Are there any mutual funds that mirror the Dow and the Nasdaq, as there are for the Standard and Poor's 500?
QUESTION: I am a small-time investor who wishes to find mutual funds that mirror the performance of the different markets, the way the Vanguard 500 mirrors the performance of the S&P 500. Are there funds that track the Dow and Nasdaq?
As far as the Dow funds are concerned, only the TD Waterhouse Dow 30 fund (WDOWX) is a traditional index fund that tracks the 30 companies that constitute the Dow Jones Industrial Average. The other funds that track the Dow add their own special spin. The Strong Dow 30 Value fund (SDOWX) and the Burnham Dow Focused 30 fund (BUROX), for example, index 50% of their portfolios to the Dow, but actively manage the other half, overweighting and underweighting certain stocks in an attempt to beat the Dow's returns. The Orbitex Focus 30 fund (OFTAX) also overweights the names that the fund manager believes are positioned to do well. Then there's the Potomac Dow 30 Plus fund (PDOWX), which aims to return 125% of the performance of the DJIA by investing a portion of the portfolio in futures and options. As you'll see in the Dow Funds table below, though, Potomac Dow 30 Plus is the only one of these funds that hasn't done better than the Dow's 14% decline year-to-date.
Since the Nasdaq Composite Index includes roughly 4,200 stocks, it's too vast to be covered by an index fund. Instead, you can invest in funds that track the Nasdaq 100, which are the 100 largest and most actively traded names in the composite. The Summit Apex Nasdaq 100 Index fund (SANIX), Victory Nasdaq 100 Index fund (VNIAX) and Rydex OTC fund (RYOCX) are all Nasdaq 100 index funds. The Brinson Enhanced Nasdaq 100 fund (PWNAX) and the Potomac OTC Plus fund (POTCX) both seek higher returns over the long-term than the Nasdaq 100 by using futures and options. Year-to-date, the Nasdaq 100 is down 43.2% and as you can see from the chart below, the funds have similar returns.
Alternatively, you could consider an exchange-traded fund, or ETF. Relatively new to the marketplace, ETFs are similar to mutual funds, except that they trade throughout the day, like stocks. (Mutual funds are priced daily at 4 p.m.) The ETF that covers the Dow is known as the Dow Industries Diamonds fund (DIA), while the one that tracks the Nasdaq 100 is called the QQQ.
There are now hundreds of ETFs. In fact, some focus on sectors and areas where there may not even be an index mutual fund, says Chris Traulsen, a senior analyst at Morningstar specializing in ETFs. One plus of the ETFs is that their expenses are dirt cheap -- they're even less expensive than index funds. Just keep in mind, however, that as with a stock, you have to pay a commission every time you buy or sell an ETF. So if you're looking to make monthly payments into your investment, you should stick with a mutual fund instead.
For more on ETFs vs. index funds, see our previous story.
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|Burnham Dow Focused 30 (BUROX)||-9.38%||1.20%||$1,000||none|
|Strong Dow 30 Value (SDOWX)||-14.23%||1.20%||$2,500||none|
|TD Waterhouse Dow 30 (WDOWX)||-13.48%||0.25%||$1,000||none|
|Orbitex Focus 30 (OFTAX)||-11.47%||1.90%||$2,500||5.75%|
|Potomac Dow 30 Plus (PDOWX)||-19.50%||1.50%||$10,000||none|
|Brinson Enhanced Nasdaq (PWNAX)||-44.00%||1.28%||$1,000||4.50%|
|Potomac OTC Plus (POTCX)||-54.38%||1.50%||$10,000||none|
|Rydex OTC Inv (RYOCX)||-45.36%||1.16%||$25,000||none|
|Summit Apex Nasdaq 100 Index (SANIX)||-45.05%||0.61%||$5,000||none|
|Victory Nasdaq 100 Index (VNIAX)||-43.58%||0.60%||$500||5.75%|