Automobile ETF Is Gaining Momentum
The car industry and automobile-related exchange traded fund could pick up speed as rising employment, low financing rates and now cheap gas prices help entice greater big-ticket purchases.
The First Trust NASDAQ Global Auto Index Fund (CARZ) , which provides access to global automobile manufacturers, is up 0.5% year-to-date and 5.4% higher over the past three months.
The auto industry is enjoying improved fundamentals from an expanding economy. Easy car loans have been aiding growth in car sales, low interest rates have cut financing costs for all buyers and the rising employment rate, with employers adding new workers last year at the fastest pace since 1999, is supporting consumer confidence.
Now, after a 40% plunge in the average price of gasoline, Capital Economics economist Paul Diggles argues that cheaper fuel costs will bolster car sales, reports John W. Schoen for CNBC. [Inverse ETF Plays for a Bearish Oil Outlook]
“Lower gasoline prices should give a particularly big boost to sales of less fuel-efficient light trucks, which already slightly exceed sales of cars,” Diggles said in a note. “Not only are light trucks less fuel-efficient, they are, on average, more expensive and more profitable for manufacturers too.”
Diggles also projects the annual sales pace will top the 17.4 million post-recession peak – auto sales were up to 16.9 million in December.
Rob Paddor, owner of a Subaru dealership in Skokie, Illinois, said sales are up 30% year-over-year and 2015 is looking even better, reports Phil LeBeau for CNBC.
“I have little or no inventory,” Paddor said in the article. “As soon as we get new models, they’re gone. People are ready to buy right now.”
While U.S. automakers may face some headwinds in overseas markets due to a stronger U.S. dollar, cheaper foreign currencies has helped lower cost of parts made outside the U.S. [Strong U.S. Dollar Could Pressure S&P 500 Earnings, ETFs]
Additionally, since CARZ is a fund with global exposure, cheaper foreign currencies could bolster foreign carmakers sales as well. For instance, Japan makes up the largest country weight in CARZ at 36.6%, followed by U.S. 23.3%, Germany 20.0%, South Korea 7.8%, France 5.2% and China 4.4%.
First Trust NASDAQ Global Auto Index Fund
For more information on the auto industry, visit our automobiles category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
