Dow Jones ETF (DIA) is lagging S&P 500 (SPY) ETF again, here is what this means for traders

SPDR Dow Jones Industrial Average ETF Trust (DIA) and the SPDR S&P 500 ETF Trust (SPY) are the two “favorite sons” of State Street’s massive ETF stable. SPY was created in 1993, the first-ever US ETF. And DIA followed in 1998.

At the time, the Dow was considered “the stock market” more so than the S&P 500. But that was in the process of changing back then. And at this point, the Dow is more like the proverbial red-headed stepchild. The S&P 500 gets all the accolades, other than those reserved for the Nasdaq 100 ETF (QQQ) and others like it.

Maybe it is DIA’s quirky weighting scheme, which allocates by stock price instead of market capitalization. But whatever it is, DIA often stays quite competitive with SPY. And that weighting system goes back to the 1800s, when the big growth stocks were not “AI,” though the industry name did have those two letters in it. “Railroads” were the innovators way back then.

Tech stocks drive SPY more than DIA

The current market environment is another one of those DIA “episodes” in which its lack of tech exposure (21%) compared to SPY (35%) is a decided disadvantage. That’s what happens when the market essentially runs on that sector and a few others.

There has been an ebb-and-flow pattern to this over the past several years. And I see it getting more concrete, in that there might even be a case for considering DIA the “defensive” equity ETF versus QQQ’s “offense” makeup. SPY is somewhere in between. That’s another article for another day.

What has my attention now, and which should be on the radar of traders, is this picture. Through the first seven months and one day of 2025, DIA is lagging SPY by a fairly wide margin. Its gain is about half that of SPY, which is material. And following a familiar pattern from recent history, that entire advantage happened since late May, about 10 weeks ago.

SPY vs. DIA year to date performance. Source: Ycharts.

Here’s a much longer look at this pair, going back 10 years. There’s that back and forth relationship between these two siblings, though SPY has clearly had the upper hand more recently. This has everything to do with the tech sector, and with the massive flows of assets into SPY and other ETFs that mimic the S&P 500 index. Indexation in the Dow 30 index is a fraction of that.

SPY vs. DIA 10-year performance. Source: Ycharts.

Yet over the common inception of the two, about 27 years worth, its a total tossup. DIA outperformed for years. And I see a path for it to do so again during the next full bear market. But we have not had one of those since 2007-2009. All those since have been akin to “flash crashes,” with 2022’s 9-month setback being the longest “pain trade” we’ve seen over the past 16 years. That’s enough to erase a lot of memories.

SPY vs. DIA performance since 1998. Source: Ycharts.

This chart below is the one I can’t look away from. A 5% spread over three months in either direction between SPY and DIA is uncommon. It happens, and with increasing frequency. But I think it speaks to the growing separation of the two indexes.

SPY vs. DIA 3-month performance spread. Source: Ycharts.

And that has some excellent implications for investors. As it is, SPY is driven by perhaps 50 stocks. DIA only has 30 to begin with. I see increasing evidence in my own trading that seeing these two market headliners for what they are: similar but with important distinctions at the sector and stock level, can be a significant source of alpha in the years ahead. Especially when stocks don’t go up as consistently as they have.

DIA and SPY’s holdings won’t surprise you, but their allocations might

I expect to dive further into this in upcoming articles, so for now, these snapshots will make the main point. All 30 DIA holdings are in SPY. With those 30, here are the 10 largest by SPY weighting. Even with 500 stocks, SPY’s holdings in those top four giant stocks account for about one-quarter of the entire S&P 500. Four stocks! They are 16% of DIA. That right there is the biggest gap-producer in performance. It is not that DIA does not hold them. It simply holds them in less dominant positions. That might be a good thing if and when we have a Magnificent 7 meltdown, which I think we will at some point.

Largest DIA/SPY common holdings, sorted by highest SPY weight. Source: Ycharts.

And, here are the top 10 by DIA weighting. Of those, only Microsoft (MSFT) is of sufficient size to have any impact on SPY.

Largest DIA/SPY common holdings, sorted by highest DIA weight. Source: Ycharts.

Dow stock Boeing (BA) is not on either list, but I’ll still try to land this plane, so to speak. I conclude that traders should get much more acquainted with these two ETFs. Not just how they trade, but which stocks are pre-determined to move those indexes. Many holdings in each do not impact the other. That’s where alpha comes from.