Automotive exchange-traded funds (ETFs) provide exposure to the performance of companies within and related to the global automobile industry. 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).
Auto ETFs are composed of a basket of equities of traditional and emerging automobile companies, which increasingly are using semiconductor chips in their vehicles. This enables investors to profit from the broader growth of the industry while avoiding the idiosyncratic risk associated with a single company.
Key Takeaways
- The auto industry underperformed the broader market over the past year.
- The best (and only) auto exchange-traded fund (ETF) is CARZ.
- Its top three holdings are class A shares of Alphabet Inc., and shares of Apple Inc., and Qualcomm Inc.
Only one distinct auto ETF trades in the United States, excluding inverse and leveraged funds as well as those with less than $50 million in assets under management (AUM): the First Trust S-Network Future Vehicles & Technology ETF (CARZ). Note that CARZ has recently changed its name and began targeting a new index that has significantly reduced its exposure to auto stocks.
There is a second ETF in this area: the Simplify Volt RoboCar Disruption and Tech ETF (VCAR). However, this ETF launched in December 2020 and has very low AUM as of this writing, making it a risky investment, and it is geared toward profiting from niche autonomous driving technology trends rather than offering exposure to the overall auto sector.
The automobile industry, as represented by the benchmark S&P 500 Automobiles Industry Index, has underperformed the broader market in the past year. The index has provided a one-year trailing total returns of 7.8%, compared with 18.6% for the S&P 500. We note that this index includes only U.S. companies, while CARZ has a global focus, so it is not a perfect metric. These performance figures above and all data below are as of Feb. 3, 2022.
CARZ has recently changed its name and target index to shift toward a greater focus on self-driving vehicles and technology. As such, it no longer has the same level of exposure to auto stocks and has significantly increased its technology focus. CARZ remains the closest to a pure-play auto ETF that is currently available.
- Performance Over One-Year: 4.2%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 0.72%
- Three-Month Average Daily Volume: 23,080
- Assets Under Management: $75.5 million
- Inception Date: 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. In order to be included in the index, companies must derive: at least half of their revenues from electric and autonomous vehicle manufacturing, electric and autonomous vehicle enabling technologies, and similar products; or at least half their profits from the information technology sector. Companies must also have a market capitalization of at least $500 million and meet other free float and average daily trading value requirements. More than 81% of the portfolio is allocated to information technology and consumer discretionary stocks, meaning that CARZ is no longer a pure-play auto industry fund.
The fund follows a value-centric strategy, focusing on stocks that look relatively cheap compared to the rest of the sector. Below is a closer look at CARZ’s 10 largest holdings.
| First Trust NASDAQ Global Auto Index Fund (CARZ) Top 10 Holdings | ||
|---|---|---|
| Company Name (Ticker) | Percent of CARZ Assets | Description of Company |
| Alphabet Inc. Class A (GOOGL) | 5.1% | Multinational technology conglomerate |
| Apple Inc. (AAPL) | 5.0% | Consumer electronics, software, and online services |
| Qualcomm Inc. (QCOM) | 4.8% | Semiconductors and software maker |
| Toyota Motor Corp. (7203:TKS) | 4.7% | Manufacturer of cars, trucks, minivans, and commercial vehicles |
| Samsung Electronics Co. Ltd. (005930:KRX) | 4.5% | Consumer electronics, communications, and related services |
| NVIDIA Corp. (NVDA) | 4.4% | Chip and graphics processing unit manufacturer |
| Intel Corp. (INTC) | 4.3% | Multinational technology company |
| Tesla Inc. (TSLA) | 4.3% | Electric vehicle manufacturer and clean-energy company |
| Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM) | 4.2% | Semiconductor manufacturer |
| Texas Instruments Inc. (TXN) | 2.6% | Semiconductor and integrated circuits manufacturer |
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Source: Investopedia
