Today First Trust is rolling out an ETF that offers investors a different kind of exposure to the stocks in the Dow Jones industrial average.
The First Trust Dow 30 Equal Weight ETF (EDOW) tracks an index that relies on an equal-weighting approach rather than the price weighting used by the original version of the industrial average.
The fund comes with an expense ratio of 0.50% and lists on the NYSE Arca exchange.
The Dow Jones industrial average is more than 100 years old, and began as a straight average of 12 stocks. Over time, the average’s divisor was adjusted to accommodate additions, removals and corporate actions.
Both the original version of the index and the equal-weighted version are driven by price performance, but the equal-weighted version rebalances on a quarterly basis, meaning its individual stocks are regularly reset to weights of approximately 3.33%. The original price-weighted industrial average is never rebalanced.
There is some disagreement over the value of disciplined rebalancing, but many feel it allows a fund to harvest returns from “the winners” in a portfolio and prevent excessive concentrations in individual positions.
For believers in the practice, this modified version of the Dow may represent a much-needed improvement on a globally known benchmark.
Contact Heather Bell at [email protected]