What to Know About (DIA) Diamonds ETF

Using the DIA to Gain Exposure to the DJIA Index

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A lot of investors like to invest through the Dow Jones Industrial Average Index (DJIA). The DJIA is an index of 30 blue-chip companies traded on the NASDAQ and the New York Stock Exchange (NYSE). Blue-chip companies are large, established firms. You could buy stock in the individual companies included in the DJIA, but there's an easier way.

Diamonds (DIA) ETF

The DIA DIAMONDS Trust, Series 1 ETF follows the price and performance of the Dow Jones Industrial Average (DJIA) Index. An exchange-traded fund (ETF) is an investment that's comprised of other investments, like stocks. It's similar to a mutual fund, but ETFs are traded on an exchange.

The DIA ETF aims to provide the same returns as the DJIA. By purchasing the DIA ETF, you are essentially buying an investment asset that acts as the DJIA index, but it's a simpler transaction. There is a direct correlation between the DIA and the DJIA index, but you don’t have to purchase multiple stocks in a basket to achieve your goal. You just invest in the DIA ETF and you're done.

Diamonds is an informal name. It's formally known as the SPDR Dow Jones Industrial Average ETF and managed by State Street Global Advisors.

Advantages of Buying the DIA ETF

It only takes one transaction to gain exposure. You don’t have to make multiple bids or offers to hit your target price. And fewer transactions make investing easier and keep transaction costs and brokerage fees under control. The DIA ETF has a gross expense ratio of 0.16%. The expense ratio is an annual fee you're charged to cover administrative and operating fees.

On top of the advantages of the DIA ETF, you reap the benefits of ETFs in general as well. This includes tax benefits, which are a huge advantage over other investments like mutual funds. For example, capital gains taxes are typically lower for ETFs than mutual funds.

Disadvantages of Buying the Diamonds ETF

While you are buying an asset that emulates the DJIA index, you are not truly buying the index. There is a direct correlation, but it's not exactly the same, so there can be some tracking error.

And ETFs in general have their disadvantages. No investment is perfect and all come with risk. For example, ETFs aren't a good fit for short-term traders, as their gains are relatively modest in the short term. And while ETF fees are low, you may pay less if you buy individual stocks. Ultimately, it comes down to the proper research and determining if the DIA or any ETF is the right fit for your portfolio.

What's in the DIA ETF?

The trust for the DIA exchange-traded fund not only holds the same stocks as the DJIA but some cash as well. This helps with the liquidity of the fund and also aides with the tracking process. And while the DIA is not an actively managed ETF, adjustments do have to be made to the assets in the fund to correct any tracking discrepancies.

As for the sector allocation, information technology is the current largest sector represented in the ETF, followed by the health care and industrials sectors. And energy and materials are two of the smaller industries in the fund.

You’ve definitely heard of a lot of the stocks in the fund. Holdings include McDonald's (MCD), Coca-Cola (KO), Exxon Mobil (XOM), and other popular companies.

Investing in the Diamonds ETF

Every investment should be made on a case-by-case basis. The DIA ETF is a good way to gain exposure to the market and DJIA index, if that’s your goal. It’s always important to conduct thorough research before making any investment decision, but from there, the decision is yours. Who knows, maybe the DIA is that diamond-in-the-rough investment you are looking for.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Article Sources

  1. State Street Global Advisors. "SPDR Dow Jones Industrial Average ETF Trust." Accessed Oct. 19, 2020.

  2. State Street Global Advisors. "SPDR Dow Jones Industrial Average ETF Trust," Page 2. Accessed Oct. 19, 2020.

  3. State Street Global Advisors. "SPDR Dow Jones Industrial Average ETF Trust," Page 36. Accessed Oct. 19, 2020.