July 22, 2011

Importance of the Dow Utility Average

Watching the Dow Jones Utility Average has become an everyday occurrence for me. The important Utility Average was the third Stock Index introduced by the Dow Jones Company. It was first introduced in 1929, and started off as a Utility dominated Index consisting of 18 Companies. This number was changed in 1938 to what it currently stands at today, a total of 15 companies. Most of them belong to the electric utility industry although several of the companies are considered to be "Diversified Utilities." This term is given to a company that belongs to more than one Utility industry. For example, a company may belong to the Natural Gas industry group, and the Electric Utility industry group. Following this Stock Index is important because its performance can often be attributed to investors expectations for future interest rates. Because utility companies often borrow heavily for expansion and operational purposes, profits for these companies are often higher during times of low interest rates. the same is true in reverse, when interest rates are rising, borrowing becomes more expensive and often leads to a decline in profits. For this reason, many investors, economists, and market analysts follow the performance of stocks belonging to large utility companies. The Utility Average makes tracking this sector easier, by combining the performance of 15 of the largest utility companies in the U.S.

I recently created a page on my investing for beginners website titled, the Utility Average where I wrote more about the history and use of this particular Stock Index. On that page you will find a table that lists the names of each company in the Index. I also wrote about how investors could Trade the Dow Jones Utility Average as a single stock throughout the day. This of course is done through an Exchange Traded Fund, or ETF for short. Like most other major indexes, the Utility Average also has an ETF that investor can purchase which tracks the performance of this Dow Average. To make tracking the various companies in the index simple and easy, I embedded live charts for each one of the companies. At the end of each trading day, I visit the Utility Average page myself, to get a sense of how the Average and the companies inside of it, performed for the day.

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