original 12 members of the Dow first published in 1896, only General Electric (GE7) still remains. (See chart below.)
It’s a testament to successful marketing that when people ask, “How’d the market do today?” they usually mean the Dow, even though the broader S&P 500 index is a truer barometer of stocks. A Global Dow that can grab the public’s imagination and accurately benchmark world equities could be useful. And at the very least? It would probably encompass Australia too.
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