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2013 has been a year filled with interesting stories and a lot of surprises. For a while, markets remained range bound as investors around the globe were analyzing every bit of economic or Fed related news for clues regarding ‘tapering’ of the QE program.
August in particular was a rough month for global equities as concerns over higher rates and geopolitical worries kept stocks in check across the board. Under such harsh conditions the auto industry was one of the few which not only survived but also performed pretty well.
Auto Sector in Focus
For a while the U.S. automotive industry seemed to be floundering with a few analysts forecasting a grim outlook for the sector. However, in recent months, the industry witnessed the highest monthly sales levels since the recession began.
The auto sector posted a stellar performance in August this year. For the first time in 6 years, auto sales shimmered, while according to Bloomberg, the 17% surge in U.S. auto sales in August helped push the annual rate to a pre-recession, boom-time level.
About 1.5 million new cars were sold in August and all the leading auto giants, namely, Ford, Nissan, General Motors, Toyota, and Honda, gained in double digits last month (read: Behind the Surge in the Auto ETF).
Factors Driving Sales
An improving economy, low car loan interest rates, reduced gas prices and high trade in values jointly acted in favor of the U.S. auto sector, pushing sales higher. Plus, many consumers had been waiting on a new car, and with the solid economy, some felt that it is now time to upgrade their vehicle (Read: 3 Cyclical ETFs for an Improving Economy).
How to Benefit?
Given the ongoing boom and the continued optimism in the auto industry, investors should focus on the only pure play ETF in the space for a broad exposure – the First Trust NASDAQ Global Auto ETF (CARZ) – that tracks the NASDAQ OMX Global Auto Index.
CARZ so far has been under-appreciated by many investors as indicated by its AUM of only $36.3 million and average daily trading volume of just under 24,000 shares.
The product holds 38 large-cap securities in its basket. The product is more tilted towards its top 10 holdings which combine to make up roughly 60% of the ETF's assets. Amongst individual holdings, Daimler AG, Ford Motors and Toyota Motors take the top 3 spots.
Top country holdings of the fund include Japan 32.64%, Germany 23.08% and U.S. 21.19%.
The product has yielded impressive returns of 42% as of Jun 30 on an annual basis, while year-to-date returns are nearly 26%. The fund gives a decent yield of 0.86% a year.
Currently, the product is trading above its 50-Day Moving Average of $36.55. The 52-week price performance of the fund is up by 54% (Find all Consumer Discretionary ETFs).
CARZ currently has a Zacks Rank of #2 or ‘Buy’ with a high risk outlook.
The Bottom Line
Investors should note that the auto sector is highly concentrated as the top 10 global automakers account for roughly 80% of the worldwide production and nearly 90% of total vehicles sold in the U.S., so there is definitely going to be some company specific risk in this product.
But given the promising trends for cyclical stocks at this time, some investors may want to consider buying into this automotive ETF in the long as well as for the short term. With the U.S. economy slowly rebounding, we could see further gains in the automotive space making this a potentially good time to get into this surging sector, especially after the recent bout of solid data.
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