Auto ETFs: First Trust CARZ and Global X VROM
Sam Subramanian PhD, MBA
The automotive sector has been among the top performers since the U. S. economy emerged from the Great Recession. The DJ U.S. Automobiles & Parts index ($DJUSAP) is up over 330% from the March 2009 bottom.
Until now, Fidelity Select Automotive (FSAVX) has been the sole pure-play vehicle for investors looking to invest in the auto sector via bundled products.
ETF investors had to content themselves with surrogate plays like SPDR S&P International Consumer Discretionary ETF (IPD), ETFS Physical Palladium (PALL), or ETFS Physical Platinum (PPLT) to play the auto cycle.
Two Pure-Play Auto ETFs
Now, two pure-play sector ETFs are available for investing in the auto sector. First Trust came out with the NASDAQ Global Auto Index ETF (CARZ) on May 10. Soon after, Global X launched the Global X Auto ETF (VROM) on May 19.
The two sector ETFs differ in two respects: coverage of sub-industries and geography.
First Trust Auto ETF - CARZ
First Trust NASDAQ Global Auto Index ETF focuses on global automakers. Its underlying index includes 32 automakers from nine developed and emerging market countries.
Automakers from U.S., Western Europe and Japan account for 82% of the ETF's assets. The top ten holdings make up 60% of the ETF's assets. They include German automakers Daimler (DDAIF.PK), Volkswagen (VLKAY.PK) & BMW (BAMXY.PK), U.S. automakers Ford (F) & General Motors (GM), and Japanese automakers Toyota Motor (TM) & Honda Motor (HMC).
Automakers in China, Korea, Malaysia and Taiwan are allocated 18% of the ETF's assets.
Global X Auto ETF - VROM
Global X Auto ETF (VROM) based on S-Network Global Automotive Index includes stocks of the 50 largest companies in the auto industry. Currently automakers, auto parts companies, and tire makers make up 74%, 19%, and 7%, respectively of this ETF.
Global X Auto ETF includes many of the automakers in the First Trust Auto ETF. Additionally, the Global X Auto ETF features automaker Tata Motors (TTM), auto parts makers Johnson Controls (JCI) & Magna International (MGA), and tire maker Goodyear Tire & Rubber (GT).
Capping off individual country allocation at 25%, Global X Auto ETF currently invests nearly 80% of its assets in developed markets. Emerging market autos and auto parts companies make up the remaining 20%.
AlphaProfit Take on Auto ETFs
The long-term future of the auto industry appears bright particularly in emerging markets. Wards Auto projects global auto sales to increase by 38% to 107 million units in 2020 from about 77 million units in 2011. While sales are expected to increase about 5% in the developed world, they are forecasted to grow between 60% and 160% in the individual BRIC countries.
As such, investments in auto ETFs are a play on consumer demand in emerging markets. While First Trust Global Auto ETF provides focused exposure to automakers, Global X provides broader exposure to auto, auto parts, and tire companies. In future, investors could have one more choice for auto ETFs with DireXion Funds having registered for one.
Like any sector ETF, one has to get the timing right with auto ETFs to avoid losses and earn outsized returns. These newly-introduced auto ETFs do not generate much enthusiasm from a timing perspective.
With auto stocks already up well over triple digits from the March 2009 bottom and monetary policies in emerging economies now getting tighter, the auto cycle appears to be closer to its top rather than its bottom.
Patient investors willing to wait until the bottom of the auto cycle can look to auto ETFs like First Trust Global Auto ETF and Global X Auto ETF to capture the next auto cycle upswing.
AlphaProfit ETF Model Portfolios and ETF Investment Newsletter
AlphaProfit's proven ETF selection process enables thousands of investors to thrive in turbulent markets.
A dollar invested in the AlphaProfit's Aggressive Growth (ETF-Focus) and Capital Appreciation (ETF-Core) model portfolios is worth $45.99 and $23.91, respectively. This implies annualized returns of 20.0% and 16.3%, respectively.
Performance of ETF model portfolios as of December 31, 2014.
Sign up for ETF Newsletter
Comparable investments in the Dow Jones Wilshire 5000 and S&P 500 benchmarks are worth $6.73 and $6.63, respectively implying annualized returns of 9.5% and 9.4%, respectively.
The ETF model portfolios use AlphaProfit's proven ValuM investment process for selecting investments. This process has enabled AlphaProfit model portfolios to bag Hulbert Financial's #1 rank numerous times.
Sign up for the ETF Newsletter and receive AlphaProfit's Current Market Outlook and Special Report on 'Five Smart Ways of Using Sector ETFs'.
The chart above shows the actual performance of the ETF model portfolios since their launch in 2007. The performance shown before 2007 is the performance of AlphaProfit's ValuM investment process selections.
Protect & grow your wealth with
investment recommendations from free e-letter
By Hulbert #1 rank winner Dr. Sam Subramanian
'Incisive Insights, Impressive Results' - Jim Woodruff
About AlphaProfit MoneyMatters and AlphaProfit
AlphaProfit MoneyMatters is a free e-letter distributed to registered users of AlphaProfit's website. The e-letter analyzes the economy, markets, and sectors and provides money-making insights on stocks, exchange-traded funds, and mutual funds.
AlphaProfit MoneyMatters is edited by Dr. Sam Subramanian acclaimed for his financial acumen and analytical skills.
AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector
Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios
with Fidelity funds and exchange-traded funds.
It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won
the coveted #1 rank from Hulbert Financial
Copyright Policy and Fair Use Guide
You are welcome to quote a short excerpt of the article not exceeding 100 words with attribution in the form of a hyperlink to the article's
full URL or http://www.alphaprofit.com. If you wish to republish the article in full on
your website, blog, or other media, you must obtain permission.
AlphaProfit MoneyMatters™ is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Factual material is obtained from sources believed
to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any
of the investment companies, brokers or entities connected with the securities mentioned herein. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at
www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of the AlphaProfit MoneyMatters.
This page is best viewed in 1024 by 768 pixels screen resolution or higher.
Copyright © 2011 AlphaProfit Investments, LLC. All rights reserved.