With the rise in popularity of ETFs, it’s no surprise that the SPDR Dow Jones Industrial Average ETF (DIA), which tracks the iconic Dow Jones Industrial Average Index (INDEXDJX: .DJI), is one of the most popular funds. But what exactly is DIA stock, and what makes it such a popular choice for investors?
This guide will give you a crash course on DIA, from its history, price, and yield performance to how it works and what factors to consider before investing. By the end, you’ll have a good understanding of whether or not this ETF, or even Vanguard ETF, is right for your portfolio. You can also read more about ETFs vs. Mutual Funds: Which is the Better Investment?. Well, let’s get started.
What Is DIA?
DIA is an exchange-traded fund (ETF) that tracks the performance of the Dow Jones Industrial Average (DJIA), an index of 30 large publicly traded companies in the United States.
DIA was created in 1998 and is managed by State Street. The fund has an expense ratio of 0.16%, which is relatively low compared to other ETFs. It also has a dividend yield of 1.56%. Also, the fund has an average daily volume of 3,161,526. With a $27.4 billion asset under management, DIA is one of the largest ETFs in the market.
What Is the Dow Jones Industrial Average (DJIA)?
The DJIA is a price-weighted index of 30 large, publicly traded companies on the New York Stock Exchange (NYSE) and the Nasdaq. The DJIA is widely used as a benchmark index to track the performance of stocks in the U.S.
The index was created by Charles Dow in 1896 and originally contained just 12 stocks. The DJIA contains 30 stocks chosen based on market capitalization, liquidity, and industry representation by Wall Street Journal.
The DJIA is a price-weighted index, meaning that the stocks with the highest prices have the greatest weight. For example, if Company A has a share price of $100 and Company B has a share price of $50, then Company A would have twice the weight of Company B in the DJIA. The Dow Divisor adjusts the DJIA for stock splits and other corporate actions. The current Dow Divisor is 0.15172752595384.
Read What’s an ETF Stock? What You Need to Know Before Investing.
The purpose of the DJIA is to serve as a proxy for the broader U.S. economy. The stocks in the index are considered representative of different sectors of the economy, such as industrials, consumer goods, and financials.
The movements of the DJIA are often used as an indicator of the health of the stock market and the economy as a whole. When the DJIA rises, it correspond generally that stocks are doing well and the economy is growing. Conversely, when the DJIA is falling, it usually means that stocks are struggling, and the economy or particular investment may slow down.
Fast-Growth And Safe Stocks
You are investing in the Dow Jones Industrial Average with the DIA. This is a great choice for those investors looking to replicate the performance of some of America’s largest companies. The fund only holds around 30 stocks, but these are from very large and stable companies. They have strong fundamentals that allow them to weather any storms that may come their way. This makes the DIA a very safe and reliable option as the investment seeks to provide results.
Apart from the stability of investing in the DIA, you can also reap the benefits of a dividend. This is because many companies included in the Dow Jones Industrial Average pay dividends to their shareholders. This makes the DIA a great choice for income-seeking investors.
Top Ten Holdings
As of 2022, the DIA’s top holdings (Dow Jones Companies) with their weightings are as follows:
- Holding (Company) % DJIA Portfolio Weighting
- United Health Group Inc. (UNH) 8.59%
- Home Depot Inc. (HD) 6.83%
- Goldman Sachs Group Inc. (GS) 6.60%
- Microsoft Corporation (MSFT) 5.64%
- McDonald’s Corporation (MCD) 4.78%
- Amgen Inc. (AMGN) 4.36%
- Caterpillar Inc. (CAT) 4.28%
- Salesforce.com Inc. (CRM) 4.21%
- Boeing Company (BA) 4.19%
- Visa Inc. Class A. (V) 4.02%
Sector Weighting
Several sectors can be represented and weighted in a DIA fund, including:
- Information Technology: 21.65%
- Health Care: 17.58%
- Industrials: 15.78%
- Financials: 15.57%
- Consumer Discretionary: 14.35%
- Consumer Staples: 7.71%
- Communication Services: 3.83%
- Energy: 2.41%
- Materials: 1.12%
Performance
As of 2022, below is the SPDR Dow Jones Industrial Average ETF Trust (DIA)’s performance compared to that of the DJIA Index over the past few years:
- DIA ETF DJIA Index.
- One Year 20.73% 20.95%.
- Three Years 18.30% 18.49%.
- Five Years 15.34% 15.51%.
Liquidity and Risk
The DIA is a relatively liquid investment with an average daily trading volume of four million shares. However, as with any investment, there is always some risk involved. The DIA has a slightly lower risk level with a .79 beta. This means that it is slightly more volatile than the others but also has the potential for higher returns. As always, it is important to do your research and consult with a financial advisor before making any investment decisions.
When Is DIA Not Ideal ETF For Investors?
DIA is not the ideal ETF for investors who want broad-based exposure to US large-caps. The fund’s tiny portfolio, arbitrary selection, fluctuating principal value, and antiquated weighting produce significant sector biases relative to the market. These biases cover only a fraction of the large-cap space typically represented by hundreds of names.
Also, stocks are price-weighted in DIA, not cap-weighted. This can produce major sector realignments when multiple holdings change as per past performance. However, DIA tends to move with the broader market day-to-day, and some investors may prefer its typically (slightly) lower beta.
Being a UIT, DIA has some structure-related drawbacks. The most notable effects are a slight cash drag since stock dividends received between the ETF’s distributions can’t be reinvested as is typically the case. Also, UITs must always hold every stock in the index, which can tie the PM’s hands.
Despite these drawbacks, DIA is still a great choice for exposure to the Dow. It is a concentrated, universally-cited basket of household names and extremely liquid, with huge assets and a long track record.
Conclusion
With an expense ratio of only 0.16%, SPDR Dow Jones Industrial Average ETF (DIA) is one of the cheapest ways to get exposure to a broad swath of U.S. blue-chip stocks. The fund tracks the iconic Dow Jones Industrial Average Index, which comprises 30 of America’s largest and most well-known companies.
While the fund doesn’t offer the same sector or geographic diversity as some of its competitors, it makes up for it with its low cost and proven track record. If you’re looking for simple, low-cost investment results in blue-chip U.S. stocks, SPDR Dow Jones Industrial Average ETF is an excellent choice.
