DOW 30

The Dow Jones Industrial Average (DOW) is one of the worlds best known Indexes. It started its life back in 1884 when Dow Jones published it first average of US stocks in what was the forerunner of The Wall Street Journal. The fist industrial average (of 12 stocks) came out in 1896. This was increased to 20 in 1916 and finally to 30 in 1928.

It differs from the Standard & Poor's Indexes (which are capitalization weighted Indexes) by being an average of the prices of the 30 included stocks. The actual Index value is calculated by multiplying the average price by a scale factor which changes over time.

Indexes cannot be traded directly. It is for this reason that a number of different investment instruments have evolved which track an Index, either directly, inversely or by some multiple. Generally, these are either Exchange Traded Funds (ETFs) or Mutual Funds.

The most popular way of trading the DOW is via the Diamonds Tracking Stock, whose trades on the American Stock Exchange under the ticker symbol DIA. When you purchase Diamonds stock, you're actually investing in the Diamonds Trust, which is a unit investment that holds shares in the companies comprising DOW.

The Trust became effective on Jan 13, 1998 (it expires in January 2123) for the purpose of matching the price and yield performance of the DOW. It does this by holding all of the stocks in the Index and, as the composition of the Index changes, it replicates those changes in the portfolio of Index securities held by the Trust.

The Trust then issues shares in what are termed "Creation Units" comprising 50,000 shares at a time, and it is these shares which trade as DOW Tracking Stock under the DIA symbol. Each share represents an ownership interest in the Trust, which in turn gives the holder of the share an ownership interest in each of the 30 companies making up the Index.

Because it trades just like any other stock, DIA can be bought and sold in the same way. This is the point of it being an Exchange Traded Fund - it is listed and trades on its exchange (the American Stock Exchange) just like a company's stock would.

Another way of trading the DOW Index is through third party investment instruments such as Mutual Funds. These track the DOW in a variety of different ways: directly on a one-to-one basis (in other words, they attempt to imitate the movement of the DOW), inversely, whereby they track its opposite direction, or dynamically, whereby they attempt to double its performance.

Two of the main providers of Mutual Funds that track the DOW are Rydex and ProFunds.