ETFs in Focus as Dow Jones Turns 125 Years

The Dow Jones Industrial Average made its debut 125 years ago with 12 railroads companies, the then backbone of the U.S. economy. It closed the first trading day — May 26, 1896 — at 40.94.  

The index evolved with the U.S. economy by adding several industrial companies to its roster and becoming a 30-stock index in 1928. It has yielded an average of a little less than 8% annually since inception. The index hit the key milestone of 100 within a decade of its launch and took 66 years to reach the 1,000-point mark in 1972. After that, the index rallied sharply to 10,000 within 27 years in 1999 and roared above 35,000 earlier this month. With this, the benchmark is the most widely quoted indicator of U.S. stock market activity (read: Dow Jones Tops 35000: ETFs to Ride on the Strength).

During its journey, the index has changed its component stocks more than 50 times according to the market drivers. The first 30 Dow stocks following the 1928 expansion includes Allied Chemical, American Can, American Smelting, American Sugar, American Tobacco, Atlantic Refining, Bethlehem Steel, Chrysler, General Electric (GE), General Motors Corporation (GM), General Railway Signal, Goodrich, International Harvester, International Nickel, Mack Truck, Nash Motors, North American, Paramount Publix, Postum Incorporated, Radio Corporation, Sears Roebuck & Company, Standard Oil, Texas Company, Texas Gulf Sulphur,
Union Carbide, U.S. Steel, Victor Talking Machine, Westinghouse Electric, Woolworth and Wright Aeronautical.

The Dow Jones has booted all these stocks with new ones. The current components are UnitedHealth Group (UNH), Goldman Sachs (GS), Home Depot (HD), Boeing (BA), Microsoft (MSFT), Caterpillar (CAT), Amgen (AMGN), McDonalds (MCD), Honeywell International (HON), Visa A (V), (CRM), 3M (MMM), Disney (DIS), Johnson & Johnson (JNJ), JPMorgan Chase (JPM), American Express (AXP), Travelers (TRV), International Business Machines (IBM), Walmart (WMT), NIKE B (NKE), Procter & Gamble (PG), Apple (AAPL), Chevron (CVX), Merck (MRK), Dow (DOW), Intel (INTC), Verizon Communications (VZ), Coca-Cola (KO), Walgreens Boots Alliance (WBA) and Cisco Systems (CSCO).

The most recent changes in the components were done in August last year. The oil giant Exxon Mobil (XOM), drugmaker Pfizer (PFE) and defense contractor Raytheon (RTN), in the blue-chip index were replaced by, Amgen and Honeywell, respectively.

So far this year, the benchmark is up 12.6%, outpacing the gains of 11.8% for the S&P 500 and 6.6% for the Nasdaq Composite Index.

How to Play?

Investors seeking to bet on this 125-year old index could consider the following ETFs:

SPDR Dow Jones Industrial Average ETF DIA

This is one of the largest and most popular ETFs in the large-cap space with AUM of $30.2 billion and an average daily volume of 4 million shares. It tracks the Dow Jones Industrial Average. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 8% share. Information technology (20.9%), industrials (17.3%), healthcare (17.2%), financials (16.2%) and consumer discretionary (13.2%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: ETFs to Play as Dow Logs 3-day Winning Streak).   

iShares Dow Jones U.S. ETF IYY

The ETF tracks the Dow Jones U.S. Index, holding 1056 stocks in its basket with none accounting for more than 5% of assets. Information technology takes the largest share at 26.2% while healthcare, financials, consumer discretionary, and communications round off the next spots with a double-digit exposure each. IYY has amassed $1.6 million in its asset base while trades in an average daily volume of 57,000 shares. It charges 20 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

Invesco Dow Jones Industrial Average Dividend ETF DJD

This ETF offers exposure to dividend-paying companies included in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 28 stocks in its basket with moderate concentration in the top five firms. DJD has been able to manage assets worth $175.3 million, while trading in volume of 52,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3 (Hold) (read: Dividend Hikes Are Back: Buy These ETFs).

Leveraged Play: A Short-Term Win

Investors willing to take extra risk could go for leveraged ETFs. These funds create a leveraged (2X or 3X) long position in the underlying index through the use of swaps, options, future contracts and other financial instruments. While these funds provide outsized returns in a short span, they could lead to huge losses compared to traditional funds in fluctuating or seesaw markets.

ProShares Ultra Dow30 ETF DDM

This ETF provides twice (2X) the return of the Dow Jones Industrial Average. It has AUM of $492 million and trades in a good volume of around 466,000 shares on average. The product charges 95 bps in annual fees (see: all the Leveraged Equity ETFs here).

ProShares UltraPro Dow30 UDOW

This product also tracks the Dow Jones Industrial Average but offers three times (3X) exposure to the index. It has amassed $1.8 billion in its asset base and trades in a solid average daily volume of 1.2 million shares. Expense ratio comes in at 0.95%.

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SPDR-DJ IND AVG (DIA): ETF Research Reports

ISHARS-DJ US IF (IYY): ETF Research Reports

INVS-DJIA DVD (DJD): ETF Research Reports

PRO-ULT DOW30 (UDOW): ETF Research Reports

PRO-ULTR DOW30 (DDM): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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