Animal Spirits Podcast Summary: "Talk Your Book: The People's Index"

Release Date: August 11, 2025

Hosts: Michael Batnick and Ben Carlson
Guest: Matt Bartolini from State Street Investment Management

1. Introduction to the People’s Index

In this episode of the Animal Spirits Podcast, hosts Michael Batnick and Ben Carlson delve into the intricacies of the Dow Jones Industrial Average (DJIA), affectionately referred to as "The People's Index." Sponsored by State Street Investment Management, the discussion centers around the history, structure, and relevance of the DJIA in today's investment landscape.

2. History and Structure of the Dow Jones Industrial Average

The conversation kicks off with an exploration of the DJIA's longevity and unique characteristics:

• Historical Context:
  Michael Batnik (00:49) notes, "The Dow has been around since 1896. 1897, is that correct?"
  Ben Carlson (00:58) confirms, "I think it's 1896."

• Price-Weighted Index:
  Michael highlights, "One of the weird things about the Dow is that it's a price-weighted index..." (00:58). He explains that the DJIA's price-weighting methodology stems from historical limitations in computing power, making it the simplest index to calculate at the time of its inception.

• Investability:
  Michael (01:42) emphasizes, "The Dow is not just what you hear on the news, actually, it's actually investable," referencing the DIA ETF with nearly $40 billion in assets.

3. Comparison with the S&P 500

The hosts compare the DJIA to the more widely recognized S&P 500:

• Public Perception:
  Ben Carlson (03:09) observes, "We're talking about the Dow Jones Industrial Average. If you turn on TV, whatever newspaper, it is always the first thing... people think about the Dow."

• Sector Weightings:
  Matt Bartolini (05:04) explains the DJIA's sector allocations, noting a heavier weighting in financials (26%) compared to the S&P 500's tech-heavy composition (33%).

4. Weighting Mechanism and Sector Allocation

A deep dive into how the DJIA is constructed and maintained:

• Selection Criteria:
  Matt (04:12) outlines that the DJIA comprises 30 blue-chip U.S. companies selected based on reputation, sustained growth, and revenue primarily derived from the U.S. This ensures broad sector representation across the American economy.

• Price Weighting Nuances:
  Ben Carlson (05:19) criticizes the arbitrary nature of price-weighting, questioning why companies like McDonald's and Walmart are weighted based solely on stock price rather than market value.

• Index Calculation Sophistication:
  Matt (07:03) counters by explaining the dynamic divisor used in DJIA calculations, adding sophistication beyond mere price averaging.

5. Investment in Dow: DIA ETF

The discussion transitions to the practical aspect of investing in the DJIA through the DIA ETF:

• ETF Popularity and Demographics:
  Matt (14:26) suggests, "this ETF is actually a microcosm of all the different user bases of ETFs," indicating widespread use among retail, institutional investors, and various financial products.

• Diversification Benefits:
  Ben Carlson (15:30) points out, "If you want exposure to the US stock market, but you don't want to have 35% of your portfolio or whatever the number is in the top seven names...," highlighting the DJIA as a viable diversification tool despite its concentration.

6. Stock Splits and Index Composition

Exploring how corporate actions like stock splits impact the DJIA:

• Impact of Stock Splits:
  Matt Bartolini (12:15) discusses the rarity and consequences of stock splits within the DJIA, using Amazon's split as an example to illustrate how such actions can affect index composition and weighting.

• Index Stability:
  The DJIA is characterized as a more "buy and hold" index with minimal turnover, ensuring stability over time compared to the more frequently rebalanced S&P 500.

7. Market Performance in 2025

Analyzing the DJIA's performance amid 2025's market conditions:

• Year-to-Date Growth:
  Ben Carlson (24:13) remarks on the market's 9% YTD growth amid ongoing tumult, questioning the underlying factors driving such resilience.

• Fundamental Stability vs. Macro Noise:
  Matt Bartolini (24:51) attributes the market's performance to strong earnings growth overshadowing short-term macroeconomic volatility, stating, "the market's up 9%. I think largely that's probably where earnings per share growth on a full year basis is going to net out."

• Earnings as a Decisive Factor:
  Michael (26:12) concurs, emphasizing that "earnings continues to be the key."

8. State Street's ETF Strategies

Matt Bartolini shares insights into State Street’s strategic shifts in ETF allocations:

• Resiliency Focus:
  Matt (28:10) outlines three primary strategies:

  1. Equity Allocations: Increased flows into non-U.S. equities (48% of recent flows) to diversify away from prior U.S. concentration.
  2. Fixed Income ETFs: Record inflows with $206 billion through July, potentially reaching $400 billion by year-end, focusing on short-term bonds.
  3. Non-Traditional Exposures: Allocation to commodities, inflation-linked bonds, and multi-asset portfolios to enhance resilience against uncertain economic paradigms.

• Adaptive Investment Approaches:
  These strategies aim to build more resilient portfolios amidst evolving macro risks and shifting global economic dynamics.

9. Conclusion and Takeaways

Wrapping up the episode, the hosts and Matt Bartolini underscore the DJIA’s enduring relevance and adaptability:

• Cultural Resonance:
  Matt (23:45) notes, "It's something that people hear on the news about. This is 30 well-known stocks... that's an early investor's entry point."

• Investment Simplicity and Familiarity:
  The DJIA offers a straightforward, easily understandable investment vehicle, making it appealing for newcomers and seasoned investors alike.

• Strategic Portfolio Placement:
  Ben Carlson (22:51) and Matt (21:20) discuss incorporating the DJIA as a core or supplementary component within broader asset allocation models to enhance portfolio stability and quality.

Notable Quotes

• Michael Batnik (00:58): "The Dow has been around since 1896."

• Matt Bartolini (05:04): "It covers a broad range of sectors and industries... US large cap, blue chip, well-known firms."

• Ben Carlson (05:19): "It's kind of remarkable how the composition of the index really makes no sense. Like why would you weight stocks by their price?"

• Matt Bartolini (07:03): "There's a lot of sophistication that goes into it... you get a normalized price-weighted basis."

• Matt Bartolini (24:51): "It's the fundamentals all of a sudden gets the hand of the steering wheel gets a little bit calmer because the fundamental news... has been pretty positive."

• Matt Bartolini (28:10): "They've been doing more resiliency... building more resilient portfolios to pressing macro risks."

Final Thoughts

This episode of Animal Spirits Podcast offers a comprehensive exploration of the Dow Jones Industrial Average, highlighting its historical significance, structural uniqueness, and practical investment considerations. Through insightful discussions with Matt Bartolini, listeners gain a nuanced understanding of how the DJIA operates within the broader financial ecosystem and its role in contemporary investment strategies.