The Dow Jones Industrial Average
But for those who want the diversification that international stocks provide, the Dow is not enough. In response to the needs of global investors, Dow Jones Indexes, the company behind the Dow, developed its Global Dow. Let's take a closer look at this index to discover some of the ways it gives you a broader picture of the health of stock markets around the world.
The Dow goes global
The Global Dow shares many attributes of its better-known counterpart. Like the Dow, the Dow Jones Averages Committee specifically chooses stocks to come into the Global Dow, with the goal of reflecting the breadth of the global stock market, both geographically and with its mix of industries. Moreover, the Global Dow strives to keep its constituents list stable, saving replacements for major events like mergers.
But the Global Dow has plenty of differences as well. The most obvious is its size, as the Global Dow has five times as many component companies as the Dow. With 150 stocks, the Global Dow can reflect not just well-established companies but also up-and-coming prospects that are well-placed to become tomorrow's big leaders. In addition, the index is equally weighted, avoiding the complications of price weighting from which the Dow suffers.
Filling some gaps
The Global Dow's broader scope and other advantages specifically allow it to include some stocks that the Dow leaves out. For instance, equal weighting makes it easy for the Global Dow to include Apple
More importantly from an international perspective, the Global Dow reflects the fact that in some industries, foreign companies play a much bigger role in the global economy than their U.S. counterparts. Perhaps the most obvious example is in mining, where BHP Billiton, Rio Tinto, and Vale
In addition, Global Dow investors get a benefit that many competing international indexes lack: emerging-market coverage. The Global Dow includes many companies from Russia, China, India, and Brazil, and although those constituents typically represent companies from those emerging economies that have already reached significant scale, many of them nevertheless have plenty of growth potential. Vale will continue to grow as long as manufacturing demand exists somewhere in the world, while Infosys
Should you buy the Global Dow?
Buying 150 different stocks would be a colossal enterprise for any investor, so those wanting to buy the Global Dow may prefer to take advantage of the index-tracking SPDR Global Dow ETF
As a result, most investors should treat the Global Dow as a source of ideas rather than as an index to track directly. With the same vetting process that Dow stocks go through, the Global Dow represents the cream of the crop of the global stock market -- and investors can get some valuable insight into the world economy just by looking more closely at its component stocks.
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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. You can follow him on Twitter, @DanCaplinger. The Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Apple and Google, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.