Why Dow Industrial ETFs Still Matter

Funds that track the 30-stock index are surging.

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Reviewed by: etf.com Staff
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Edited by: Mark Nacinovich

Here’s a quick riddle: Since the start of 2022, which of these ETFs have performed best? The S&P 500 SPDR (SPY), the SPDR Dow Jones Industrial Average ETF Trust (DIA) or the Invesco QQQ Trust (QQQ)

It’s the middle one, DIA: up about 4% through Friday over the past 23 months, while the other two are down about 1%. The Dow was the only one that made money during perhaps the most recent period of true relevance performance-wise. The Magnificent Seven-led surge in 2023 came immediately following (and perhaps in reaction to) a historic drubbing of SPY and QQQ last year, when DIA held its ground much better. 

For much of the past decade, the S&P 500 and Nasdaq-100 have stolen the proverbial lunch of the Dow Jones Industrial Average. To many newer investors, the Dow might not even matter.  

But that may be changing. And it makes a trio of exchange-traded funds that own the 30 Dow stocks in different ways more relevant than they have been in a while. 

Three DJIA ETFs 

DIA is relatively well known, as the ETF owns the Dow as it’s typically quoted. It bases its weight on the price per share of each stock in the index. In the age of thousands of indexes, that is a rare–and to some, strange–way to do business. Yet the Dow has been that way for decades. It made its debut as a 12-stock index way back in 1896.  

But with weighting-for-equity ETFs typically based on market capitalization, equal weighting or one or more fundamental factors, DIA is an odd bird to some. In addition, that weighting scheme has underemphasized technology stocks, even though six from that sector rank among the 30 stocks DIA holds. 

Two other ETFs that own the Dow 30, but in different ways, have met with moderate, but not overwhelming ,demand in the many years they have been listed. With $259 million in assets, the First Trust Dow 30 Equal Weight ETF (EDOW) does as it says, assigning about a 3.3% weighting to each position at each rebalancing date. 

And the Invesco Dow Jones Industrial Average Dividend ETF (DJD) is a $310 million fund that weights the 30 stocks according to dividend yield. A few Dow stocks don't pay dividends, and so this ETF has fewer than 30 stocks. 

As of the end of October, all three ETFs trailed the S&P 500 miserably. DIA and EDOW were up about 1% each, and DJD was down 4%. Then, the comeback began. DIA, EDOW and DJD rallied about 9%, 8% and 6%, respectively, during November, as DIA kept pace step by step with the S&P 500.  

This is not about short-term performance, but rather about the market’s on and off relationship with the Dow, compared with its enduring affection for the Nasdaq-100 giants that have made the industrials a longtime afterthought. Over the three years ended last Friday, QQQ’s five-year total return of 139% was 91% higher than that of DIA over the same period. That’s not a record but still toward the upper end of the nearly 20-year period both ETFs have been around. 

Outside the QQQ 

Given the history of QQQ momentum markets —and dare we say bubbles —it would not be surprising to see it dominate for a while longer. But the performance gap, and the recent reminder that DIA has been a shelter from the tech stock storm when investors needed it, makes it ill advised to dismiss the Dow. 

This is why investment advisors and investors should know the multiple ways to “do the Dow” with ETFs. In addition to DIA, the EDOW might attract investors who want to own an ETF that holds those 30 blue-chip stocks, but without that quirky weighting system. And DJD’s distribution yield of 3.65% is not only nearly double that of DIA’s 1.90%, but it also dwarfs SPY’s 1.43% yield and QQQ’s paltry 0.56%. And with short-term Treasury rates starting to fall, that blue-chip equity yield from DJD might exceed much of the yield curve sometime soon. 

The Dow, S&P 500 and Nasdaq-100 are not mutually exclusive. But given the fundamental differences and history of alternating dominance, particular between DIA and QQQ, the Dow remains clearly much more than “your parents stock market index.” 

Rob Isbitts was an investment advisor for 27 years before selling his practice to focus on ETF research and education. He is based in Weston, Florida. Contact him at  [email protected] and follow him on LinkedIn.