Dow Jones Hit 33K: ETFs To Ride The Rally

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The Dow Jones Industrial Average has been enjoying a strong rally this year and hit new milestone of 33,000 in just five trading days after crossing the 32,000 milestone. This represents the fastest-ever 1,000-point move, per Dow Jones Market Data.

The solid uptrend came on the back of cyclical sectors, which are outperforming after being beaten down badly amid the coronavirus crisis. 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.

The United States added 379,000 jobs — the highest since October — in February, while unemployment fell to 6.2%. Manufacturing activity increased to a three-year high last month with acceleration in new orders. Consumer spending rose the most in seven months in January while construction spending surged to a record high, boosted by strong private and public outlays. Strong corporate earnings as well as signs of a healing labor market also bode well for economic growth.  

Faster vaccine deployment, continued progress on more vaccines and the new $1.9 trillion stimulus passed by President Joe Biden are fueling growth in the economy. The Fed in its latest meeting maintained interest rate near zero with no interest rate hikes through 2023. The central bank projects a rapid jump in U.S. economic growth and inflation this year as the COVID-19 crisis winds down. The combination of factors will continue to push up Dow Jones, which has significant exposure to cyclical sectors.

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 $28.1 billion and an average daily volume of 3.7 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 7.2% share. Information technology (20.9%), industrials (17.6%), healthcare (16.7%), financials (15.9%) and consumer discretionary (13%) 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 1048 stocks in its basket with none accounting for more than 5.23% of assets. Information technology takes the largest share at 26.9% while healthcare, consumer discretionary, financials and communications round off the next spots with a double-digit exposure each. IYY has amassed $1.5 million in its asset base while trades in an average daily volume of 60,000 shares. It charges 20 bps in annual fees and has a Zacks ETF Rank #2 with a Medium risk outlook.

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 $120.1 million, while trading in volume of 64,000 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 $433.7 million and trades in a good volume of more than 511,000 shares on average. The product charges 95 bps in annual fees.

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 $818.4 million in its asset base and trades in a solid average daily volume of 1.4 million shares. Expense ratio comes in at 0.95%.

Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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