ETF of the week: Focus on the American old guard

Donald Trump's election has given a further boost to US indices. At the same time, a gap is widening between the US and European and Asian markets, which are worried about the repercussions of the future policies pursued by the 47th American president.

The United States is sailing alone, without a care in the world. After all, corporate earnings have been relatively good, with 75% of S&P 500 companies beating expectations in the third quarter (source: Factset Insight, data as of November 8). As far as interest rates are concerned, investors remain confident in the Fed's plans for further monetary easing.

On other continents, things are a little more complicated. European and Asian stock markets are fearful of the tariffs that the Trump administration is planning to introduce. Also, the general climate gives no cause for celebration: the war in Ukraine could get bogged down with the green light from the United States for the use of long-range missiles. As for consumption, it is affected by weak purchasing power.

Against this backdrop, sentiment remains rather bearish outside the US, unless an easing of financial conditions turns things around. In the US, the favorable trend has pushed indices to high valuation levels. As can be seen below, the P/E of the NASDAQ 100 is over 35 times, while that of the S&P 500 stands at 27 times.

P/Es of some US and European indices (source: Bloomberg)

The Dow Jones, the world's oldest index, seems an interesting alternative to its acolytes. Its profile is more defensive in times of high volatility, and its valuation of 24 times earnings is still acceptable.

To maintain your exposure to US equities, you could opt for a Dow Jones ETF, such as ETFs: iShares Dow Jones U.S. ETF - USD.

A quick reminder of Dow Jones fundamentals

The Dow Jones is a price-weighted index. This means that the calculation method involves adding up the prices of the 30 company stocks that make up the index, then dividing this sum by the "Dow Divisor", a specific divisor calculated and updated according to a host of parameters such as spin-offs, dividend payments, stock splits, etc.

The largest Dow Jones companies are UnitedHealth (8.9% of the index), Goldman Sachs (8.1%), Microsoft (6.4%), Home Depot (6.2%), Caterpillar (5.9%), Amgen (5%), McDonald's (4.6%), Salesforce (4.6%), Visa (4.5%) and American Express (4.2%).