ETFs to Tap as Dow Scales New Highs
The Dow Jones Industrial Average hit a new all-time high following stronger-than-expected jobs report, which regained investors’ confidence about the health of the economy. Investors seeking to participate in the Dow Jones rally can consider SPDR Dow Jones Industrial Average ETF DIA, iShares Dow Jones U.S. ETF IYY, Invesco Dow Jones Industrial Average Dividend ETF DJD, ProShares Ultra Dow30 ETF DDM and ProShares UltraPro Dow30 UDOW.
The latest jobs data showed the biggest jump in six months in September, a drop in the unemployment rate and solid wage increases, pointing to a resilient economy. The United States added 254,000 jobs last month, up from a revised 159,000 in August, and unemployment dipped to 4.1% from 4.2% in August. Being cyclical in nature, the blue-chip index outperforms when economic growth improves.
The new high for the blue-chip index came despite escalating geopolitical tensions. The tensions in the Middle East have intensified following Iran's missile attack on Israel. Iran launched about 200 ballistic missiles targeting Israel on Oct. 1, leading to growing fears of retaliation from Israel. The attack has accelerated tensions in the Middle East region. Amid the turmoil, the Dow Jones emerged as an outperformer (read: ETFs to Profit From Rising Middle East Tension, Port Strike).
This is especially true as the blue-chip index consists of typically less risky stocks. These companies are more established and provide a broader range of products or services, offering some safety in case of an economic slowdown or political issues.
Further, the blue-chip index has been benefiting from the latest Fed’s 50 bps rate cuts. Lower rates benefit cyclical sectors like industrials, financials and consumer discretionary most. It reduces borrowing costs for mortgages, credit cards and other consumer and business loans. This helps businesses to expand their operations more easily, resulting in increased profitability. This, in turn, stimulates economic growth and boosts the stock market.
ETFs in Focus
SPDR Dow Jones Industrial Average ETF (DIA)
SPDR Dow Jones Industrial Average ETF is one of the largest and most popular ETFs in the large-cap space, with an AUM of $35.1 billion and an average daily volume of 3.3 million shares. Holding 30 blue-chip stocks, the fund is widely spread across components, with each having less than a 9.2% share. Financials (23%), information technology (19.1%), healthcare (18.5%), consumer discretionary (15.3%) and industrials (13.7%) are the top five sectors.
SPDR Dow Jones Industrial Average ETF charges 16 bps in annual fees and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk.
iShares Dow Jones U.S. ETF (IYY)
iShares Dow Jones U.S. ETF tracks the Dow Jones U.S. Index, holding 1029 stocks in its basket, with none accounting for more than 6.5% of the assets. Information technology takes the largest share at 30.3%, while financials, healthcare and consumer discretionary round off the next spots with double-digit exposure each.
iShares Dow Jones U.S. ETF has amassed $2.2 million in its asset base while trading in an average daily volume of 52,000 shares. It charges 20 bps in annual fees and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
Invesco Dow Jones Industrial Average Dividend ETF (DJD)
Invesco Dow Jones Industrial Average Dividend 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 none accounting for more than 10% of the assets.
Invesco Dow Jones Industrial Average Dividend ETF has been able to manage assets worth $315.1 million while trading in a volume of 16,000 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 an 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)
ProShares Ultra Dow30 ETF provides twice (2X) the return of the Dow Jones Industrial Average. It has AUM of $431.8 million and trades in a good volume of around 237,000 shares on average. The product charges 95 bps in annual fees (see: all the Leveraged Equity ETFs here).
ProShares UltraPro Dow30 (UDOW)
ProShares UltraPro Dow30 also tracks the Dow Jones Industrial Average, offering three times (3X) exposure to the index. It has amassed $626.3 million in its asset base and trades in a solid average daily volume of 2.6 million shares. The expense ratio comes in at 0.95%.
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SPDR Dow Jones Industrial Average ETF (DIA): ETF Research Reports
Proshares Ultra Dow30 (DDM): ETF Research Reports
Invesco Dow Jones Industrial Average Dividend ETF (DJD): ETF Research Reports
iShares Dow Jones U.S. ETF (IYY): ETF Research Reports
ProShares UltraPro Dow30 (UDOW): ETF Research Reports