ETF Talk: Ride the Market’s Rise with DIA

If you are hoping to profit from the market’s recent run-up, consider buying an exchange-traded fund (ETF) that gives you exposure to some of the best established companies available. One way to do so is by investing in the SPDR Dow Jones Industrial Average ETF (DIA).

The fund seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the Dow Jones Industrial Average. Without question, DIA has been on a roll lately, as the following chart shows.

As of Feb. 21, DIA’s top sectors and their respective weightings are: industrials, 22.27%; information technology, 17.6%; consumer staples, 13.53%; energy, 11.37%; and consumer discretionary, 11.02%. As far as the fund’s top five individual holdings and weightings on Feb. 21, they consist of: International Business Machine, 11.28%; Caterpillar Inc., 6.71%; McDonald’s, 5.86%; 3M Co., 5.11%; and Exxon Mobile Corp., 5.05%.

On Feb. 12, DIA closed at $129.23 per share, after paying a dividend of 0.332. The last time the fund topped that level occurred on May 19, 2008, when the fund closed at $130.23 per share. The ETF’s rising share price may have been aided by positive fourth quarter and full-year 2011 results from Home Depot, Inc. (HD) and other companies that are doing well during a weak economy. Indeed, HD is DIA’s 16th largest holding, as of yesterday’s close.

The world’s largest home improvement retailer reported on that day that it notched sales of $16.0 billion for the fourth quarter 2011, a 5.9% increase from the fourth quarter of 2010. Comparable store sales for the fourth quarter of 2011 jumped 5.7%, and comparable sales for U.S. stores alone rose 6.1%. Also impressive is that Home Depot’s 2011 sales reached $70.4 billion, up 3.5% from 2010. In addition, the company’s comparable store sales for 2011 climbed 3.4%, and comparable sales for U.S. stores alone rose 3.0%. It seems apparent that the do-it-yourself market is on the ascent, amid economic weakness in other sectors.

Home Depot also announced on Jan. 20 that it had acquired Redbeacon, an online home services platform that connects consumers with contractors for their home maintenance, repair and remodeling needs. Based in San Mateo, Calif., Redbeacon assists homeowners in connecting with qualified local service professionals, so Home Depot now seems better positioned to compete for the business of online buyers to sustain its sales growth. Since people generally look for ways to save money in a weak economy, Home Depot is an example of a company that can grow in both good and bad times.

With DIA’s diversification, you can benefit from its holdings in stocks such as Home Depot, without risking all of your money on the fortunes of just one company. That is a clear advantage of using ETFs.

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