Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.
ETFS or exchange traded funds et you access wide swaths of the market all at once, and neatly bundle up fractional shares of individual stocks and bonds into one fund. That means you’ve got automatic diversification built in. And since they’re usually managed by an algorithm instead of a human fund manager, they tend to be significantly more budget-friendly than mutual funds. It’s also why they tend to be the asset of choice for robo-advisors.
So now that you know why ETFs tend to be so popular, the question becomes: What ETFs should you be choosing? In addition to being budget-friendly, there are plenty of ETF varieties to choose from, whether you want to focus on energy, go into real estate, or stick with the more traditional route of tracking an index market, there’s an ETF for your financial needs and wants.Wealthsimple Invest is an automated way to grow your money like the worlds most sophisticated investors. Get started and we'll build you a personalized investment portfolio in a matter of minutes.
One of the most widely-traded kinds of ETFs on the market today are Dow Jones ETFs. As the name already suggests, these ETFs track the Dow Jones market in the United States. Quick refresher: The Dow Jones Industrial Average is a stock market index that tracks the performance of 30 large companies listed on stock exchanges like the New York Stock Exchange or Nasdaq in the United States. These companies, which are also known as blue chip companies, include American Express, Microsoft, and IBM. They tend to include companies with a long, proven history of regular earnings and financial stability.
So a Dow Jones ETF simply includes fractional shares of these 30 companies, in the same way that they’re distributed in the Dow Jones. And if the Dow Jones rises, so does the value of the ETF. Similarly, if the Dow Jones starts falling, so does the ETF.
ETFs that track the Dow Jones
There are hundreds of ETFs that offer investors a buffet of choices, from annual expenses and projected risk-reward ratios to what kind of industries and markets they operate in. A Dow Jones ETF is no different, and there are quite a number of them out there that differ in return histories, investing strategies, and prices and fees.
Ultimately, it’s important to remember that despite the Dow Jones tracking blue-chip stock that tend to be considered low-risk, you’re still investing, and investing inherently carries with it some degree of risk. So whether you choose to invest in Dow Jones ETFs or alternative energy ETFs or ETFs in emerging markets, the best type of ETF—or any investment, for that matter—are the ones that suit your financial goals, needs, and comfort levels.
Here are some popular Dow Jones ETFs organized by the number of assets under management (AUM)—a measurement which includes the total market value of all the financial assets managed by a financial institution or fund manager.
SPDR Dow Jones Industrial Average ETF (DIA)
The SPDR (also known as DIA) is the biggest and probably the most popular of the Dow Jones ETFs, with over $21 billion in AUM. It also has an annual expense ratio of 0.17%, which makes it an appealing choice to investors on a budget who still want a piece of the otherwise quite expensive Dow Jones pie.
Because the Dow Jones consists of companies that usually pay dividends to investors, so does the DIA—but in comparison to other ETFS, this one distributes dividends on a monthly basis. It’s been around since 1998 and has a proven history of tracking the Dow accurately, if that’s precisely what you’re after. For 2019, the ETF projected a dividend yield of 2.09%.
iShares Dow Jones US ETF (IYY)
Another large Dow Jones ETF is IYY, which aims to track the investment results of the Dow Jones index composed of U.S. equities. This offers exposure to both larger and mid-size U.S. companies, and currently has $1.19 billion in AUM. Furthermore, with an annual expense ratio of 0.20%, it’s still quite a budget-friendly choice for investors. For 2019, the ETF projected a dividend yield of about 1.8%.
ProShares UltraPro Dow30 (UDOW)
ProShares UltraPro Dow30 is an ETF for investors who like to lean more heavily on the “more risk, more reward” principle. The fund seeks daily investment returns that correspond to three times the daily performance of the Dow Jones. UDOW is a so-called leveraged ETF, which means that it trades multiple times throughout the day. By doing this, the aim is to increase the exposure to and impact from the underlying index—which in this case is the Dow Jones—and hope to take advantage of the changing prices of the fund throughout the trading day.
Of course, this is also associated with more risk. That’s why financial advisors usually suggest to not hold on to leveraged ETFs for too long, which also makes its relatively high annual expense ratio (0.95%) more of an issue. UDOW current has $410 million in AUM, and projected a dividend yield of 0.64% in 2019.
ProShares Ultra Dow30 (DDM)
DDM is another leveraged ETF for those who want to take a more aggressive approach to their investing strategy and hope to beat the Dow Jones, not just mirror it. This fund aims for daily investment returns that correspond to two times the daily performance of the Dow Jones.
DDM currently has $360 million in AUM, and an annual expense ratio of 0.95%, which, like UDOW, is quite a bit higher than others on this list—you can thank the more intense trading and managing that these kinds of funds need. For 2019, the ETF projected a dividend yield of about 0.81% for 2019.
Invesco Dow Jones Industrial Average Dividend ETF (DJD)
DJD is a bit different than the other ETFs on this list because instead of tracking (or trying to beat) the Dow Jones directly, this one follows the Dow Jones Industrial Average Yield Weighted Index, which selects the securities that have paid a dividend over the past four quarters from the Dow Jones Industrial Average. So rather than weighing holdings by price, the underlying index ranks them by dividend yield.
Investors might choose this option because it holds the possibility of a higher portfolio yield, but these investors should also keep in mind that the pool of assets the Dow Jones is based on is already quite small to begin with—so diversification might be taking a backseat in this approach. And while currently the DJD has the same number of holdings as the Dow Jones—30 companies—it reshuffles how much is invested in each company based on dividend yield. That can give you a very different portfolio than what a straightforward Dow Jones-tracking ETF would give you.
This ETF is relatively small compared to the others here when it comes to AUM, with only about $82 million. However, this fund projected a dividend yield of 2.66% for 2019, and a low expense ratio of 0.07%.Grow wealth with humans + technology. Wealthsimple Invest is automated investing powered by real humans to give you advice. Get started now.