The auto industry includes companies that manufacture cars, trucks, vans, and commercial vehicles, as well as companies that supply automobile parts and technology. Well-known names in the industry include Tesla Inc. (TSLA), now the world’s largest automaker by market value, Ford Motor Co. (F), Toyota Motor Corp. (TM), and General Motors Co. (GM).
Investors looking to invest in a specific industry can typically do so by using an exchange-traded fund (ETF) focused on that area. An ETF allows investors to hold a basket of stocks operating within a specific industry, thus avoiding the idiosyncratic risk of investing in a single stock.
But that's no longer the case when it comes to autos. As of this year, there is no pure-play ETF specifically devoted to the auto industry. That's because CARZ, the closest thing to a pure-play auto ETF, recently changed its investment objective and is now less focused on the industry.
- The auto industry outperformed the broader market over the past year.
- The closest thing to auto exchange-traded fund (ETF) are two funds: CARZ and VCAR.
- The top holdings of these funds are Tesla Inc. and Apple Inc., respectively.
In January of 2022, the previously named First Trust NASDAQ Global Auto Index Fund changed its investment objective to focus on companies primarily involved in three areas: the development and sales of electric and autonomous vehicles, future auto technologies and products, and related technologies. It also changed the index that it tracks and is now called the First Trust S-Network Future Vehicles & Technology ETF (CARZ). It is the closest thing to an auto ETF that trades in the U.S., excluding inverse and leveraged funds as well as those with less than $50 million in assets under management (AUM). In addition to CARZ, a newer auto-focused fund, called the Simplify Volt RoboCar Disruption and Tech ETF (VCAR), provides targeted exposure to a certain portion of the auto industry.
The automobile industry, as represented by the benchmark S&P 500 Automobiles Industry Index, has outperformed the broader market in the past year. The index has provided a one-year trailing total return of 10.7%, compared with -10.6% for the S&P 500. We note that this index includes only U.S. companies, while CARZ and VCAR each have a global focus. As mentioned, both of these funds are not pure-play auto industry ETFs. The performance figures above and all data below are as of Sept. 7, 2022. In order to focus on the funds' investment strategy, the top holdings listed for each ETF exclude cash holdings and holdings purchased with securities lending proceeds except under unusual cases, such as when the cash portion is exceptionally large.
ETFs with very low assets under management—less than $50 million—usually have lower liquidity than larger ETFs. This can result in higher trading costs that can negate some of your investment gains or increase your losses.
First Trust S-Network Future Vehicles & Technology ETF (CARZ)
- Performance over one-year: -20.8%
- Expense ratio: 0.70%
- Annual dividend yield: 0.72%
- Three-month average daily volume: 4,106
- AUM: $47.5 million
- Inception fate: May 9, 2011
- Issuer: First Trust
CARZ tracks the S-Network Electric & Future Vehicle Ecosystem Index, which targets companies operating in the electric and future vehicle ecosystem. That includes companies involved in manufacturing electric and autonomous vehicles or providing enabling technologies and materials for the manufacturing process. It also includes companies developing and manufacturing future automotive technology and products or companies providing information technology solutions. The ETF normally invests at least 90% of its assets in the equities that comprise the index. The majority of the fund's holdings are based in the U.S., with the remainder represented by a number of other developed and emerging markets, including South Korea, Japan, and China. More than half of the fund's holdings are represented by the information technology sector with another significant chunk devoted to the consumer discretionary sector. The fund follows a value-centric strategy, focusing on stocks that look relatively cheap compared to others in the same sector.
The top holdings of CARZ include Tesla Inc. (TSLA), an electric vehicle and related equipment manufacturer; Apple Inc. (AAPL), a provider of technology hardware, software, and services, including entertainment and news; and Sponsored ADRs of Taiwan Semiconductor Manufacturing Co., Ltd. (TSM), the Taiwan-based semiconductor manufacturer.
Simplify Volt RoboCar Disruption and Tech ETF (VCAR)
- Performance over one-year: -28.9%
- Expense ratio: 0.95%
- Annual dividend yield: N/A
- Three-month average daily volume: 1,509
- AUM: $4.1 million
- Inception fate: Dec. 28, 2020
- Issuer: Simplify Asset Management Inc.
VCAR is an actively-managed fund that targets companies poised to dominate the burgeoning industry of autonomous driving. The fund utilizes options in an effort to enhance upside while minimizing drawdowns. VCAR has a global focus and is highly concentrated in a small number of positions, with the top 10 holdings accounting for nearly 61% of invested assets.
The top holdings of VCAR include Apple; Microsoft Corp. (MSFT), the multinational technology company; and Tesla.
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