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Investing in “Dow” ETFs

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You may be able to profit by playing the Dow. The Dow Jones Industrial Average is the most popular measure of stock market performance. And since Election Day, it has outperformed the broader Standard & Poor’s 500 stock index, returning 15.7% versus 12.2% as of March 10.

Yet only $17.7 billion is invested in the seven exchange-traded funds that track all 30 blue chip stocks in the 120-year-old Dow index, compared with more than $2 trillion invested in funds tracking the S&P 500.

The Dow is expected to do especially well in the Trump era. Reason: The index is especially heavy with economically sensitive industrials such as Caterpillar and United Technologies that may greatly benefit from President Donald Trump’s plans to stimulate economic growth. The Dow also is heavy in financial services giants such as JP Morgan Chase and Goldman Sachs, which can charge more on loans as the Federal Reserve raises interest rates.

Best ways to play the Dow now…

SPDR Dow Jones Industrial Average ETF (DIA). With an annual expense ratio of just 0.17%, this is the lowest-cost way for an average investor to replicate the Dow as an investment. This is the oldest Dow ETF, launched in 1998, and by far the biggest with $16.6 billion in assets. 10-year performance: 8%. Recent yield: 2.2%.

Guggenheim Dow Jones Industrial Average Dividend ETF (DJD), launched in December 2015, weights the companies in the Dow by their dividend yields—not by their share prices as the Dow itself is weighted—resulting in a higher dividend payout than that suggested by the index itself. Top holdings include Boeing and Chevron. One-year performance: 23%. Recent yield: 2.6%.

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Source: Neena Mishra, CFA, ETF research director at Zacks Investment Research, Chicago. Zacks.com Date: April 1, 2017 Publication: Bottom Line Personal