The Best Dow Jones ETFs to Buy in December 2024

ByDan Kent Published On:

The Dow Jones is among the most ancient stock market indexes in North America. It was launched in 1896 and has served as a prominent benchmark of the US economy for numerous years.

Not many people utilize the Dow Jones anymore as a benchmark index. Many analysts and fund managers use the S&P 500 or NASDAQ indexes as benchmarks, depending on what type of stock or fund they’re looking at.

The Dow Jones still has its uses, and many investors still utilize the index today.

What are the top Dow Jones ETFs in Canada right now?

  • BMO Dow Jones Ind Avg Hdgd to CAD ETF (ZDJ.TO)
  • BMO Covered Call DJIA Hedged to CAD ETF (ZWA.TO)
  • SPDR Dow Jones Industrial Average ETF Trust (DIA)

BMO Dow Jones Ind Avg Hdgd to CAD ETF (ZDJ.TO)

Currently, the Bank of Montreal Dow Jones Industrial Average ETF (ZDJ.TO)  will be one of the only Canadian-listed DJIA ETFs you can own. The ETF is an index fund and its investment objective is to track the performance of the Dow Jones Industrial Average net of expenses.

However, this is a hedged index fund, meaning you are going to be protected from currency fluctuations in the Canadian dollar. In terms of holdings, it contains the 30 stocks inside of the Dow Jones and then a multitude of other positions primarily utilized for the currency hedging aspect of the fund.

So, don’t be surprised when you see this fund has 60+ holdings. In terms of companies, it is price-weighted much the same as the Dow Jones. This is why you’ll see a $500+ stock in UnitedHealth Group (UNH) at the top of the list, followed by Goldman Sachs (GS), Home Depot (HD), Mcdonalds (MCD), and Amgen (AMGN).

The ETF’s management expense ratio comes in at 0.26%, meaning you’ll pay $2.60 per $1000 invested annually. This is a relatively small fee, considering this is one of the only ways to get exposure to the Dow Jones in Canadian dollars.

In terms of performance, the currency-hedged aspect of this ETF has been a detriment. In terms of hedged vs unhedged ETFs, I have often stated that unless your time horizon is short, do not currency hedge.

This is because, over the long term, currency fluctuations tend to level out, and all you are left with is lost money in currency hedging fees.

In terms of past performance, since the ETF’s inception in mid-2009, it has returned around 9.1% annually. The Dow Jones, on the other hand, has returned 10.62%. If we look at this from a dollar perspective, $10,000 invested in the Dow Jones directly would be $38,300 today. In ZDJ, it would be $34,300.

In terms of dividend yield, the fund yields 1.66%. Just know that because this is a Canadian-listed ETF that holds US stocks directly, you would be subject to withholding tax on these dividends, even in a RRSP.

BMO Covered Call DJIA Hedged to CAD ETF (ZWA.TO)

For all of you covered call ETFs fans out there, the BMO Covered Call DJIA Hedged ETF (ZWA.TO)  is the second way to gain exposure to the Dow Jones in Canadian currency.

Let’s go over the two main differences between these funds before we get into the specifics of ZWA. For one, management fees are much higher on this ETF, coming in at $6.50 per $1000 invested.

This makes sense, as a covered call ETF is likely to be more actively managed, as the funds’ investment objectives revolve around active management and selling call options on the underlying holdings to increase the distribution yield. In turn, this creates more transaction costs inside the portfolio.

If you are unaware of what a covered call is, it is simply an investment strategy in which the investor sells call options, on their holdings to collect a premium. The options contract gives the buyer of the contract the right, but not the obligation, to purchase the stocks from the contract seller at a predetermined price.

Optimally, you want the options contracts to expire useless, so you can collect the premium and still keep the stocks. This happens when the contract’s strike price is below the stock’s current value.

Because this fund collects options premiums, it can pay a significantly larger dividend yield. At the time of update, this fund pays out nearly 6%. You will find other covered call items among the high yielding ETFs in Canada.

You typically give up total returns via capital gains for more income with a covered call strategy. This is because in a bull market, call options will often be exercised, and the fund will have to sell stocks for less than they are worth at that point in time, impacting its investment return.

This is precisely why, on a performance basis, this one has returned roughly 9% annualized, around 0.5% less than ZDJ. This annualized return would have required your distributions to have been re-invested.

All investors must consider this before buying a fund like this. And beware, not all ETFs are the best ETFs for your tax-free savings account. When dealing with ETFs that have US holdings and/or distributions do some digging on potential withholding taxes and understand how that may affect you.

SPDR Dow Jones Industrial Average ETF Trust (DIA)

I figured I would include one US-listed Dow Jones ETF for those willing to exchange their currency for USD. To give you an idea of how large SPDR Dow Jones Industrial Average ETF Trust (DIA) is, it has assets under management of $30.5B at the time of writing.

When factoring in currency conversion, this is more than eight times the size of the BMO funds talked about above combined.

As a fund gets larger, it can typically get away with charging less fees. In this case, with a MER of only $1.60 per $1000 invested, SPDR’s Dow Jones fund is the cheapest on this list. It has a dividend yield of around 1.66%. In terms of overall holdings, it is identical to the Dow Jones with its price-weighted nature.

When we look to performance, this is where this fund separates itself from the two BMO funds. It has 10-year annualized returns of nearly 12.5%, outpacing the currency-hedged ETFs by almost 3% each.

To give you an idea of how impactful this is over the long term, if you had invested $100,000 in both DIA and ZDJ, you would have about $40,000 more with DIA.

Obviously, past performance is not indicative of future results. Currency hedged ETFs could hypothetically be beneficial over the next decade, and ZDJ could end up outperforming. It is essential to figure out if you want currency hedging inside of your portfolio or not, as it will heavily influence which ETF you want to own.

What exactly is the Dow Jones Industrial Average?

The Dow Jones Industrial Average, or as many call it, “the Dow,” is a stock market index that aims to track the 30 most prominent companies in the United States. A notable thing about the Dow is that it is a “price-weighted index,” meaning a larger share price is favoured over a larger market capitalization.

Although the Dow can contain any particular type of stock, it contains some of the most prominent blue-chip stocks in the world, such as:

  • Apple
  • American Express
  • Microsoft
  • Home Depot
  • Johnson & Johnson
  • McDonalds
  • Visa

As a result, many investors want exposure to the Dow, particularly those in Canada. We can do so through a handful of Canadian ETFs. Shares of ETFs can be bought and sold on the markets much like a stock, and provide instant diversification for investors who do not want to buy individual stocks.

For this reason, we will go over some of the best Dow Jones ETFs in Canada. Keep in mind, depending on your brokerage commissions, you may be able to buy these commission free. Over the long run, this can definitely have an impact on investment results, so check to see if you can buy them for free.

Only two here are Canadian-listed, and they are both from the Bank of Montreal.

Overall, there aren’t many methods of gaining exposure, but these are 3 solid ones

BMO is an outstanding fund provider. I often look to it when thinking of a niche ETF I’d like to own, such as index fund ETFs. They have a covered call and non-covered call variant, which adds even more possibilities for Canadians looking for exposure to the Dow.

In terms of SPDR, it is one of the global leaders when it comes to Dow Jones ETFs, and if you are looking to buy in USD, you can’t really go wrong here. It all depends on your personal preference and your long-term goals.

With buying SPDR’s ETF, the accuracy of your returns may vary, as an investor’s shares in this ETF are not only exposed to movements of the Dow Jones, but currency fluctuations as well.