Small Cap stocks have been the winner for year 2010 especially Small cap growth stocks. There is also an ETF traded on the American Stock Exchange call the Dow Diamond that is also a Dow Jones Index Fund that you can invest in. As we’ve already stated, these index funds follow the 30 blue chip companies in the Dow Jones Industrial Average. But I should note that many investors are increasingly going with S&P 500 index funds because they feel like it better represents the economy as a whole. Nevertheless, the stock price of these companies can fluctuate greatly over short periods.
Because there are many more good companies in the S&P 500, investors feel like this makes it an even better investment tool than the Dow Jones index funds for the same reasons that the Dow funds are good investments. A Dow Jones Index Fund has in it’s portfolio stocks in companies that are part of the Dow Jones Industrial Average. This means that investors can gain indirect exposure to the international markets, and use the global diversification of the companies in the index to hedge against the negative impact of a weak U.S. economy. Moreover, the companies that make up the Dow generate a significant amount of revenue each year.
While the DJIA has many excellent attributes, one of its biggest criticisms stems from the fact that it is a price-weighted index This means that each company is assigned a weighting based on its stock price. In comparison, most companies that make up an index are weighted according to their market capitalization. As you can assume, there would be a significant difference in the weighting of the companies in the Dow if the index committee used market capitalization instead of stock price to structure the index proxy. The index is used to judge the overall movement of the NYSE AMEX equities market.
That said, there is really nothing that makes a price-weighted index inferior to a market cap-weighted index , or even an equally-weighted index or a revenue-weighted index. This is because the idiosyncratic nature of each index construction methodology has many strengths and weaknesses that make it difficult to reach consensus on the best methodology to use. When analyzing the performance of the Dow, it is important to keep in mind that it is considered by some to be a volatile index.
That said, there is a significant difference between the business risk of the companies that make up the Dow and the volatility of the index. This is because the companies that make up the DJIA represent 30 of the most well-established companies in the world. As a result, investment products that replicate the performance of the Dow can experience significant short-term gains and losses. A protective put strategy consists of a long position in a Dow ETF and the purchase of put options on the same underlying ETF.