Mutual Funds That Follow the Dow

If you take stock in the old adage that dumb money ends up outperforming smart money in the long run, an index fund may be just the investment strategy you seek. Several investment firms offer mutual funds whose performance is directly tied to the overall Dow Jones Stock Index. Although fund managers invest in specific companies, Dow-based mutual funds tend to perform with the market, helping investors shield themselves from the volatility of single corporations or sectors of the economy.

A classic Dow Jones index fund, iShares’ Dow Jones Select Dividend, invests across all companies indexed by Dow Jones. As an exchange-traded fund, there are no minimum purchase levels as with more managed funds, and it invests equally across all 30 companies indexed by the Dow.

Invest 90 percent of a fund's assets into Dow Jones indexed firms that specialize in the Internet. To qualify for consideration, a company must generate at least 50 percent of its revenues from the Internet, as this exchange-traded fund is linked to the Dow Jones Internet Composite index rather than its Industrial Average index. While focusing on the Dow’s specific index rather than an industrial average, this fund gives investors the chance to specialize with their index-fund purchase.

Some investors want to balance their spiritual or moral beliefs with business performances. For example, the Dow Jones Islamic Fund invests only in companies that comply with Islamic doctrine. Initial purchase levels are low, at $250, making it accessible to most investors who wish to let morality and spirituality guide their business decisions. Fund managers invest in the largest companies with an eye for growth. Though returns have been modest compared to growth, Morningstar rated the fund’s three-, five- and 10-year risk assessment as above-average while its return rate is average.

An exchange-traded fund trust formerly known as Diamonds Trust tailors holdings to perform alongside the Dow Jones Industrial Average. Rated by Morningstar as a four-star investment, the trust historically has mirrored the DJIA. Trading on a by-share basis, the trust allows investors to tailor investments to their needs.