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Dow Jones Reclaims 34,000: ETFs to Ride On

·4-min read

The Dow Jones Industrial Average closed above 34,000 for the first time since May, led by a jump in the retail space. Notably, the blue-chip index has significant exposure to the cyclical sectors like retail and consumer discretionary.

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 stronger-than-expected results from retailers like Walmart WMT and Home Depot HD spread an air of optimism as the solid results suggest strong consumer spending despite the recessionary fears and higher inflation. Walmart jumped 5.1% after the retailer forecast a smaller drop in full-year profit than previously projected, while Home Depot gained 4.1% after it beat estimates for quarterly sales (read: What's in Store for Retail ETFs As Big-Box Q2 Earnings Unfold).

The slowdown in inflation last month brought much-needed relief to the stock market and perked up investor sentiment. This, coupled with recession fears, has spurred bets that the Fed could start lowering the pace of rate hikes. Additionally, consumer sentiment improved in August from a record low earlier this summer. The University of Michigan’s preliminary sentiment index rose to a three-month high of 55.1 from 51.5 in July. Further, commodity prices have also fallen on recessionary fears, thereby providing a boost to investors’ sentiment.

ETFs to Bet

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 AUM of $29 billion and an average daily volume of 3.1 million shares. Holding 30 blue-chip stocks, the fund is widely spread across components, with each holding less than 11% share. Information technology (21.2%), healthcare (20.4%), financials (15.9%), industrials (14%), consumer discretionary (13.5%) and are the top five sectors.

SPDR Dow Jones Industrial Average ETF charges 16 bps as 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 1150 stocks in its basket, with none accounting for more than 6.5% of assets. Information technology takes the largest share at 27.7%, while healthcare, consumer discretionary, and financials round off the next spots with double-digit exposure each.

iShares Dow Jones U.S. ETF has amassed $1.6 million in its asset base while trading in an average daily volume of 51,000 shares. It charges 20 bps in annual fees and has a Zacks ETF Rank #3 (Hold) 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 concentration on the top firm at 8.3%, while other firms account for no more than 6.2% of assets (read: IBM Tops Q2 Earnings, Warns of Forex Hit: ETFs in Focus).

Invesco Dow Jones Industrial Average Dividend ETF has been able to manage assets worth $242.5 million, while trading in a volume of 57,000 shares a day on average. It charges 7 bps in annual fees and has a Zacks ETF Rank #3.

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)

ProShares Ultra Dow30 ETF provides twice (2X) the return of the Dow Jones Industrial Average. It has AUM of $400.1 million and trades in a good volume of around 421,000 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 but offers three times (3X) exposure to the index. It has amassed $685.3 million in its asset base and trades in a solid average daily volume of 3.3 million shares. The expense ratio comes in at 0.95%.


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Walmart Inc. (WMT) : Free Stock Analysis Report
 
The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
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
 
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