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Whenever we tune into financial news, the US stock markets often take center stage. This dominance is due to several factors: the sheer size of the US economy, the significant market capitalisation of US companies, and the global influence of US financial institutions. The US market’s depth and liquidity attract investors from around the world, making it a pivotal hub for global financial activity.
Investors generally view the S&P 500 Index as the most recognisable collection of US stocks. This index comprises 500 of the largest companies listed on US exchanges and is seen as reflecting the overall performance of the US stock market. However, there is another index, older than the S&P 500, that many investors and financial journalists also use as a proxy to gauge the broader US market.
This index is called the Dow Jones Industrial Average (DJIA), also known popularly as the Dow Jones, or the Dow. Established in 1896, the Dow Jones includes 30 prominent US companies across various sectors including technology, finance, healthcare and consumer goods. This diverse representation makes it a popular indicator of the overall health of the US economy.
Despite representing fewer stocks than the S&P 500, the Dow Jones holds significant historical importance and continues to be one of the most widely followed indices. Many investors and fund managers also use the Dow Jones as a benchmark to measure the performance of their investments.
The History Of The Dow Jones
The Dow Jones was first published in May 1896, making it nearly 130 years old. This predates the S&P 500, which was only introduced in 1957.
The Dow Jones Index was created by two financial reporters, Charles Dow and Edward Jones, who designed the index to track the largest companies in each sector of the US economy at the time. The initial published value of the index was 40.94.
When it first started, there were just 12 stocks in the original Dow Jones.1 Most investors today may only recognise just one name in the list:
- American Cotton Oil
- American Sugar
- American Tobacco
- Chicago Gas
- Distilling & Cattle Feeding
- General Electric
- Laclede Gas
- National Lead
- North American
- Tennessee Coal & Iron
- S. Leather pfd.
- S. Rubber
In 1920, the Dow Jones expanded from its original 12 stocks to 20 stocks. This expansion was followed by another increase in 1929, bringing the total to 30 stocks, which is where it stands today.
Since 1929, the composition of the Dow Jones has changed over 50 times. These changes reflect the evolving landscape of the US economy and the ever-shifting fortunes of companies over the past 95 years. As industries have risen and fallen, the Dow Jones has remained resilient as an index as it adapts to include companies that better represent the current economic environment.
Here’s a glance at the companies that represent the Dow Jones as of 30 June 2024.2
- 3M
- Amazon
- American Express
- Amgen
- Apple
- Boeing
- Caterpillar
- Chevron
- Cisco Systems
- Coca-Cola
- Dow
- Goldman Sachs Group
- Home Depot
- Honeywell International
- IBM
- Intel Corp
- Johnson & Johnson
- JPMorgan Chase
- McDonald’s
- Merck
- Microsoft
- NIKE
- Procter & Gamble
- Salesforce
- Travelers
- UnitedHealth
- Verizon
- Visa
- Walmart
- Walt Disney
After General Electric’s removal in 2018, none of the original components of the Dow Jones remained listed in the index. This highlights the index’s ability to self-regenerate through periodic reviews and rebalancing, ensuring it accurately represents the market even as individual companies underperform.
Understanding The Dow Jones
One key difference between the Dow Jones and other indices like the S&P 500 is that the former is a price-weighted index. Therefore, companies with higher share prices have a greater influence on the index’s overall performance.
Additionally, there are specific criteria for inclusion/exclusion in the Dow Jones. For example, each company must be a part of the S&P 500, and no company from the transportation or utility sectors can be included – with the reason being that when the Dow Jones was first created, the transportation and utility sectors are tracked separately via the Down Jones Transportation Average (DJTA) and the Dow Jones Utility Average (DJUA).
The simplicity of the Dow Jones is its main selling point for investors to consider investing in it. The 30 core companies span a variety of sectors and provide an apt snapshot of the current US economy.
Source: S&P Dow Jones Indices as of 31 July 2024
As you can see from the sector breakdown above, the Dow Jones is fairly evenly split among the most prominent sectors like Financials, Health Care, Information Technology, Consumer Discretionary and Industrials. For example, it’s less concentrated in Information Technology than the S&P 500, where the sector makes up nearly one-third of the index.
The biggest component of the Dow Jones today is UnitedHealth Group Inc (NYSE: UNH), a large health insurance provider, with Goldman Sachs Group (NYSE: GS), a financial company and Microsoft Corp (NASDAQ: MSFT), a tech company, rounding out the top three.
Benefits Of Investing In The Dow
The long history of the Dow Jones allows it to serve as a comprehensive record of the US stock market since the turn of the 20th century. Beginning at a level of 40.94 points in 1896, the Dow Jones has grown to just over 39,200 points as of 30 June 2024.
The longevity of the Dow Jones makes it an invaluable tool for investors, enabling them to easily grasp the significance of the market’s growth over extended periods. This long-term perspective helps investors understand historical market trends, economic cycles, and the impact of major events on the stock market.
By tracking the performance of the Dow Jones, investors can gain insights into the overall direction of the stock market and make more informed investment decisions. The index’s well-established presence in financial reporting ensures that it remains a key indicator of market health and economic stability.
Investing In The Dow Jones Via The SPDR Dow Jones Industrial Average ETF Trust
For investors both in the US and internationally, including Singapore, gaining exposure to the flagship financial index of the world’s largest economy makes strategic sense. The Dow Jones is a key indicator of the health and performance of the US stock market, and by extension, the global economy.
In Singapore, one of the easiest ways to invest long-term in the Dow Jones is through an exchange-traded fund (ETF) such as the SPDR Dow Jones Industrial Average ETF Trust (SGX: D07). Listed since 2001 in Singapore and traded in USD, the D07 tracks the performance of the Dow Jones by holding all the underlying securities in the same proportions as the index. By investing in this ETF, investors essentially gain exposure to all the components of the Dow Jones.
The D07 ETF has an expense ratio of 0.16%, offering a cost-effective way to gain exposure to the Dow Jones Index. Many of the companies within the Dow Jones are blue-chip, profitable enterprises that pay out dividends to shareholders.
You take a look at a screenshot of the factsheet of the D07, accurate as of 30 June 2024.
Source: State Street Global Advisors, as of 30 June 2024
The combination of regular income and potential capital growth makes the D07 an appealing option for investors, as it provides income through dividends and the opportunity for capital appreciation over time. This dual benefit can be particularly appealing for long-term investors looking to build a diversified and resilient portfolio.
By investing in the D07 ETF, investors in Singapore can easily and effectively participate in the performance of some of the largest companies in the United States, thereby diversifying their investment portfolio and potentially enhancing their financial returns.
Learn more about the SPDR Dow Jones Industrial Average ETF Trust (D07).
1Source: S&P Dow Jones Indices.
2Source: Factset, S&P Dow Jones, State Street Global Advisors. Information correct as of June 30, 2024.
Important Risk Information
State Street Global Advisors Singapore Limited (“SSGA”), 168, Robinson Road, #33-01 Capital Tower, Singapore 068912 (Company Reg. No: 200002719D, regulated by the Monetary Authority of Singapore). T: +65 6826-7555. F: +65 6826-7501.
All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone.
The prospectus in respect of the offer of the units (the “Units”) in the SPDR® Dow Jones Industrial Average ETF Trust (the “Fund”) is available and may be obtained upon request. Investors should read the prospectus before deciding whether to acquire Units in the Fund. The value of Units and the income accruing to such Units may fall or rise. Brokerage commissions and ETF expenses will reduce returns. Units in the Fund are not obligations of, deposits in, or guaranteed by, SSGA or any of its affiliates. An investment in Units is subject to investment risks, including the possible loss of the principal amount invested. Such activities may not be suitable for everyone. Past performance figures are not necessarily indicative of future performance of the Fund. Investors have no right to request SSGA to redeem their Units while the Units are listed. It is intended that holders of Units may only deal in their Units through trading on the Singapore Exchange Securities Trading Limited (“SGX-ST”) or NYSE Arca Inc. (“NYSE Arca”). Listing of the Units on the SGX-ST or the NYSE Arca does not guarantee a liquid market for the Units.
Diversification does not ensure a profit or guarantee against loss. Past performance is not necessarily indicative of the future performance.
Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.
This advertisement or publication is intended solely for audiences in Singapore and has not been reviewed by the Monetary Authority of Singapore.
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