3 Cool Facts About The Dow Jones Average

Still, as we mark 120 years since the DJIA’s inception, consider these interesting facts about one of the most well-known benchmarks globally:

• Originally, the DJIA had only 12 components. The number of holdings was increased later, and only General Electric has lasted from inception to today in the mix.
• The DJIA is price-weighted, not market-cap-weighted. That’s why it’s known as the industrial “average” rather than “index.” It was originally calculated by just adding up the prices of the component stocks and divided by the number of components. As stocks split, or were replaced, or made large distributions, the divisor was adjusted accordingly.
• The composition of the DJIA—what stocks it includes—used to be determined by the Wall Street Journal’s markets editor. Today it’s the Averages Committee—including three S&P Dow Jones Indices employees and two WSJ employees—that handles the selection process.

The first ETF to track the DJIA came to market in 1998—just a few years after the launch of the very first ETF, the SPDR S&P 500 (SPY | A-97).

The SPDR Dow Jones Industrial Average ETF Trust (DIA | A-84) is extremely liquid, with more than $600 million in average daily trading volume, and some $11.6 billion in total assets under management. The fund is also relatively cheap—a 0.17% expense ratio—and trades with a negligible average spread.

What’s interesting about DIA relative to other ETFs is that the fund is structured as a unit investment trust—like a few other ETFs, including SPY. That structure is known for causing a cash drag on returns, because the fund can’t reinvest stock dividends.

Despite that, DIA does a great job at closely tracking the DJIA since, by design, it has to own all of the stocks included in the benchmark at all times.

Since the beginning of the year, DIA has rallied 3.4%, outperforming SPY, but it has faced $1.45 billion in net redemptions year-to-date.

Chart courtesy of StockCharts.com

Contact Cinthia Murphy at [email protected].