The Dow Jones Industrial Average’s most involved turnover in years went into effect Monday. The index swapped out longtime component Exxon Mobil for cloud-computing newcomer Salesforce, Pfizer for Amgen, and Raytheon Technologies for Honeywell.
When it comes to the ETF industry, there’s one major fund tied to the Dow: the SPDR Dow Jones Industrial Average ETF (DIA), noted Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA.
With $23.4 billion in assets under management, DIA is “very small compared to the three largest ETFs,” the SPDR S&P 500 ETF Trust (SPY), iShares Core S&P 500 ETF (IVV) and Vanguard S&P 500 ETF (VOO), Rosenbluth said Monday on CNBC’s “ETF Edge.”
For comparison, SPY, the largest ETF in the world, has over $307 billion in assets under management.
“If you think about the smart-beta ETFs of growth versus value, dividends, low volatility, the S&P 500 is really the king of the index-based products as opposed to the Dow Jones Industrial Average,” Rosenbluth said. “But this does matter.”
The Dow’s switch was prompted largely by Apple’s 4-for-1 stock split, which also took place Monday. That move took the Dow’s technology exposure down to 20.3% from 27.6%. With the addition of Salesforce, that’s now roughly 23.1%.
“The health-care exposure I think is what’s most notable to us at CFRA. The weighting went from about 14% to 18% because Amgen is taking Pfizer’s spot in this price-weighted index [and] Amgen has a higher stock price,” Rosenbluth said. “It’s just a reminder that ETFs are not static. You need to stick with them. But this is not as big as if it was tied to the S&P 500.”
Ant Group’s upcoming IPO will be anything but tiny.
What could be the world’s largest public debut to date won’t be the easiest listing for U.S.-based investors to access. But some ETFs offer unique ways to get in on the Alipay parent’s stock, Rosenbluth said.
“Individual investors would be hard-pressed to try to get exposure to a Chinese-listed IPO coming to market,” he acknowledged.
But, he added, with Renaissance Capital’s International IPO ETF (IPOS) or First Trust’s competing International Equity Opportunities ETF (FPXI), investors can get “direct access to this and ... exposure to other recent IPOs and spin-offs.”
Renaissance Capital Chair Kathleen Smith told CNBC’s “ETF Edge” last weekthat her firm plans to add Ant Group shares into IPOs “as early as after five days of trading.”
Ark Invest’s Fintech Innovation ETF (ARKF) could also be an under-the-radar winner here, Rosenbluth said.
“This is an actively managed ETF and it’s global in nature,” he said. “It already owns companies like Tencent and Mercadolibre in addition to Lendingtree and Square within the top 10 holdings. So, it’s logical that this is a place that they’ll be fishing.”
You read that right: ETF issuer Defiance has announced it will launch an ETF for special purpose acquisition companies as the investing trend gains traction on Wall Street.
The Defiance NextGen SPAC IPO ETF, which will trade under the ticker SPAK, will be a one-stop shop for shares of these blank-check companies. SPACs typically seek to merge with or acquire private companies within two years. Fifty-one SPACs, including popular names such as DraftKings, have raised a total of $21 billion in 2020.
“SPACs are a structure just like ETFs are. They’re designed to bring companies out to IPO in perhaps a more efficient way because they give price certainty to those companies that are coming public,” Jacobs said.
“The question, though, is what are they going to buy?” he said. “Are they going to buy a driverless car company? Are they going to buy a space exploration company? Is it maybe a more traditional consumer packaged good company? You don’t really know what they’re going to be.”
Jacobs’ advice to investors was to stay disciplined with SPACs despite their popularity.
“From an investment perspective, investors might be wise to wait and see what those SPACs ultimately become before diving in because, again, they’re just a structure,” he said. “You don’t really know what you’re going to get until they make their big purchase.”