S&P Dow Jones Indices actually publishes more than 800,000 financial indices, but when investors talk about the "Dow," they're usually referring to the Dow Jones Industrial Average. The Dow was first published in 1896 by Charles Dow; since then, it has grown from 12 to 30 stocks and represents a cross-section of large American companies in every part of the economy, other than the utility and transportation sectors. If you'd like to own the same stocks that are in the index, or if you'd like exposure to other Dow indices, like the broader Dow Large Cap index, you can do it without buying stock in the individual companies by buying a Dow fund.
Dow funds typically are referred to as index funds because they track the performance of the stock index, as opposed to being actively managed funds that are based on the opinions and research of a professional manager. One of the benefits of buying an index fund is that it typically has low expenses. If you want to own an investment that tracks the Dow Jones Industrial Average, you can do it by buying shares in the SPDR Dow Jones Industrial Average ETF. As of the date of publication, this fund is the only true DJIA fund.
Dow Large Cap Funds
Many Dow funds track the Dow Jones Large Cap index instead of the DJIA. For example, two such funds, the iShares Dow Jones US Index Fund and the Schwab U.S. Large-Cap ETF maintain at least 90 percent of their holdings in the same stocks that are in the index. While they don't perfectly track the DJIA, these Dow large-cap funds come close. For example, as of the date of publication, 19 of the 30 largest holdings in both the iShares fund and the Schwab fund are parts of the DJIA. This means that 11 of the DJIA's 30 stocks are relatively underweighted in these funds.
Instead of buying stock in a Dow fund, some investors pick and choose among Dow component stocks that seem weak, hoping that they will catch up and outperform the Dow as a whole. For example, the Dogs of the Dow strategy involves buying the 10 stocks in the Dow Jones Industrial Average that offer the highest dividend yield. Alternately, you could buy stock in a fund that holds the previous year's worst Dow performers.
The Dow Jones Industrial Average and the related Dow Jones Large-Cap Index aren't the only indices that you can track. For a broader view of the market, you can buy funds that track the Standard & Poors 500 index, which attempts to reproduce the entire stock market rather than just the large companies. Alternately, you can buy an index that tracks the Wilshire 5000, which covers over 6,500 stocks. You can also choose to track small-cap companies by buying a Russell 2000 index fund, or follow the tech-heavy Nasdaq market by buying a Nasdaq Composite Index fund.
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- S&P Dow Jones Indices: About Us
- Forbes: Picking The Right Index Fund
- SPDR: SPDR Dow Jones Industrial Average ETF
- iShares: iShares Dow Jones U.S. ETF - Holdings
- CNN Money: Dow Jones Industrial Average
- ETF Database: DOD vs. DIA: A Better Dow Jones ETF?
- Schwab ETFs: Schwab U.S. Large-Cap ETF All Holdings
- Dogs of the Dow
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