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Time For Dow ETFs?

Dow Jones Industrial Average has been the worst performing index among the popular trio – S&P 500, Dow and Nasdaq – thanks mainly to a freefall in oil prices and rising rate worries in the U.S. Added to this, fears of a hard landing in China and its ripples throughout the world sent this key index into the correction territory in August. So far this year (as of October 9, 2015), SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) is down about 4%. However, things seemed to have been set right for the Dow Jones lately on the oil price jump and the diminishing prospect of a rate hike this year. Oil prices regained some of the lost ground as the U.S. count of oil and gas drilling rigs slipped to a five-year low. Also, the Energy Information Administration (EIA) expects a remarkable drop in U.S. crude production through the middle of next year before a turnaround in late 2016. Oil output is estimated to fall from 9.2 million barrels per day (bpd) in 2015 to 8.9 million bpd in 2016. Needless to say, the rise in oil prices supported energy stocks greatly in recent sessions. On the other hand, a weak September job data pushed the speculative timeline of the Fed rate lift-off to early next year. After all, the year-to-date monthly pace of job gains now averages 198K and the pace for the last three months is much lower at 167K. This compares with the monthly average of 260K for 2014, hinting at the lost momentum in U.S. economic growth. And the stocks surged in hopes of incessant cheap money flows. Moreover, a soft job report curbed the dollar strength which in turn provided a long-awaited boost to the commodities and material stocks. Though all the major benchmarks are correlated and got the boost they needed in October from the Fed and energy-centric optimism, Dow remained relatively more beaten-down and thus is more prone to a sturdy reversal. If this was not enough, a dovish Fed pushed the interest rates down to a lower territory. This in turn brightened the appeal for more yielding securities. Notably, among the top ETFs, Jones Industrial Average-based DIA yields 2.33% annually (as of October 9, 2015) against the S&P 500-based SPY ‘s 2.02% and Nasdaq-100 based QQQ ‘s 1.08%. Below, we highlight a few Dow Jones-based ETF options which could be intriguing options to play: DIA seeks to match the performance of the Dow Jones Industrial Average Index. The index is price weighted and measures the performance of 30 large cap stocks traded in the U.S. markets. Industrials, Financials, IT, Consumer Discretionary and Health Care all hold double-digit exposure in the fund. However, it is subject to company-specific concentration risks as it invests more than half of its portfolio in the top 10 holdings. This $11.6 billion-fund trades in large volumes of over 5 million shares daily and charges 17 bps in fees. It advanced 4.8% in the last 10 trading sessions (as of October 9, 2015). The fund has a Zacks ETF Rank #3 with a Medium risk outlook. iShares Dow Jones U.S. ETF (NYSEARCA: IYY ) This $941.1 million ETF also tracks the Dow Jones U.S. total market index. This fund has a proportionate exposure in almost all sectors with maximum emphasis on IT (19.77%), Financials (17.47%), Health Care (13.91%), Consumer Discretionary (13.55%), and Industrials (10.66%). Unlike DIA, this 1,280-stock fund invests less than 15% share in the top 10 holdings. IYY charges 20 basis points as fees and added 4.2% in the last 10 trading sessions. ALPS Sector Dividend Dogs ETF (NYSEARCA: SDOG ) 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. These higher yielding stocks will appreciate in order to bring their yields in line with the market, leading to outsized gains. This approach results in a portfolio of 51 stocks with each security accounting for less than 2.33% of total assets. The fund focuses on yield in the large cap market while giving investors roughly equal exposure to all sectors. SDOG has accumulated $1.1 billion in AUM and trades in good volume of more than 180,000 shares. It charges 40 bps in annual fees and has an annual dividend yield of 3.63%. The ETF was up over 5.9% in the last 10 days. Original Post

Head-To-Head: S&P 500 ETFs Vs. Dow ETFs

Fears of a hard landing in China slaughtered the global markets last week. China itself saw all its gigantic gains recorded this year going down the drains, and logged the largest one-day plunge since 2007 on August 24 daring all government-backed measures to contain the slide. Back-to-back shockers from China, be it currency devaluation or a six-and-half-year low manufacturing data for August spurred this panic-induced sell-off. The benchmark Shanghai Composite Index dropped 8.5% on Monday. Though China sought to restrain the rout by allowing the pension funds to invest about $97 billion in the market, there was hardly any relief in store. Also, lack of precision by the Fed on the policy tightening timeline roiled the market momentum. The fright among investors was so acute that other global markets followed the footsteps of China. The otherwise steadier U.S. stocks hurtled down, European markets crashed and the Asian stocks fell to a three-year low. Meanwhile, commodities plunged to a 16-year low level while the infamous oil touched a fresh six-and-a-half year low of below $40/ barrel. Emerging markets raised panic alarms leading to an exorbitant exodus in capital. Thanks to this massacre, the U.S. stocks futures logged their largest weekly decline since 2011 in the week ended August 21 and are expected to remain southbound until this jittery market calms down. All major U.S. indices remained in deep red and went into the correction zone , per analysts. The S&P 500 index is lost 12.5% from its May high on a broad-based global slowdown. Dow Jones Industrial Average plummeted about 14.6% (as of August 25) since it hit a high in May thanks mainly to a free fall in oil prices and now both have entered the correction mode. However, Dow was a relatively worse performer than the S&P 500. Momentum Gain However, to contain this slide, China slashed the one-year lending rate by 25 bps to 2.75%, the deposit rate by 25 bps to 1.75% and the reserve ratio by 50 bps to 18%. This, along with a bargain hunt, showered the much-needed gains on Wall Street. As a result, both S&P and Dow advanced close to 4% and captured the highest single-day gain in about four years. Below we highlight four S&P and Dow-based ETFs and analyze their performance and outlook. S&P 500 ETF SPDR S&P 500 ETF (NYSEARCA: SPY ) SPY seeks to track the S&P 500 Index before fees and expenses. The performance of the S&P 500 Index is considered a mirror image of the U.S. equities, as the index represents stocks of the 500 most-valued companies in the U.S. The $171.5 billion SPY has proportionate exposure in almost all sectors with maximum emphasis on Information Technology (20.0%). The sectors like Financials (16.8%), Health Care (15.5%), Consumer Discretionary (12.8%) and Industrials (10.0%) also make up double-digit allocation. The fund is highly liquid trading with over 115 million shares daily. It charges 9 bps in fees. The fund has very low company-concentration risk with no firm accounting for more than 3.6%. SPY is down about 5.3% this year and lost 6% in the last five trading sessions (as of August 26, 2015). The fund has a Zacks ETF Rank #3 (Hold). iShares Core S&P 500 (NYSEARCA: IVV ) This fund also looks to track the S&P 500 index and has AUM of around $68.5 billion. The fund is well spread out across sectors and security. IT, Financials, Health Care and Consumer Discretionary have double-digit exposure in the fund. The product is also devoid of company-specific concentration risks. The fund trades in volume of about 4.1 million shares a day while charges 7 bps in fees and expenses. The ETF lost about 5.7% in the last five trading sessions and 5.3% so far this year. The fund has a Zacks ETF Rank #3. DOW ETFs SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) DIA seeks to match the performance of the Dow Jones Industrial Average Index. The index is price weighted and measures the performance of 30 large cap stocks traded in the U.S. markets. Industrials, Financials, IT, Consumer Discretionary and Health Care all hold double-digit exposure in the fund. However, it is subject to company-specific concentration risks as it invests more than half of its portfolio in the top 10 holdings. This $11.1 billion-fund trades in large volumes of over 5 million shares daily and charges 17 bps in fees. It has lost over 8% so far this year and 6.1% in the last five trading sessions (as of August 26, 2015). The fund has a Zacks ETF Rank #3 with a Medium risk outlook. iShares Dow Jones U.S. ETF (NYSEARCA: IYY ) This $935 million-ETF also tracks the Dow Jones U.S. total market index. This fund has a proportionate exposure in almost all sectors with maximum emphasis on IT (19.0%), Financials (18.1%), Health Care (14.8%), Consumer Discretionary (13.4%), and Industrials (11.0%). Unlike DIA, this 1,255 stocks – fund invests less than 15% share in the top 10 holdings. Probably this is why the fund lost less than DIA. IYY charges 20 basis points as fees and shed 5.9% in the last five trading sessions and over 5.3% so far this year. Outlook Overall, the market may be a little uncertain, but such a sharp sell-off will open up the doors for future gains in the U.S. All four products went into an oversold territory indicating a turnaround. Moreover, latest rate cuts by China should also provide some boost to these equity indices. However, investors should also not that the current prices of the aforementioned ETFs are below their short- and long-term moving averages hinting at further bearishness. So, edgy investors might stay on the sidelines as of now and especially exercise caution when it comes to the Dow ETFs as this spectrum appears more volatile than the S&P 500. Original Post