2 Funds Similar To Cramer's GLUM ETF

June 21, 2018

The stock market has come a long way from where it was a few months ago. The S&P 500 is less than 4% away from its all-time high, while the small-cap Russell 2000 is hitting new record highs on a daily basis.

That’s a far cry from what was going on in February and March, when markets were spiraling lower, weighed down by concerns about inflation, interest rates and trade wars. At its worst, the S&P 500 was down nearly 12% from its highs.

Yet even as the market has slowly rebounded, it’s not all sunshine and roses on Wall Street. Volatility remains a key feature of stocks in 2018, and every now and then, a bout of bad news sends the major averages tumbling.

The latest occurrence was on Monday, when President Trump threatened to impose tariffs on an additional $200 billion worth of Chinese goods—on top of the $50 billion worth of goods already scheduled to get hit with tariffs as soon as July.

Persistent Trade War Jitters

It was the latest salvo in the ongoing trade war between the U.S. and China, which has added uncertainty to an otherwise-robust outlook for the U.S. economy and corporations.

The news sent the SPDR S&P 500 ETF Trust (SPY) skidding as much as 1.3% from Friday’s close to Tuesday’s low.

“At one point, we were down dramatically … and it seemed like the whole world was hitting the exits at once,” remarked Jim Cramer, host of CNBC’s ‘Mad Money.’

Cramer pointed out that even though the U.S. economy was “blazing hot,” every now and then, worries about tariffs or rising rates create negativity that is “pervasive and all-encompassing.”

The pattern has become so familiar that Cramer suggested someone should create a gloom index that contains a group of stocks “that exemplifies this overwhelming pessimism.”

In turn, an ETF with the ticker symbol “GLUM” should be launched based on that index of stocks that are most prone to getting walloped whenever trade worries pop up, he says.

“The bears can sell [the ETF] whenever they’re feeling down and out,” while “those of us with a little more composure may consider buying it,” Cramer added.

Cramer highlighted 10 stocks that should be in his gloomy ETF, including Caterpillar, Boeing, 3M, General Electric, Johnson & Johnson, Citigroup, Goldman Sachs, Lennar, Walmart and Ford.

Existing ETF Options

We’ll see if any ETF issuers take up Cramer’s idea and launch a GLUM exchange-traded fund anytime soon. In the meantime, investors are left trading the hypothetical ETF’s components as individual stocks or in existing ETFs that hold large positions in them.

Using ETF.com’s stock exposure tool—a nifty feature that will be live on the site next month—we searched for the ETFs with the largest positions in the stocks of the hypothetical gloom index.

Two ETFs kept popping up. One is the SPDR Dow Jones Industrial Average ETF Trust (DIA), which holds seven of the 10 stocks in the index, with a weighting of nearly 32% of its portfolio. The other is the Industrial Select Sector SPDR Fund (XLI), which holds four of the 10 stocks in the index, with a weighting of more than 22%.

 

  DIA XLI
Stock Weighting (%) Weighting (%)
CAT 3.99 3.80
BA 9.49 8.28
MMM 5.55 5.26
GE 0.36 4.99
JNJ 3.41 -
C - -
GS 6.35 -
LEN - -
WMT 2.33 -
F - -
Total 31.48 22.33

 

There are other ETFs with notable positions in one or two of the stocks, but nothing compared to DIA or XLI. Unless Cramer’s GLUM ETF becomes a reality, these are investors’ best options when it comes to betting on or against pessimism in 2018.

Email Sumit Roy at [email protected] or follow him on Twitter sumitroy2

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