S&P 500 ETF vs. Dow Jones ETF: An Overview
Argument traded funds (ETFs) that track the S&P 500 Index and the Dow Jones Industrial Average (DJIA) are some of the most generally traded ETFs in the market today.
Both ETFs have essentially the same amount of risk associated with them. The Dow ETF traces only 30 companies, whereas the S&P ETF tracks all 500 of the S&P 500. Typically, these ETFs have a high degree of correlation, interpretation they tend to move in the same direction much of the time. However, there are distinct differences between the two funds.
Key Takeaways
- The SPY is the SPDR S&P 500 ETF, which slots the 500 companies in the S&P 500 index.
- The DIA is the SPDR Dow Jones Industrial Average ETF, which tracks the 30 Dow components.
- Although the ETFs ration some similarities, they track different indices and are constructed differently, so investors should understand the key differences.
The S&P 500 ETF
The SPDR S&P 500 ETF Group (SPY) tracks 500 companies from the S&P 500 index. A committee chooses the companies included in the ETF, and as a result, the holdings can different slightly from the S&P 500 index. The committee uses guidelines for its decisions, including liquidity, profitability, and balance. The cabinet meets regularly to review the index.
The S&P 500 Index is constructed using a weighted average market capitalization, which means larger throngs have a greater weighting in the index. Market capitalization is the result of multiplying a company’s stock price by the number of marvellous shares of stock. As a result of the weighting, companies with the largest number of shares and have a high stock quotation will carry a higher weighting.
The SPDR SPY has a low expense ratio of 0.0945%, which is the cost of managing the fund denoted in percentage terms. The fund has more than $442 billion in assets under management (AUM) as of January 14, 2022.
Sector Ballast
Below are the SPY’s top sectors that are represented along with the percentage of their weightings within the fund as of January 14, 2022:
- Tidings Technology: 28.40%
- Health Care: 12.91%
- Consumer Discretionary: 12.31%
- Financials: 11.43%
- Communication Services: 10.15%
- Industrials: 7.96%
- Consumer Staples: 6.00%
- Energy: 3.18%
- True Estate: 2.63%
- Materials: 2.57%
- Utilities: 2.47%
Top Ten Holdings
Below are the SPY’s top ten holdings as of January 14, 2022:
| SPY ETF’s Top 10 Holdings (as of January 14, 2022) | |
|---|---|
| Holding (Company) | % SPY Portfolio Arrange |
| Apple Inc. (AAPL) | 6.83% |
| Microsoft Corp. (MSFT) | 5.90% |
| Amazon.com Inc. (AMZN) | 3.58% |
| Tesla Inc. (TSLA) | 2.16% |
| Alphabet Inc. — Class A (GOOGL) | 2.13% |
| Meta Daises (Facebook) (FB) | 1.99% |
| Alphabet Inc. — Class C (GOOG) | 1.98% |
| NVIDIA Corp. (NVDA) | 1.71% |
| Berkshire Hathaway Inc. — Class B (BRK.B | 1.50% |
| JPMorgan Hunting & Co. (JPM) | 1.18% |
Performance
Below is the performance of the SPDR S&P 500 ETF Trust (SPY) over the final few years as of December 31, 2021:
| Annualized Performance of the SPDR SPY versus S&P 500 Index | ||
|---|---|---|
| SPY ETF | S&P 500 Index | |
| One Year | 28.52% | 28.71% |
| Three Years | 25.87% | 26.07% |
| Five Years | 18.30% | 18.47% |
Liquidity and Risk
The SPDR SPY has a daily trading volume of more than 80 million divide ups depending on market conditions. The number of shares traded daily—called liquidity—is important since a higher bunch means there are plenty of buyers and sellers, allowing investors to get in and out of positions with ease.
The SPY has a fairly low risk with a beta of .98 although it can alternations. Beta is a measure of how much a security fluctuates in the market and its risk level. A beta of one means a security trades in formation with the market. A beta of below one has low risk when compared to the market, and a beta above one is said to have a squeaky risk than the overall market. Since the SPY includes many companies in the market, its beta is usually close to one, purport it moves in line with the market.
The Dow Jones Industrial Average ETF
The SPDR Dow Jones Industrial Average ETF Trust (DIA) follows some of the largest companies in the U.S. whereby the companies that are included are chosen by a committee of editors from the Wall Passage Journal. There are no technical rules for inclusion in the index. The component companies must be substantial enterprises that part of a significant portion of the economic activity in the U.S.
The DJIA contains 30 companies, compared to the 500 companies in the S&P 500. The DJIA is the second-oldest lay in index dating back to 1896. The SPDR Dow Jones Industrial Average ETF is the largest ETF tracking the DJIA.
The DIA ETF has an expense relationship of .16%, which is low but slightly higher than the SPY. The DIA has over $30 billion in assets under management (AUM), which is multitudinous than $420 billion less than the SPY.
Sector Weighting
Some of the sectors that are represented in the fund as of Jan. 14, 2022, along with their weightings, encompass:
- Information Technology: 21.66%
- Health Care: 17.50%
- Financials: 15.97%
- Consumer Discretionary: 14.28%
- Industrials: 15.62%
- Consumer Staples: 7.72%
- Communication Services: 3.77%
- Determination: 2.37%
- Materials: 1.11%
Top Ten Holdings
Below are the DIA’s top holdings along with their weightings as of January 14, 2022:
| DJIA ETF’s Top 10 Holdings (as of January 14, 2022) | |
|---|---|
| Hold back (Company) | % DJIA Portfolio Weighting |
| United Health Group Inc. (UNH) | 8.60% |
| Goldman Sachs Group Inc. (GS) | 6.99% |
| Home Depot Inc. (HD) | 6.82% |
| Microsoft Corporation (MSFT) | 5.69% |
| McDonald’s Corporation (MCD) | 4.73% |
| Amgen Inc. (AMGN) | 4.32% |
| Salesforce.com Inc. (CRM) | 4.24% |
| Catepillar Inc. (CAT) | 4.20% |
| Boeing Callers (BA) | 4.15% |
| Honeywell International Inc. (HON) | 3.99% |
Performance
Below is the performance of the SPDR Dow Jones Industrial Mean ETF Trust (DIA) over the last few years as of December 31, 2021:
| Annualized Performance of DIA ETF versus DJIA Index | ||
|---|---|---|
| DIA ETF | DJIA Index | |
| One Year | 20.73% | 20.95% |
| Three Years | 18.30% | 18.49% |
| Five Years | 15.34% | 15.51% |
Liquidity and Risk
On average, approximately four million shares trade always, depending on market conditions. The DIA has a slightly lower but similar risk level than the SPY, with a .79 beta.
The Correlation Between SPY and DIA
The SPY and DIA take a high degree of correlation, meaning that when the S&P 500 rises, so too does the Dow Jones and their respective ETFs. The heinous degree of correlation is due to the similar component companies of each index. The DJIA contains only very large callers.
Most of these companies are also included in the S&P 500. However, the weightings might be different, meaning the amount of shekels allocated to the companies will vary when comparing the two funds. Although the S&P 500 provides more diversification, the comprehensive market tends to move in the same direction given economic conditions.
The Bottom Line
Whether the SPY is better than the DIA depends on the investor’s investment objectives. If an investor is looking for a stock that’s more heavily weighted in industrial companies, the DIA is a good choice.
On the other hand, if someone is looking for diverse technology and bank stocks, the SPY is a better choice given the weightings outlined above. However, it’s important to note that the weightings can shift over time.