INTRODUCTION
The S&P 500 and Dow Jones Industrial Average® (DJIA), both of which are designed to track U.S. large-cap companies, are two of the most iconic indices in the world. These indices have changed the way that investors measure the stock market and benchmark investment portfolios. They also serve as the basis for some of the world’s most successful index-linked products and derivative contracts.
At the end of 2019, we estimate that there was over USD 11.2 trillion benchmarked to the S&P 500, which includes USD 4.6 trillion passively tracking the index. In comparison, there was USD 32 billion benchmarked to the DJIA, which includes USD 28 billion in passive assets.
According to our estimates above, the S&P 500 won the battle to attract assets. However, the DJIA offers several advantages, including its simplicity and a longer live history—it celebrated its 125th anniversary on May 26, 2021. As discussed in past research, the trading volumes of investment products linked to the DJIA are high relative to the amount of assets tracking it.
The S&P 500 and DJIA have similar long-term risk/return profiles, and their three-year rolling correlations are high. However, there are important differences between the two indices that investors should consider.
- Number of constituents
- Size of the component companies
- Weighting scheme
- Sector representation
- Fundamentals
- Factor exposures
We will start by exploring areas in which these iconic indices are similar and then delve into the differences.
