Blue-Chip Index

What Is a Blue-Chip Index?

A blue-chip index is a index that tracks the shares of notable and monetarily stable publicly traded companies known as blue chips. Blue-chip stocks give investors reliable returns, making them positive investments, and are viewed as a check of the relative strength of an industry or economy.

A blue-chip index is a bellwether, meaning news reports and analysts will generally stress the performance of the major ones, like the S&P 500 and Dow Jones Industrial Average (DJIA), every day.

Grasping a Blue-Chip Index

Investors can invest in a blue-chip index and gain exposure to various stable stocks by purchasing shares of a blue-chip-centered exchange-traded fund (ETF) or index fund. These passive vehicles give you stakes in a blue-chip index's all's constituents at a much lower cost than if you somehow managed to buy each of the individual stocks yourself.

Other than the DJIA and S&P 500, different instances of blue-chip indexes incorporate the New Europe Blue Chip Index (NTX), which tracks 30 of the top stocks traded in central, eastern, and southeastern Europe, and the DAX Index, which tracks the main 30 companies on the Frankfurt Stock Exchange.

The term blue chip starts from the game of poker, where the highest designated chip is hued blue. While there is no universal definition of what compels up a blue-chip company, there are several characteristics each company shares.

For a certain something, all blue chips have a history of stable earnings growth and reward shareholders by giving dividend payments with excess profits. Moreover, a large number of the companies have a critical competitive advantage that permits them to keep a leadership position in a specific industry.

Special Considerations

A blue-chip index, for example, the DJIA tracks the performance of just 30 stocks when the total investment universe comprises of thousands of assets. All things being equal, investors have begun to utilize the S&P 500 — a market-capitalization-weighted index of the main 500 companies — as a benchmark for the stock market. It offers exposure to a more extensive exhibit of industries and sectors that are frequently missing from a traditional blue-chip index.

The Dow 30 puts a greater accentuation on price as opposed to standard market factors like momentum, size, value, and market capitalization. In doing as such, the Dow 30 avoids the absolute best-performing and most dynamic companies in the U.S. stock market, including Amazon, Alphabet, and Meta (formerly Facebook).

There are some notable ETFs on the market, however just a small bunch of remarkable blue-chip ETFs following blue-chip indices, including the SPDR S&P 500 and iShares Core S&P 500 ETFs, which both track the S&P 500.

Instances of a Blue-Chip Index

There is a small bunch of ETFs that make a nice showing of tracking the performance of blue-chip indexes. Striking models incorporate the SPDR S&P 500 ETF (SPY) and iShares Core S&P 500 ETF (IVV), which both track the S&P 500, and the SPDR Dow Jones Industrial Average ETF (DIA), which follows the DJIA.

The SPY was perhaps the earliest Etf, with a beginning date that returns to 1993, and has developed into one of the biggest ETFs with $380 billion in assets under management (AUM), as of July 2021. The IVV, in the mean time, was sent off in 2000 and has $297 billion in net assets, while the DIA ETF, sent off in 1998, has $30.4 billion in AUM.

Features

• Blue-chip stocks, which make up a blue-chip index, are helpful investments that give investors predictable returns.
• The most outstanding blue-chip indexes incorporate the S&P 500 and the Dow Jones Industrial Average.
• Investors can invest in a blue-chip index through an exchange-traded fund or index fund, as opposed to choosing individual stocks.
• Blue chips have a history of stable earnings growth and will generally pay consistent dividends.