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Investing in the US30: What to consider
The US30 tracks the performance of the 30 largest companies traded on the New York Stock Exchange. Because of the nature of its composition, it is sometimes considered a benchmark of the overall performance of the US economy. Alongside the US500 index, the US30 is one of the most closely watched indices in the world.
Most of the companies which make up the US30 today have little to do with traditional heavy industries that are part of the index's history. Nevertheless, the index does contain well-known brands, such as Apple, Coca-Cola and McDonald’s. Since there is no way of investing directly in the index, all related trading and investing is done via CFDs.
Who should include the US30 Index in their portfolios?
- Thematic investment in the US market: Since the US30 tracks leading companies traded on Wall Street, it could be a good investment choice for those who wish to get exposure to the US market.
- Long-term investors: The US30 has shown overall gains over time. Those who believe the positive trend will continue and that growth in the US market is expected in the long run, could consider it a good option for investment.
- Low-risk investors: The US30 has been in existence for more than 120 years and is considered by most investors to be a low-risk investment option, due to its low volatility and long-term gains.
- Hedging for high volatility traders: Traders who engage in volatile markets, such as the foreign currency and cryptocurrency markets, could hedge their portfolios by investing in the US30, to add some stability and reduce its overall volatility.
What drives the price of the US30?
- Trends in the US market: The US30 chart often reflects the general stability and current trends within the American economy. Therefore, financial data releases, such as the Non-Farm Payroll report usually have an impact on the index.
- Global economic trends: Since global markets affect one another and often move in tandem, changes in a major market, such as Asia or Europe could also carry over to the US and impact the US30.
- Major price swing in one of the index’s components: Due to the fact that the US30 is composed of just 30 companies, a major fluctuation in one or two stocks within its composition could impact the index as a whole.
- The US Dollar: When examining the US30 chart compared to that of the greenback, it is apparent that there is somewhat of an inverse correlation between the two. When the US30 goes up, the USD goes down and vice versa.
The US30: Running with the bulls
Despite being considered a stable and low-risk index, the US30 has had some major price dips over the years. Most notably, the stock market crash in the early 2000s, following the burst of the Internet bubble and the 2008 US housing crisis. However, many analysts agree that there is reason to be bullish when discussing the US30 price. Taking such an approach is highly logical, since the American economy is the largest in the world and has been very stable overall. Moreover, the fact that the index rebalances to include only the top 30 companies in the country gives it an extra layer of protection.
Despite its name, the US30 index no longer reflects the industrial sector, but rather, he US market as a whole. With its components ranging from business conglomerates through financial powerhouses and food and beverage companies to technology companies, it represents an overall market cap in the trillions. With these companies and the US government sharing an interest of economic prosperity, the index has all the support it needs to continue growing, giving the bulls a reason to smile.
History of the US30
The US30 Industrial Average is the second oldest index in the US, created by Wall Street Journal founder Charles Dow and his partner Edward Jones in 1896. Initially, the index calculated the average value of the 12 largest companies in the American industrial sector. Focusing on industries such as cotton, tobacco and sugar, the index was created to serve as a benchmark of sorts, and each stock within its composition was weighed according to price - the higher the price, the larger the weight.
Over the years, the components of the index changed almost entirely. The index grew to 30 components in 1928 and its composition has changed a total of 51 times since its inception. The most recent addition to the index was Apple, which was added in 2015. Because the overall number of components doesn’t vary, while the overall price of each stock does, a formula was created to reflect its value using unique points, rather than assigning it a dollar value.
Conclusion: The US30 is more instrument than benchmark
While still considered to be an indicator of the American economy’s health, the US30 has increasingly become more of an instrument of its own. There are thousands of publicly traded companies in the US, so saying that 30 of them serve as an accurate indication could prove questionable. For that reason, the US500 has taken center stage as a more accurate benchmark, since it has many more components, with each one weighted according to market cap, not stock price. However, when considering trading or investing in the US30, its merits as a financial asset are apparent. It has trends that span years and there is a consensus that its robust structure and constant growth make it a solid low-risk, long-term investment.