The index consists of top 30 blue-chip companies but unlike some of the leading indices, Dow 30 represents companies that are only based in the US.
What a journey it has been for Dow 30 – the second oldest US index that completed 124 years of its existence in May 2020. From the Base Value of 40.94, since its inception on 26 May 1896, the Dow 30 index is now over 64,000 per cent in absolute terms!
If you as an investor are looking to maximise the benefit from the potential of US economy, Dow Jones Industrial Average (DJI) or the Dow 30 is the go-to index. The index consists of top 30 blue-chip companies but unlike some of the leading indices, Dow 30 represents companies that are only based in the US.
Therefore, in a way, Dow 30 is a barometer of the US economy, its businesses and the consumption trends in the country. For someone to diversify across economies, Dow is a great way to benefit from the growing opportunities in the US markets.
Amongst all other US indices, the Dow 30 remains a popular measure of stock market movement and perhaps one of the few indices which has witnessed the ups and downs over several decades. According to Bloomberg, since October 1, 1928, Dow 30 has become a widely followed indicator of the stock market globally. If you wish to start tracking its performance or any of its components, the Dow 30 Ticker symbol is INDU and on Reuters it is .DJI while on the Bloomberg terminal it is DJI.
You get wide exposure to various sectors
Dow 30 index is a part of S&P Dow Jones Indices and has a diversified exposure to various sectors of the economy except transportation and utilities. The Dow Jones Transportation Average index and the Dow Jones Utility Average index cover them and all three of them make up the Dow Jones Composite Average index.
Leaders in the pack
Some of the prominent companies in the 30-stocks index are Boeing, Nike, Goldman Sachs, Walmart, Intel, 3M, UnitedHealth Group, Apple, Coca-Cola, McDonalds, Microsoft etc. The current market cap of Dow 30 is nearly $7750 billion with Microsoft and Apple occupying the top two positions.
How is it different from other indices
The way the Dow 30 index is structured is different from other leading indices. The Dow is a price-weighted index that measures the performance of 30 of the largest U.S. Companies. Unlike other indices, in Dow 30, the selection is not governed by quantitative rules but as per the S&P indices website, “a stock is added to the index only if the company has an excellent reputation, demonstrates sustained growth and is of interest to a large number of investors.” Further, it is to be maintained that the companies are incorporated and headquartered in the U.S with the large part of revenues being generated from the U.S.
The Dow 30 has a big global impact when it comes to the choice of investors. According to Bloomberg, roughly $11.2 trillion is indexed or benchmarked to the S&P 500 and $4.6 trillion in passively managed assets are tied to it. In contrast, about $31.5 billion is benchmarked to the Dow, with $28.2 billion of passively managed funds linked.
The performance of equities as an asset class can well be gauged by looking at the long-term performance of the Dow 30 index.
Over the last 10 years, the compounded annualized total return has been nearly 12.39 per cent while the 3-year and 5-year return has been 9.05 per cent and 9.76 per cent, respectively.
What investors need to do
To make the best of international investing, exposure in US stocks should be considered by the investors. Dow 30 stocks offer an opportunity to gain from the growth of the US-based companies and its robust economic strength. And, remember, it’s not just the gains from the appreciation of stocks in the long term that will matter, even the exchange rate fluctuations can be in your favour. Click here, to know how the rupee-dollar exchange rate can work in your favour.