New ETF Equal Weights The Dow

August 09, 2017

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.

Price Performance

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]

 

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