What Mutual Fund Tracks the Dow Jones?

What Mutual Fund Tracks the Dow Jones?

What Mutual Fund Tracks the Dow Jones?

The Dow Jones Industrial Average is one of the most famous stock market indexes in the world, often used to track the performance of the U.S. stock market as a whole. If you believe the market is poised to do well, it can make sense to find a fund that will track the index's performance.

Tip

If you're interested in a Dow mutual fund that mirrors its performance, you'll want to invest in what's called an index fund, which will go up when the Dow goes up and down when it goes down. You can also buy funds that go up when the Dow goes down and vice versa, or buy the 30 stocks on the Dow yourself if you have the money.

Understanding the Dow

The Dow Jones Industrial Average, often simply called the Dow, is a stock market index with a numeric level determined by a group of 30 stocks belonging to major U.S. companies such as Walmart, Apple and Coca-Cola. It's not actually a straight average of the stocks' current prices, since the formula used to determine the index's value includes factors designed to account for stock splits, total company value and other factors.

The Dow's level is widely reported in the financial press as a barometer of the stock market as a whole and even of the U.S. economy. It's just one of several high profile stock market indexes. Others include the Nasdaq Composite, which includes stocks on the tech-heavy Nasdaq exchange, and the Standard & Poor's 500, which includes 500 major U.S. stocks. Other indexes track particular sectors of the economy, such as energy or agriculture.

While the major indexes sometimes move in the same direction due to broad market trends, they don't all move in lockstep since they can be influenced by different stocks. Sector-focused indexes in particular can move in different directions than the broader market indexes.

Other indexes track stock markets in other countries, such as the Financial Times Stock Exchange 100 index popular in the United Kingdom and the Nikkei index often watched to track Japanese stocks.

How Index Funds Work

Traditionally, mutual funds were managed by market experts who picked stocks, bonds and other investments in which to put client money. More recently, a type of fund known as an index fund has grown in popularity. These funds buy stocks that are in particular indexes, like the Dow or the S&P 500, so they go up when the index goes up and vice versa. They're often cheaper to invest in than mutual funds. While index funds do usually charge fees, they don't have as many expenses as funds that have to pay experts and research staffs.

Many index funds are exchange-traded funds, meaning you can invest in them through any broker using a ticker symbol similar to what you use to buy and sell stocks. Others are available through particular brokers.

Search around to see what your preferred brokers offer in terms of a fund that invests in an index you're interested in. Some funds may vary slightly in how they invest funds and what fees they charge, and you may be able to get special deals on some funds through certain brokers.

Investing in the Dow

You can invest in the Dow by buying all of the Dow 30 stocks individually, but that can be expensive. If you go this route, you'll also have to do your own calculations to make sure you own them in the same proportions they're used to calculate the index.

Alternatively, you can invest in a Dow index fund. Some popular ones are the SPDR Dow Jones Industrial Average ETF and the ProShares Ultra Dow30. Another variation on the concept is the ProShares UltraPro Dow30, which buys stocks to triple the return of the Dow. That can be useful if you're particularly optimistic about the index's performance.

If you think the Dow will go down, you can invest in a fund that moves in the opposite direction, like the Short Dow 30 or UltraShort Dow 30.

Make sure you understand the nuances of any fund you're investing in, such as the fees it charges and what happens to your funds if it performs particularly poorly.

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About the Author

Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.