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ETFs to Tap as Dow Jones Hits 36K for the First Time

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The broad market indices are hitting new highs, and the Dow Jones Industrial Average set new milestone, closing above 36,000 for the first time ever. The solid rally came on the back of strong corporate earnings despite a recent spike in inflation, supply-chain disruptions, worker shortages and the ongoing threat from COVID-19.

Overall, third-quarter earnings have come in better-than-expected so far. With some 320 companies having reported, S&P 500 earnings are expected to have climbed 40.2% in the third quarter from a year ago, according to Refinitiv IBES.

The blue-chip index is up 18% so far this year and has rallied 1,000 points in just three months. It was launched in 1896 with just a dozen companies and then expanded to its current membership level of 30 firms in 1928 (read: Dow Jones Sets New All-Time High: More Upside for ETFs?).

The Dow Jones, which has significant exposure to the cyclical sectors, is clearly benefiting as the economy is recovering from the pandemic. As cyclical sectors are tied to economic activities, they generally outperform on an improving economy. The rounds of solid upbeat data indicate that the economy is on a stronger footing. U.S. consumer confidence rose in October after three straight declines, while retail sales unexpectedly rose 0.7% in September, suggesting that Americans continued to spend at a solid clip despite the rising inflation. Meanwhile, consumer spending accelerated in August even as soaring demand and snarled supply chains kept inflation high. All these data helped to drive investors’ sentiment along with earnings strength.

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 billion and an average daily volume of 4.1 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 8.4% share. Information technology (22.5%), financials (16.9%), healthcare (16.8%), industrials (15%), and consumer discretionary (14.4%) 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 1129 stocks in its basket with none accounting for more than 5.5% of assets. Information technology takes the largest share at 28% while healthcare, consumer discretionary, financials and communications round off the next spots with a double-digit exposure each. IYY has amassed $1.8 million in its asset base while trades in an average daily volume of 38,000 shares. It charges 20 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Ride Out the Earnings Optimism-Driven Rally With These 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 29 stocks in its basket with concentration on the top firm — Chevron (CVX). DJD has been able to manage assets worth $174.4 million, while trading in volume of 21,000 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 $489.6 million and trades in a good volume of around 316,000 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 $919.4 million in its asset base and trades in a solid average daily volume of 3 million shares. Expense ratio comes in at 0.95%.

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