The Dow Jones industrial average has begun the Q2 earnings season with a bang, having closed at an all-time high for three days in a row (as of July 14, 2016). Tailwinds were rampant for the index to log a steady ascent. If the energy sector rebound drove the index higher one day, the other day better-than-expected results from large financial institutions like J.P. Morgan Chase (JPM - Free Report) proffered its gains.
Plus, upbeat U.S. economic data, hints of a more accommodative monetary policy from the Bank of England to be launched next month and the likely surge in government spending in Japan given prime minster Shinzo Abe’s overwhelming victory in the upper house election over this weekend boosted investors’ confidence and showered gains on the U.S. market (read: Why Japan ETFs Are on an Incredible Run).
Along with the Dow Jones Industrial Average, the S&P 500 is on a tear, having hit several highs this week (read: Play Global Market Rally with These ETFs).
Dow to Hit 20,000 This Year?
One analyst expects the Dow to rally to the 20,000 level by this year-end from the present close of 18,506.41 (on July 14, 2016). The analyst pointed out a few reasons which seem intriguing against the current backdrop in our opinion too.
One of the reasons is income lure. A dovish Fed and uncertainty in the global market pushed the government bond yields down to record lows. This in turn brightened the appeal for high-yielding securities. Notably, among the top ETFs, Dow Jones Industrial Average-based (DIA - Free Report) yields 2.36% annually (as of July 14, 2016) against the S&P 500-based (SPY - Free Report) ’s 2.06% and the Nasdaq 100-based (QQQ - Free Report) ’s 1.09%. In fact, that analysts noted that “13 of the Dow stocks yield more than 3%.” (read: Should You Bet on Dow ETFs over S&P 500?)
Also, the analyst is hopeful of high-priced stocks like Goldman and J.P. Morgan in the financial sector and IBM and Microsoft in the tech sector. Now since Dow Jones is a price-weighted index, bullishness over this high-priced cohort makes the case for Dow investing more appealing.
If this was not enough, manufacturing numbers point to a recovery in the U.S. Upswing in the manufacturing sector can act as a strong tailwind to Dow Jones Industrial Average’s forward growth, in our opinion. After all, DIA invests about 19.62% weight – the highest allocation – in the industrial sector.
Furthermore, it has been noticed lately that Dow Jones shares a deep relationship with oil price movement. Though the energy sector rally spells optimism over the broader market as a whole, in most cases, on a particular day of oil surge, the spurt in the Dow Jones is steeper than that of the S&P 500, or vice versa. Though oil is still in an edgy phase, the worst seems over and it is less likely to fall in the below $30-trap in the near term.
ETFs to Play
In such a scenario, if you believe that the Dow Jones Industrial Average can pull of further ascent in the days to come, you can definitely bet on the below-mentioned ETFs.
DIA in Focus
The fund seeks to match the performance of the Dow Jones Industrial Average Index and is thus the first choice to play the index.
iShares Dow Jones U.S. ETF (IYY - Free Report)
This ETF tracks the Dow Jones U.S. total market index which considers stocks from the Dow Jones U.S. Large-Cap Index, Dow Jones U.S. Mid-Cap Index, Dow Jones U.S. Small-Cap Index and the Dow Jones U.S. sector indices.
Guggenheim Dow Jones Industrial Average Dividend ETF ((DJD - Free Report) )
This new ETF looks to give investors a way to target higher income producing securities in the U.S. market. This is done by tracking the Dow Jones Industrial Average Yield Weighted index (also read 3 Excellent ETFs for Growing Dividends).
ALPS Sector Dividend Dogs ETF (SDOG - Free Report)
This fund applies the ‘Dogs of the Dow' theory on a sector-by-sector basis using the S&P 500. This could be easily done by selecting the five highest yielding securities in each of the 10 GICS sectors and equally weighing them. The fund yields about 3.27% annually (as of July 14, 2016) (read: 7 Dividend ETF Winners of 1H16 Worth a Watch in 2H).
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