Back to top

ETF News And Commentary

One sector of the economy that has begun to hold steady despite the broad economic malaise is the automotive industry. Car sales have trended above a seasonably adjusted annual rate of over 10 million units for several months now, suggesting the uptrend in the sector is not a fluke or a one month aberration for the American market. Additionally, although there are concerns over Chinese growth, the country is still the biggest car market in the world with over 18.5 million units sold in 2011. Given the low penetration of cars in the country—auto ownership is below 50 per 1,000 people— more sales aren’t unreasonable to assume even if the growth rate of the country as a whole slows down considerably in the near future.

Furthermore, for investors who believe that the economy will rebound in 2012, a greater allocation to cyclical sectors—such as those in the consumer discretionary space—could be the way to go in order to see big gains. While allocations to single companies are very possible and easy in the equity world, a very recent look at the sector suggests that fortunes can vary wildly among the components in the space and that some firms can surge and others can falter in a very short period of time (read Three Low Beta Sector ETFs). Thanks to this, a more diversified approach could be ideal for investors who don’t have a strong opinion on any of the Big Three American firms or some of the top producers coming out of the Japanese or Korean markets (read India ETFs Behind The Crash).

Additionally, a great deal of the growth seems to be coming from emerging nations so it only makes sense to allocate more assets to those corners of the sector, or at least to firms with higher levels of exposure to the space. Since many of these firms do not trade on American exchanges, a closer look at a car ETF may be the way to go. Luckily for those looking to make a play on the space, there are two global funds which put assets to work in the car industry. While both have a great deal of similarities, there are a number of key differences that investors need to be aware of before choosing between the two. In light of this, we highlight in greater detail below the two automotive ETFs and some of the key differences between these two upstart funds:

First Trust NASDAQ Global Auto Index Fund (CARZ - ETF report)

This ETF tracks the NASDAQ OMX Global Auto Index which is a modified market-cap weighted index that includes securities classified as automobile manufacturers. In order to be included, companies have to be listed on a global exchange, have a market cap of at least half a billion, and trade more than $1 million in volume for a three month average period. The index also includes caps to prevent a few firms from dominating the index which is rebalanced quarterly and reconstituted on a yearly basis (read Ten Best New ETFs Of 2011).

In total, CARZ holds 36 securities in total and charges investors 70 basis points a year in fees. The fund has the heaviest exposure to five firms which all make up at least 8% of assets; Ford (F - Analyst Report), Daimler AG , Toyota (TM - Analyst Report), Hyundai, and Honda (HMC - Analyst Report). The P/E ratio on the fund is at a rock bottom 6.9 while the Price to Book comes in at just 0.95 suggesting deep value is in the component securities. This could be a result of the fund’s terrible performance over the past few months as CARZ has lost 21.6% in the past six month period.

Global X Auto ETF

For another way to play the auto industry, investors could consider VROM which tracks S-Network Global Automotive Index. This benchmark is a modified cap weighted index of publicly traded companies engaged in the production of automobiles, automobile parts, tires, and related activities. It strives to include the fifty largest and most actively traded companies worldwide that are principally engaged (derive greater than 50% of revenues from sources listed above) in the automobile industry (also read Convertible Bond ETFs Head-to-Head).

VROM has heavier exposure to its top three holdings as Toyota (12%), Daimler (8.4%), and Ford (7.7%) take the top three spots in the basket, but the fund rounds this out by holding more securities than its First Trust counterpart. Country exposure is also concentrated, as Japan, Germany, and the U.S. combine to make up nearly two-thirds of the total assets in the fund. This fund also has deep value characteristics as well, as the product’s basket has a P/E of just 8.2 but a slightly higher Price to Book of 1.2. Additionally, the fund has seen a slightly worse performance over the past six months—down 22.2%-- although it does have better volume and lower expenses than its First Trust counterpart.

 



Category

CARZ

VROM

Expenses

0.70%

0.65%

Volume

2,600

6,500

Assets in top ten

60.7%

57.8%

Return (past six months)

-21.6%

-22.2%

U.S. Equities

17.0%

23.4

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Please login to Zacks.com or register to post a comment.

If you wish to go to ZacksFunds.com, click OK. If you do not, click Cancel.

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SYNAPTICS I… SYNA 78.11 +8.14%
GREEN PLAIN… GPRE 39.41 +5.12%
PILGRIM'S P… PPC 28.82 +3.08%
SKYWORKS SO… SWKS 52.07 +2.58%
CLAYTON WIL… CWEI 109.08 +2.51%