How The Auto Index Fund Kicked Into High Gear

by on October 22, 2013 | ETFs Mentioned:

More than five years have passed since the 2008 crisis nearly undermined our entire financial system, and yet some corners of the market are still struggling to make up lost ground. Though financials were one of the hardest hit sectors during the crisis, there were several other industries that fell victim to the collapse. The automotive industry, which prior to the crisis was on the rise, took one of the biggest hits as automakers felt the pressure of a tumbling economy, skyrocketing oil prices, and declining sales [see 5 Big ETFs That Still Aren't Back To Pre-Crisis Levels].

But after rounds of unprecedented bailouts and a slow–but steady–uptick in economic growth, the auto industry today looks to be finally back on track.

Bold Timing: NASDAQ Global Auto Index Fund (CARZ)Auto ETF

In May of 2011, two ETF issuers made the bold decision to roll out the first ever ETFs targeting the automobile industry: Global X’s Auto ETF (VROM) and First Trust’s NASDAQ Global Auto Index Fund (CARZ, B). Interest in the two funds started off slowly, as investors were still understandably leery of the highly cyclical industry. And after less than two years since their debut, only one ETF was left standing – First Trust’s CARZ.

Since its inception, CARZ has accumulated more than $51 million in assets under management, and its shares exchange hands over 30,000 times a day on average. CARZ, which is designed to track the performance of the largest and most liquid automakers, has held up relatively well over its short history, delivering positive returns to those patient enough to ride out the bumps in the road [see The Best (And Worst) Performing ETFs For Every Quarter].

Below, we highlight the performance of the NASDAQ Global Auto Index Fund (CARZ, B) since inception, as well as the performance of the fund’s top five holdings during the same time frame (Please note that the chart below is based on monthly returns, using adjusted closing prices, starting from 5/10/2011 up until 10/01/13).

Since the fund began trading in May of 2011, CARZ has managed to gain more than 35%, despite losing nearly 25% after only its first few months of trading. Strong performances by Toyota Motors in late 2012 and 2013 helped push this ETF out of negative territory, though CARZ was significantly weighed down by the lackluster performances of Hyundai and Honda. Year-to-date, CARZ is up an impressive 35%.

Auto Sales Revving Up

Since taking a steep tumble in 2009, domestic auto sales are finally on the rise once again, rebounding off their historical lows of around 8 million to 10 million units. This trend has been going strong for the past few years, which demonstrates that consumers are in fact making big purchases – a great sign for both the CARZ ETF and the auto industry as a whole. Considering the upside potential seen in the chart below, the rebound in the domestic auto industry should continue for some time [see also Select Sector SPDR ETFs Head-To-Head]:

Click To Enlarge

Click To Enlarge


The Bottom Line

Though the automobile industry has recovered fairly well since the 2008 collapse, investors should always keep a close eye on the latest industry news and data releases, as this corner of the market can fall victim to cyclical trends and various external shocks, such as rising oil prices. But for those wanting to make a play on the uptrend seen in automobiles, First Trust’s NASDAQ Global Auto Index Fund (CARZ, B) is a compelling option, as it can help mitigate the risks associated with investing in only a handful of individual auto stocks.

Follow me on Twitter @DPylypczak.

Disclosure: No positions at time of writing.