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Tickers in this Article: BHP, JNJ, KO, MSFT, GE, MCD, CHL, MFC, MC, BUD
The latest Olympic installment is dominating the news across the globe. Whether it be the Chinese's fight to host the "perfect" event, or the political and environmental controversies that have surrounded them, you can't pick up a newspaper, click through to a website, or turn on the television without seeing something on the games. This media coverage is perfect for sponsorship, and so it's also an interesting place to look for your next investment.

Dow Jones 2008 Summer Games Index
First published in December of 2007 (with an inception date of December 31, 2006 using historical data and backtesting), the Dow Jones 2008 Summer Games Index, represents the official partners, sponsors, and suppliers of the 2008 Olympic Games in Beijing that are publicly traded. The index consists of 37 of the world's leading companies, of which, about half were Chinese at first publication. As of June 30, 2008, over 60% of the index consisted of U.S. companies, with Hong Kong and Australia taking the silver and bronze positions with about 12% and 10% respectively.

Due to the consumerist nature of sponsorship, it goes without saying that the largest sector component of this index is consumer goods with about a 26% allocation as of June 30. The weightings of this index are reviewed quarterly, and are calculated using float-adjusted market capitalization weighted, subject to a 10% cap on each individual security. (Get to know the most important market indexes and the pros and cons of investing in them, in our Index Investing Tutorial.)

The top 10 components of the Dow Jones 2008 Summer Games Index as of June 30, 2008 are:

Company Index Weighting 52-Week Change*
BHP Billiton
10.32% 15.85%
Johnson & Johnson
General Electric
6.20% 31.06%
China Mobile
5.45% 5.17%
Manulife Financial
5.12% -6.62%
Matsushita Electric
4.45% 21.89%
4.31% 41.73%
* Data as of market close August 18, 2008

With an annualized 1 year return of 8.2%, this index leads most others in this current market environment. Especially, when the consumer goods sector (of which this index is mostly comprised) has done so poorly. In this pale recession, as it has been called, the consumer goods sector (as measured by the Dow Jones World Consumer Goods Index) has lost a substantial 11.7% over the same period.

Beating Benchmarks
It may be very easy to just buy up a portfolio that matches this index, and call it a day; but a prudent investor may want to do a little more homework first. Yes, this index has beaten benchmarks - as you can see from the chart below, the Summer Games Index outperforms both its global and blue chip peers - however a little digging may reveal that these gains have come from a select few, rather than the whole.

Comparison of Dow Jones Indexes
(December 29, 2006 to August 1, 2008)

Source: Dow Jones

A portfolio created using the top 10 components in similar weightings to the index would have created a 52-week return of just 5% - a little lower than the return of investing in the whole index. As you can see in the table above, poor showings by heavily weighted companies such as General Electric and Microsoft, have dragged down the returns of this hypothetical portfolio. But if we had used this index as a starting off point to find a couple of winners, investors would have seen much higher returns. Let's take a look at a company in this index that has done very well over the past year.

McDonald's Corporation
Topping out the list with a 52-week return of over 30%, McDonald's has provided investors with returns not seen in many other places in this market. When comparing it with its competitors this is not too much of a suprise. Gross and operating margins of 35.91% and 25.78% shatter the industry averages of 23.59% and 5.72% respectively. With earnings per share above its competition, and a price-earnings ratio below them, McDonald's is still looking like it has some room to continue to impress shareholders. McDonald's has a trailing twelve month P/E ratio of 16.4 compared to competitors Burger King, and Wendy's, that have ratios of 21.1 and 32.9 respectively. (Learn to put your money where your mouth is, in our related article Sinking Your Teeth Into Restaurant Stocks.)

Share Your Thoughts
Do you think the Olympic Games, and their media coverage, will help to boost the share prices of its partners, sponsors, and suppliers? Would picking one or two from this list give you an edge over other investors, or would you be better off investing in the entire index? Be sure to join me (aytonmm) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.

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