The Dow Jones Industrial Average may be the most well-known index in the U.S. Yes, even more than the S&P 500.
Developed by Charles Henry Dow, the Dow (as it’s now often referred to) just contained 12 companies when it first began in 1896. Now, the index consists of 30 of the best blue-chip stocks in the U.S. and is considered by many to be the foremost indicator of the health of the broader financial market.
The DJIA is organized so that a $1 move in any company’s stock price will shift the Dow average by the same degree. However, the Dow is expensive to invest in outright (most investors use futures, for example).
Still, there are a few ways that investors can profit from the Dow, including using exchange-traded funds that track the index. Here are a few ETFs that track the Dow:
The SPDR Dow Jones Industrial Average ETF is a reliable ETF for replicating the performance of the Dow. It was launched in 1998 and has a history of tracking the index accurately. When most people think of an ETF to invest in, this is the one that comes to mind. DIA invests in all the stocks of the Dow and weights them comparatively to the underlying index. Expenses for DIA are also relatively low at 0.17%, allowing for minimal tracking error.
Nationwide Dow Jones Risk-Managed Income ETF (NDJI)
NDJI is an actively managed fund that invests in a portfolio of securities included in the DJIA. The ETF uses an options collar strategy to mitigate volatility and provide a measure of downside protection. It also generally uses a “replication” strategy when investing in the Dow but will switch to a “representative sampling” at the sub-advisor’s discretion and when it’s believed to be in the fund’s best interest. NDJI seeks high levels of monthly income generated from both the dividends received from equity holdings and premiums from the options collar. The fund offers a tactical investment opportunity for investors who may believe that infrastructure is due to experience a supercycle. The fund has an expense ratio of 0.68%.
Investors bullish on the returns of the Dow can look at this leveraged ETF from ProShares. The Ultra Dow30 is a leveraged ETF that seeks to replicate two times the daily performance of the DJIA. The fund invests in a number of securities to achieve its objective. Investments include equity securities from the index, derivatives including SWAP agreements and futures contracts, and money market instruments for short-term cash management. The fund’s expense is a bit higher at 0.95%.
This article was last updated on October 27, 2022.
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