General Motors (GM - Analyst Report) has finally washed off its ‘Government Motors’ label as the U.S. government divested the last of its stake in the company. The government came to rescue this bankrupt auto giant five years back. The Treasury department then provided a bailout loan of $49.5 billion to General Motors in exchange of about 61% stake under the Troubled Assets Relief Program (TARP).
Later on, in Nov 2010, General Motors opted for an IPO of common stock that enabled it to repay $23.1 billion to the U.S. government. The Treasury was left with roughly 500.1 million shares of General Motors (see These 3 ETFs Could Soar on Strong Car Sales).
In last December, GM bought back 200 million shares from the U.S. government for $5.5 billion, leaving nearly 300 million shares with the Treasury. In January this year, the Treasury Departments set a target for entire holding sell-off by April 2014.
Since then, the Treasury Department has been steadfast in getting rid of its GM holdings in a phased manner and went on recovering the bailout funds. And finally on Monday, the government departed General Motors selling its very last share, quite ahead of the time limit of April 2014.
Market and ETF Impact
Following the sell announcement, share prices of General Motors rose 1.82% in a single trading session on December 9th on volume of around 29,000,000 shares which were higher than the average trading volume of around 20,000,000 shares. The stock is currently hovering around its 52-week high level.
Thanks to the buyback activities, the stock gained a handsome 40.4% in the year-to-date frame. In fact, GM’s stock added about 7.3% since the U.S. treasury moved forward its exit-time from next year to this year-end in late-November.
As per CNBC, the automaker can now gift its shareholders with dividends for the first time since it went public in 2010. These activities will likely help the company generate increased earnings per share while free it from several clauses under TARP.
Investors can cash in on the recent good news out of General Motors in basket form rather focusing on the stock itself so as to protect them from any downside. General Motors has decent exposure in funds like IPOX-100 Index Fund (FPX - ETF report) and First Trust NASDAQ Global Auto ETF (CARZ - ETF report) .
FPX and CARZ gained 0.5% and 0.08% respectively in GM’s key trading session. In fact, CARZ has a top Zacks ETF Rank of ‘2’ though with ‘high’ risk outlook (see all the Top Ranked ETFs here).
FPX in Focus
This fund basically looks to track the return of the U.S. Initial public offerings. Since inception in 2006, FPX amassed an asset base of $303.8 million. The in-focus General Motors takes up the third spot in its 101-stock portfolio with about 7.39% share. The ETF charges 60 bps a year in fees and returned about 38.6% in the year-to-date time frame (as of December 9, 2013) (read: Is Twitter Owned by Your ETF?).
CARZ in Focus
This ETF belongs to the consumer discretionary space. The fund invests $54.5 million of assets in 38 holdings. The stock under review – GM – assumes the sixth position with 4.42% of assets. The fund surged an impressive 34.1% in the year-to-date time frame. CARZ is also a bit costly option charging 70 bps in fees.
With the U.S. Treasury finally through with General Motors, the auto-maker can now chalk out its growth path individually. Thus far in its second chapter, GM’s run looks smooth. To add to this, car sales are gaining momentum throughout the world. The upbeat November data also indicates steady recovery in China – GM’s one of the key markets.
While GM’s excessive exposure in European market still remains an overhang, we expect that not to cause much concern as the continent came to life this year. This suggests that GM’s future, especially without the Treasury stake, might be very bright, and that the days of ‘Government Motors’ could be behind this former American-icon (read: Auto ETF in Focus as Car Sales Rebound).
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