S&P 500 ETF vs. Dow Jones ETF: What's the Difference?

S&P 500 ETF vs. Dow Jones ETF: An Overview

Exchange-traded funds (ETFs) that track the S&P 500 Index and the Dow Jones Industrial Average (DJIA) are some of the most widely traded ETFs in the market today.

Both ETFs have essentially the same amount of risk associated with them. The Dow ETF tracks 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, meaning they tend to move in the same direction much of the time; however, there are distinct differences between the two funds.

The S&P 500 ETF

The SPDR S&P 500 ETF Trust (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 differ slightly from the S&P 500 index. The committee uses guidelines for its decisions, including liquidity, profitability, and balance. The committee meets regularly to review the index.

The S&P 500 index is constructed using a weighted average market capitalization, which means larger companies have a greater weighting in the index. Market capitalization is the result of multiplying a company's stock price by the number of outstanding shares of stock. As a result of the weighting, companies with the largest number of shares and a high stock price will carry a higher weighting.

The SPDR SPY has a low expense ratio of 0.0945%, which is the cost of managing the fund expressed in percentage terms. The fund has $415.9 billion in assets under management (AUM) as of July 6, 2023.

Sector Weighting

Below are the SPY's top sectors that are represented along with the percentage of their weightings within the fund as of July 6, 2023:

• Information Technology: 28.23%
• Healthcare: 13.30%
• Financials: 12.46%
• Consumer Discretionary: 10.70%
• Industrials: 8.46%
  
• Communication Services: 8.20%
• Industrials: 8.01%
• Consumer Staples: 6.74%
• Energy: 4.04%
• Utilities: 2.60%
• Real Estate: 2.53%
• Real Estate: 2.45%
  

Top 10 Holdings

Below are the SPY's top 10 holdings as of July 6, 2023:

Performance

Below is the performance of the SPDR S&P 500 ETF Trust (SPY) as of May 31, 2023:

Liquidity and Risk

The SPDR SPY has an average daily share volume of 71.9 million shares as of July 6, 2023, and an average daily volume of $30.2 billion. The number of shares traded daily—called liquidity—is important since a higher number 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 fluctuate. 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 line 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 higher risk than the overall market. Since the SPY includes many companies in the market, its beta is usually close to one, meaning it moves in line with the market.

The Dow Jones Industrial Average ETF

The SPDR Dow Jones Industrial Average ETF Trust (DIA) tracks 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 Street Journal. There are no technical rules for inclusion in the index. The component companies must be substantial enterprises that represent 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 stock 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 ratio of 0.16%, which is low but slightly higher than the SPY. The DIA has $28.9 billion in assets under management (AUM) as of July 6, 2023, which is $387 billion less than the SPY.

Sector Weighting

Some of the sectors that are represented in the fund as of July 6, 2023, along with their weightings, include:

• Financials: 20.15%
• Healthcare: 18.76%
• Information Technology: 18.62%
• Industrials: 14.64%
• Consumer Discretionary: 13.64%
• Consumer Staples: 7.75%
• Energy: 2.97%
• Communication Services: 2.45%
• Materials: 1.03%
  

Top 10 Holdings

Below are the DIA's top 10 holdings along with their weightings as of July 6, 2023:

Performance

Below is the performance of the SPDR Dow Jones Industrial Average ETF Trust (DIA) as of May 31, 2023:

Liquidity and Risk

The fund has an average daily share volume of 3 million shares as of July 6, 2023, and has an average daily volume of $1.02 billion. The DIA has a slightly lower but similar risk level than the SPY, with a .78 beta.

The Correlation Between SPY and DIA

The SPY and DIA have a high degree of correlation, meaning that when the S&P 500 rises, so too do the Dow Jones and their respective ETFs. The high degree of correlation is due to the similar component companies of each index. The DJIA contains only very large companies.

Most of these companies are also included in the S&P 500; however, the weightings might be different, meaning the amount of money allocated to the companies will vary when comparing the two funds. Although the S&P 500 provides more diversification, the overall 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 exposure to the broader stock market, then the S&P 500 is a better choice. Alternatively, if an investor is looking for exposure to established blue-chip companies, then the DIA is a better choice.