The Dow Jones Industrial Average is the world’s oldest stock market index. If you invest in Dow Jones industrial average, you will have exposure to 30 of the world’s most well-established blue-chip stocks. In this guide, we will explain how to invest in the Dow Jones UK, the different types of Dow Jones products, and some investment strategies.
How to Invest in Dow Jones
- Choose a broker: You will need to find a broker with a few different Dow Jones instruments.
- Sign-up: Follow the prompts and enter the required information.
- Deposit funds: Before you can make your first investment, you will need to fund your account.
- Invest in Dow Jones Industrial Average: With some trading platforms you can invest in the Dow Jones index using ETFs or CFDs on ETFs and futures. Simply search for Dow Jones or DJ30 to find these instruments.
Once you complete these steps you will be invested in the 30 companies that make up the index. These stocks include blue chips like Apple, Boeing, Coca-Cola, and JP Morgan. Next, we will go into a little more detail on how to Invest in Dow Jones UK.
Dow Jones Investment Platforms in the UK
To invest in stock market indexes like the Dow Jones index, it’s important to choose the right trading platform or investment app.
You can trade stocks, ETFs, indexes, commodities, currencies on the platform. As far as index investment goes, you will have access to ETFs and CFDs on the index, as well as the individual shares that make up the index. When it comes to stocks, you have the option to buy the underlying shares of a company or contracts for difference (CFDs) on those shares. If you trade the CFDs you will be able to use leverage and short sell too.
This platform doesn’t charge commission but does charge a spread. The spread is the difference between the buy and sell price and is charged by most brokers.
eToro is well known for its social trading and copy trading features. This allows you to learn from experienced traders, share ideas and copy the trades of experienced investors. When you choose investors to copy, you can review their performance and investing style, as well as their portfolio.
eToro is regulated by the FCA, CySEC, and ASIC which ensures that client funds are separated from the company’s own funds. Client funds are also protected by FSCS insurance.
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Fundamentals of the Dow Jones Index
The Dow Jones index includes 30 US companies that trade on the New York Stock Exchange, which are reviewed from time to time. Dow Jones indices are unlike the Nasdaq and S&P 500 where the most valuable companies that meet certain criteria are automatically included. Instead, individual stocks are chosen by a committee with stability being an important factor. The companies in the index tend to be very well established and profitable, rather than rapidly growing. Most Dow stocks also have a respectable dividend yield.
The index is also unique in that it is priced weighted rather than market-cap-weighted. This means companies with high nominal prices have more weight, rather than the most valuable companies. This is worth knowing if you are learning how to Invest in Dow Jones UK.
The full name of the index is the Dow Jones Industrial Average, but it is also known as the Dow Jones, the Dow, DJ30, and US30.
Dow Jones Index Trading
If you are wondering how to trade the Dow Jones index you have several options. Short-term traders generally opt to trade futures or CFDs on the futures. Some CFD providers also offer CFDs on the index itself. The price movements of these CFDs will be very similar to those of the futures contracts, but the trading session is a little shorter.
Because the index only includes 30 companies it is sometimes more volatile than other US indexes. It is therefore favored by day traders and swing traders.
Day traders focus on price movements that last from a few minutes to a few hours. Economic data and company news often play a role in these short-term price movements.
Swing traders look for price moves that last from days to weeks. Typically these price swings will occur within the primary trend channel as the index oscillates between overbought and oversold conditions.
Dow Jones Tracker Funds
Tracker funds are the more traditional way to invest in Dow Jones Industrial Average. Tracker funds, which are also known as index funds, are mutual funds that hold the same stocks as the index in the same proportion as the index. This results in these funds tracking the performance of the index.
Tracker funds have to a large extent been replaced by exchange-traded funds or ETFs. ETFs have lower fees and can be traded on platforms like eToro and Libertex in real-time.
Dow Jones ETFs & Stocks
There are several ETFs that track the Dow Jones index. One of the most popular is the SPDR Dow 30 ETF (DIA). This fund has an expense ratio (basically the management fee) of just 0.16% a year.
If you trade CFDs on an ETF you can use leverage, the amount of which varies from one platform to another. Another way to gain leveraged exposure to the Dow is by buying a leveraged ETF. The ProShares UltraPro Dow30 ETF (UDOW) is an ETF that has built-in leverage of 3 to 1. This is a useful instrument for short-term trading on the long side. If you are using CFDs you can also sell this ETF short.
If you are wondering how to invest in the Dow Jones index in other ways, you can consider the individual stocks in the index. You can either buy individual shares to increase your exposure to certain companies or short sell stocks you expect to underperform the index.
As the most valuable company in the world, Apple needs no introduction. The company is now diversifying into services to ensure that it can maintain its growth trajectory.
Interestingly, while Apple is the most valuable company in the index it ranks at 22nd out of 30 in terms of weight, at just 2.4%. This is due to the index being weighted by price rather than value.
Microsoft is another of the most successful companies in the Dow Jones index. Under new leadership, Microsoft has managed to diversify into cloud computing, which is currently the biggest technology trend. Microsoft is also in talks to buy the messaging platform, Discord. This will give it much-needed exposure to social media the company currently lacks.
Boeing was badly affected by the Covid-19 pandemic in 2020. However, travel is now opening up and airlines are reinstating their orders for new aircraft.
Boeing accounts for 5% of the Dow Jones index – its fourth-largest weighting. This means you will have a meaningful position in Boeing if you invest in the Dow Jones Industrial Average.
Some of the other companies in the index include:
- Walmart shares (WMT)
- Walt Disney shares (DIS)
- Johnson and Johnson shares (JNJ)
- Caterpillar shares (CAT)
Research Dow Jones Investment
Researching the Dow Jones index is easier than most indexes because there are only 30 shares.
The Dow Jones is a blue-chip index which means it only includes well-established companies with fairly predictable earnings. That puts the index somewhere between an index with higher risk like the Nasdaq 100, and low-risk investments like bonds. The index is suitable for investors who want to grow their capital without being exposed to more speculative companies.
How to Invest in Dow Jones UK – Conclusion
Despite being the oldest stock market index in the world, the Dow Jones Industrial Average is still a widely followed benchmark index. The companies in the index are amongst the biggest in the world and are all well established.
You should now have a idea of how to invest in Dow Jones UK and all the different types of instruments you can use to invest in the index. It’s a very liquid index which makes it suitable for active trading – yet it is also a long-term investment vehicle.