What it means
The Dow Jones Industrial Average is one of the oldest stock market indices, made up of 30 large, well-established companies. Instead of buying all 30 shares separately, an investor can buy one share of the Diamonds fund, which holds them for you.
The fund is formally known as the SPDR Dow Jones Industrial Average ETF Trust and trades under the ticker DIA. The nickname comes from the original ticker symbol, DIA, which sounded like diamonds.
The fund was launched in the 1990s alongside similar products, and it was one of the first ETFs to make index investing easy for ordinary investors. It holds the same companies as the index in the same proportions, so its performance closely follows the index.
One quirk is that the Dow is a price-weighted index, which means companies with higher share prices have more influence than those with lower share prices, regardless of the size of the business. The Diamonds fund copies this weighting.
Many other funds track indices weighted by the size of each company, so the two approaches can give different results. ETFs like Diamonds offer low costs, diversification and the ability to trade through the day.
The fund charges a small annual fee, called the expense ratio, which is deducted from its assets. It also pays dividends from the underlying shares, usually every month or quarter.
For businesses, the fund is sometimes used for short-term investment of spare cash, although the price can fall as well as rise. Finance teams should check their investment policy before holding any equity fund, because share prices can move sharply in a short period.
The name also causes confusion because many people think of the gemstone. In finance, the Diamonds nickname usually refers to this fund, so context matters.
In practice
Real-world examples.
Example
A retired teacher wants simple exposure to large US companies without picking individual shares. She buys 20 shares of the fund through her brokerage account and holds them as part of her retirement savings.
Example
A small business owner parks $30,000 of spare cash in the fund for three years, planning to use it for an office move. He understands that the value might fall, so he keeps his operating cash in a bank account.
Example
A university finance club uses the fund to teach index investing. Students compare its returns with an actively managed fund over a 10-year period and discuss the effect of fees.
Formula
Calculation
Approximate fund share price = Index level / 100
Suppose the Dow Jones Industrial Average stands at 30,000 points. The approximate price of one Diamonds share is 30,000 / 100 = $300. An investor who buys 50 shares would pay about 50 x $300 = $15,000, and if the index rises 5% to 31,500, the share price becomes about $315 and the holding is worth 50 x $315 = $15,750, a gain of $750 before fees and dividends.Case study
Seen in the real world.
Hillcrest Dental is a fictional practice used here as an illustrative example. The owner has $60,000 of surplus cash and wants a low-cost way to invest it for five years.
On her adviser's suggestion, she puts half into a Dow-tracking ETF like Diamonds and the rest into a broad bond fund. Over the first year, the stock portion rises 8%, adding $2,400 to her $30,000 holding, but in the second year it falls 10%, reducing it by about $3,240. Because she planned for ups and downs and does not need the money for five years, she stays invested.
The adviser reminds her that the fund holds only 30 companies and is price-weighted, so she also adds a broader fund later. The illustration shows how a simple index fund can be a useful building block when its limits are understood.
Watch out
Common mistakes.
- Assuming the fund covers the whole market. It holds only 30 large US companies, so it is far less broad than an all-market fund.
- Thinking its price equals the index level. The share price is about one hundredth of the index, not the same number.
- Forgetting that it can lose money. Equity funds can fall sharply, so spare cash that may be needed soon should not be held in them.
Questions
People also ask.
What does the ticker DIA stand for?
It is the code under which the fund trades, and the nickname Diamonds comes from how it sounds. The full name is the SPDR Dow Jones Industrial Average ETF Trust.
How is the fund different from owning the 30 shares directly?
The fund packages them into a single holding with one fee and automatic rebalancing. Buying all 30 shares yourself would involve many more trades and costs.
Does the fund pay dividends?
Yes, it passes on the dividends received from the underlying companies, normally on a regular schedule. The amounts vary with the companies' payouts.
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