What is an 'Auto Industry ETF'

The auto industry ETF is an exchange-traded fund that invests primarily in manufacturers and suppliers of automotive products.

BREAKING DOWN 'Auto Industry ETF'

The automotive industry ETF consists of a group that contains manufacturers of all automobile related products, including but not limited to, parts and labor. Due to the number of automotive companies within the United States and across the globe, many of these exchange-traded funds may have a global reach as well. Asia and Europe both have a strong market presence in the industry. 

Some of the products held in these funds include research and development, distribution of materials and the sale of automobiles themselves.

In a bull market, automotive stocks rank higher as they are tied to development and production in the economy, by showing increased consumer spending. New automobiles are a significant purchase that many people put off until they are financially stable enough to do, so thanks to the increasing availability of other options. Most urban areas have extensive public transportation systems. Even rural areas are now seeing an increase in newer transportation initiatives like ride sharing, and companies like Uber and Lyft that provide taxi services where they did not previously exist, or where there was a greater demand for them.

The Top Auto Industry ETF of 2017

In 2017, First Trust Nasdaq Global Auto Index Fund ETF (CARZ) was ranked as the top performing exchange-trade fund in the auto industry sector. Unlike some other ETF’s, CARZ only invests in companies that are classified as auto manufacturers. This may be a contributing factor as to why the fund is so successful. CARZ only includes companies with a $500 million market cap. It also requires that included securities meet the minimum three-month daily trading average of $1 million, and these securities must be listed on an index-eligible stock exchange. CARZ currently has 34 equities in their group that meet this standard.

In 2017, CARZ reported a 67.37 percent return over five years. This is 22.62 percent higher than the next highest rated ETF, BLDRS Asia 50 ADR Index Fund ETF (ADRA). The returns on this fund appear to be significant, but so are the costs associated with it, which may price some investors out of the market.

CARZ is managed by First Trust Portfolios L.P. While First Trust is a U.S based company, the fund is global and not limited to investing in securities located within the United States. The fund was first created in 2011.

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