Kate Stalter at U.S. News reviewed seven ETFs tied to the Dow Jones Industrial Average and made an important point up front: the Dow is 30 stocks, a narrow barometer, and only one fund, the SPDR Dow Jones Industrial Average ETF Trust, actually replicates it. The rest are variations, including equal-weight, leveraged and inverse products with very different risk.
On the equal-weight version, which has trailed the standard fund since inception, I noted that in a flat or slow-growth market, that can be an advantage, because it spreads exposure evenly instead of letting the highest-priced names dominate. It is a bet on breadth over concentration, and there are periods when breadth wins.
On the inverse fund, my caution was about behavior rather than the product. Inverse ETFs reset daily and are built for short holding periods. The problem is that most retail investors using it as a bearish bet hold it too long and give back more than they protected. Being right about a downturn and still losing money on the hedge is a common outcome.
For a long-term investor, a broad U.S. index fund covers everything these products do at lower cost and less complexity. The Dow variations are tools for specific, short-term jobs, and they should be treated that way.
Read the full article at US News & World Report →
