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Dow Jones Tops 35000: ETFs to Ride on the Strength
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The Dow Jones Industrial Average has been on a stellar run, shrugging off the growth sector sell-off lately triggered by inflation fears. The blue-chip index touched 35,000 for the first time ever before closing the May 10 session in red. The beaten down price could be an attractive entry point for investors into the stocks of the index.
This is especially true as the Dow Jones, which has significant exposure to cyclical sectors, is poised to rally given the recovering economy from the pandemic lows. The wider reach of COVID-19 vaccinations as well as a massive fiscal and monetary stimulus have been powering activities across all sectors and categories, resulting in increased consumer spending. Notably, the U.S. GDP grew 6.4% annually in the first quarter, representing the second-strongest increase since 2003 (read: ETF Areas to Win on Smashing Q1 U.S. GDP Growth).
Americans are spending on big-ticket items such as vacations and weddings, companies are going on hiring sprees, and the transition to new technologies such as electric vehicles is accelerating. Consumer confidence has been on rise and the Conference Board consumer confidence index jumped to the highest level in April since February 2020. Retail sales also surged the most since May 2020 in March.
President Joe Biden’s two additional spending plans — one focused on infrastructure and the other on families — would infuse trillions of more dollars into the economy over the next decade that would keep the growth intact. In fact, many economists expect the economy to fully recover from the recession in late 2023. They forecast U.S. growth to top 7% this year, which would be the fastest since 1984, following the worst performance in 74 years when the economy contracted 3.5% in 2020. Per the IMF projection, the United States is expected to become the engine of the global economy this year with the strongest growth of 6.4% in decades.
How to Play?
Amid the bullishness, investors seeking to participate in the Dow Jones’ rally can consider the following ETFs:
SPDR Dow Jones Industrial Average ETF (DIA - Free Report)
This is one of the largest and most popular ETFs in the large-cap space with AUM of $30.2 billion and an average daily volume of 4.2 million shares. It tracks the Dow Jones Industrial Average. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 8% share. Information technology (20.6%), healthcare (17.4%), industrials (17.2%), financials (16.1%) and consumer discretionary (13.5%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
The ETF tracks the Dow Jones U.S. Index, holding 1056 stocks in its basket with none accounting for more than 5% of assets. Information technology takes the largest share at 26.1% while healthcare, consumer discretionary, financials and communications round off the next spots with a double-digit exposure each. IYY has amassed $1.6 million in its asset base while trades in an average daily volume of 61,000 shares. It charges 20 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Go Cyclical With These Leveraged ETFs).
Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report)
This ETF offers exposure to dividend-paying companies included in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 28 stocks in its basket with moderate concentration in the top five firms. DJD has been able to manage assets worth $162.4 million, while trading in volume of 54,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3 (Hold).
Leveraged Play: A Short-Term Win
Investors willing to take extra risk could go for leveraged ETFs. These funds create a leveraged (2X or 3X) long position in the underlying index through the use of swaps, options, future contracts and other financial instruments. While these funds provide outsized returns in a short span, they could lead to huge losses compared to traditional funds in fluctuating or seesaw markets.
This ETF provides twice (2X) the return of the Dow Jones Industrial Average. It has AUM of $482.9 million and trades in a good volume of more than 529,000 shares on average. The product charges 95 bps in annual fees (see: all the Leveraged Equity ETFs here).
This product also tracks the Dow Jones Industrial Average but offers three times (3X) exposure to the index. It has amassed $909.2 million in its asset base and trades in a solid average daily volume of 1.3 million shares. Expense ratio comes in at 0.95%.
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Dow Jones Tops 35000: ETFs to Ride on the Strength
The Dow Jones Industrial Average has been on a stellar run, shrugging off the growth sector sell-off lately triggered by inflation fears. The blue-chip index touched 35,000 for the first time ever before closing the May 10 session in red. The beaten down price could be an attractive entry point for investors into the stocks of the index.
This is especially true as the Dow Jones, which has significant exposure to cyclical sectors, is poised to rally given the recovering economy from the pandemic lows. The wider reach of COVID-19 vaccinations as well as a massive fiscal and monetary stimulus have been powering activities across all sectors and categories, resulting in increased consumer spending. Notably, the U.S. GDP grew 6.4% annually in the first quarter, representing the second-strongest increase since 2003 (read: ETF Areas to Win on Smashing Q1 U.S. GDP Growth).
Americans are spending on big-ticket items such as vacations and weddings, companies are going on hiring sprees, and the transition to new technologies such as electric vehicles is accelerating. Consumer confidence has been on rise and the Conference Board consumer confidence index jumped to the highest level in April since February 2020. Retail sales also surged the most since May 2020 in March.
President Joe Biden’s two additional spending plans — one focused on infrastructure and the other on families — would infuse trillions of more dollars into the economy over the next decade that would keep the growth intact. In fact, many economists expect the economy to fully recover from the recession in late 2023. They forecast U.S. growth to top 7% this year, which would be the fastest since 1984, following the worst performance in 74 years when the economy contracted 3.5% in 2020. Per the IMF projection, the United States is expected to become the engine of the global economy this year with the strongest growth of 6.4% in decades.
How to Play?
Amid the bullishness, investors seeking to participate in the Dow Jones’ rally can consider the following ETFs:
SPDR Dow Jones Industrial Average ETF (DIA - Free Report)
This is one of the largest and most popular ETFs in the large-cap space with AUM of $30.2 billion and an average daily volume of 4.2 million shares. It tracks the Dow Jones Industrial Average. Holding 30 blue chip stocks, the fund is widely spread across components with each holding less than 8% share. Information technology (20.6%), healthcare (17.4%), industrials (17.2%), financials (16.1%) and consumer discretionary (13.5%) are the top five sectors. DIA charges 16 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
iShares Dow Jones U.S. ETF (IYY - Free Report)
The ETF tracks the Dow Jones U.S. Index, holding 1056 stocks in its basket with none accounting for more than 5% of assets. Information technology takes the largest share at 26.1% while healthcare, consumer discretionary, financials and communications round off the next spots with a double-digit exposure each. IYY has amassed $1.6 million in its asset base while trades in an average daily volume of 61,000 shares. It charges 20 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Go Cyclical With These Leveraged ETFs).
Invesco Dow Jones Industrial Average Dividend ETF (DJD - Free Report)
This ETF offers exposure to dividend-paying companies included in the Dow Jones Industrial Average by their 12-month dividend yield over the prior 12 months. It holds 28 stocks in its basket with moderate concentration in the top five firms. DJD has been able to manage assets worth $162.4 million, while trading in volume of 54,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3 (Hold).
Leveraged Play: A Short-Term Win
Investors willing to take extra risk could go for leveraged ETFs. These funds create a leveraged (2X or 3X) long position in the underlying index through the use of swaps, options, future contracts and other financial instruments. While these funds provide outsized returns in a short span, they could lead to huge losses compared to traditional funds in fluctuating or seesaw markets.
ProShares Ultra Dow30 ETF (DDM - Free Report)
This ETF provides twice (2X) the return of the Dow Jones Industrial Average. It has AUM of $482.9 million and trades in a good volume of more than 529,000 shares on average. The product charges 95 bps in annual fees (see: all the Leveraged Equity ETFs here).
ProShares UltraPro Dow30 (UDOW - Free Report)
This product also tracks the Dow Jones Industrial Average but offers three times (3X) exposure to the index. It has amassed $909.2 million in its asset base and trades in a solid average daily volume of 1.3 million shares. Expense ratio comes in at 0.95%.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>