There is a lot of hype about the possibility of the Dow Jones (NYSEARCA:DIA) hitting 20,000. The Trump rally has been one of the fastest stock market booms in recent memory, and if the new American President's policy of big fiscal spending, tax breaks, and repatriation has the effect the market is expecting, Dow 20,000 may be just the beginning of a new bull market.
I believe the best way to play the Trump rally is through the UBS ETRACS Monthly Pay 2x Leveraged DJI Index ETN (NYSEARCA:DVYL). This 6.50% yielding fund offers investors approximately twice the upside of the Dow while controlling risk via its low beta dividend aristocrat holdings.
What is DVYL
DVYL is a low fee (0.35%) 2x leveraged debt instrument designed to reflect double the performance of the Dow Jones U.S Select Dividend Index (^DJDVP). The ETF not only tracks the capital appreciation of the index, but also doubles its dividend yield (to 6.50%) and pays monthly.
Holdings are selected based on dividend yield and dividend longevity. The ETF holds many of the most stable blue-chip stocks on the Dow. There is a heavy focus on big tobacco, big pharma, American multinationals, and energy.
As with any leveraged investment, it is important to address the risks associated with DVYL. The fund is volatile, but since it is based on a blue-chip index, its beta is much lower than similarly leveraged funds like the NASDAQ Ultra Pro (NASDAQ:TQQQ) or the S&P 500 ultra bull (NYSEARCA:SPXL). The reason why I believe DVYL is a better way to play the Trump rally than the other options is because it uses a 2x leverage ratio instead of the more common 3x and holds lower beta stocks.
The Trump rally is impressive, but it is also uncertain. At the end of the day, we don't know if Donald Trump's economic policy will have as big of an impact on the global economy as the market is expecting. It is also impossible to know when a recession is around the corner. In an uncertain climate like this, DVYL excels because it provides huge upside when times are good, and if the market corrects downwards, investors will still have a solid monthly dividend.
The holdings of DVYL are dividend aristocrats. Many of these stocks have weathered multiple recessions without missing a beat on their dividend payments. This adds a huge layer of security to investors in DVYL.
The UBS ETRACS Monthly Pay 2x Leveraged DJI Index ETN is an excellent way for investors to profit from the upsides of the Trump rally with leverage while keeping their downside risk minimized by the funds high and reliable monthly dividend payout. DVYL's holdings are dividend aristocrats, many of whom have increased their yields through the worst recessions.
The low beta blue chip holdings of DVYL make the fund an excellent way for investors to profit from the Trump rally without some of the downside risks found in other leveraged index funds.
Disclosure: I am/we are long DVYL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.