The global automotive market is massive. Nearly 79 million automobiles were sold around the world last year, the same estimate holds for 2019. That’s well over the average of 54.9 million annually from 2000 to 2015 and roughly double the average annual rate seen in the 1990s.
Here in the U.S., driving is part of American culture and has been for more than a century. Whether or not drivers own a car made by a domestic manufacturer, there is no denying companies like Ford (NYSE:F) and General Motors (NYSE:GM) are woven into the fabric of American history.
For investors who embrace exchange-traded funds (ETFs), there is an interesting scenario as it pertains to auto industry exposure. Undoubtedly, Ford, GM, Tesla (NASDAQ:TSLA) and more are important companies. They can be accurate gauges of consumer sentiment and other important economic data points, but there simply are not many auto-related ETFs on the market.
Despite that dearth of auto ETFs, there are a few credible offerings in this arena. Let’s have a look at some potentially worthwhile auto ETFs right here.
Auto ETFs: First Trust NASDAQ Global Auto Index Fund (CARZ)
Expense Ratio: 0.7% per year, or $70 on a $10,000 investment.
Of the two original auto ETFs, the First Trust NASDAQ Global Auto Index Fund (NASDAQ:CARZ) is the last one standing. In some ways, CARZ epitomizes why there are no other traditional auto ETFs. The fund is more than eight years old and has just over $18 million in assets under management.
Home to 32 stocks, CARZ is a traditional spin on automobile investing. GM, Toyota (NYSE:TM) and Honda (NYSE:HMC) combine for about a quarter of the fund’s weight. Ford is the fourth-largest holding at almost 8%.
One factor keeping investors away from CARZ is the high fee. Yes, industry funds carry higher fees than traditional broad market ETFs, but 0.7% is high even for an industry or thematic ETF.
Aberdeen Standard Physical Palladium Shares ETF (PALL)
Expense Ratio: 0.6%
As its name implies, the Aberdeen Standard Physical Palladium Shares ETF (NYSEARCA:PALL) is not an auto ETF, it is play on physical palladium. However, there is ample relevance to automobile sales trends here, because palladium is one of the key components in making catalytic converters in American and Chinese cars, among others.
“Approximately 80% of palladium demand comes from the automotive industry,” according to S&P Dow Jones Indices. “Its other uses include electronics, dentistry, and jewelry. As regulations on emissions have tightened, demand for palladium to be used in the catalytic converters of gasoline-powered vehicles has risen. Gasoline vehicles have also become more popular in the wake of a number well-publicized diesel emissions scandals (diesel-powered cars use platinum in their catalytic converters).”
And when they say physical palladium, they mean it — basically 100% of the portolio is in palladium bullion.
As for performance, PALL has plenty of that. It is up more than 23% this year, or more than double the gains of competing gold ETFs.
Global X Autonomous & Electric Vehicles ETF (DRIV)
Expense Ratio: 0.68%
The Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV) is one of the auto ETFs that is a play on the future industry; a future that is destined to include autonomous vehicles and many more plug-in and hybrid cars. In other words, DRIV has the potential to be an exciting auto ETF while CARZ, assuming it survives, will probably be boring.
CARZ member firms include companies that are “involved in the development of autonomous vehicle software and hardware, as well as companies that produce EVs, EV components such as lithium batteries, and critical EV materials such as lithium and cobalt,” according to Global X.
Importantly, data indicate electric vehicle adoption is surging.
“Although global auto sales slowed by over 2% during the first quarter of 2019 relative to a year prior, sales of electric vehicles soared by 57%, reaching 496,000 vehicles in quarterly sales,” according to Global X research.
Global X Lithium & Battery Tech ETF (LIT)
Expense Ratio: 0.75%
Like the aforementioned PALL, the Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) is not a dedicated auto ETF, but the original lithium fund is heavily levered to demand trends in the electric and hybrid vehicle markets. Plus, LIT has staying power. It has been around more than nine years and has around $515 million in assets under management, which is a solid tally for a thematic fund.
While LIT is not chock full of auto stocks, Tesla is one of its top 10 holdings. But its credibility as an auto ETF comes by way of the importance of lithium in producing the batteries powering electric cars.
“It’s important to note that an EV’s price tag is primarily driven by the cost of its battery,” said Global X. “Four years ago, batteries represented around 57% of the total price of a medium-sized EV. “Yet by 2030, the cost is expected to fall to just 14%, setting a trajectory that should allow EVs to reach price parity with ICE vehicles by the mid-2020s.”
Translation: as electric vehicles become comparably priced to traditional automobiles, the former is likely to see a significant increase in demand, and that could be a boon for LIT.
KraneShares Electric Vehicles & Future Mobility ETF (KARS)
Expense Ratio: 0.7%
The KraneShares Electric Vehicles & Future Mobility ETF (NYSEARCA:KARS) is an international auto ETF, and that is an approach that makes sense given that some of the world’s largest developing economies are massive polluters, but are looking to improve that situation by embracing electric vehicles.
While KARS provides robust international exposure, it is a compelling option for investors looking to get more of a tech feel from an auto ETF. The fund allocates over 44% of its weight to U.S. stocks, many of which are well-known companies, such as Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA).
“55% of new car sales and 33% of the global car fleet are projected to be electric by 2040,” according to KraneShares. “The global electric vehicle market is projected to command $2.7 trillion of total investment before 2040.”
As of this writing, Todd Shriber did not own any of the aforementioned securities.
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