Auto Industry ETF

Rakesh Kumar

16 Sep, 2023

An Auto Industry ETF (Exchange-Traded Fund) is a type of investment fund and exchange-traded product that aims to track the performance of the automotive sector, comprising manufacturers of vehicles and parts, and other related businesses. By investing in a variety of stocks within this sector, it allows investors to diversify their risk and potentially leverage growth in the auto industry. The ETFs, traded on stock exchanges like regular shares, offer a dynamic investment avenue, reflecting the economic trends and consumer preferences impacting the industry. Notable ETFs in this category include ones with ticker symbols such as CARZ.

What is an Auto Industry ETF?

• An Auto Industry ETF, commonly known as an “Exchange-traded fund”, initially invested in automotive product manufacturers and suppliers.
• It’s a kind of security used to keep records and track any index or sector which could be either purchased or sold under a stock exchange like regular stock shares.
• It derives its valuation using the stock prices of the auto industry, including the auto manufacturers along with auto ancillaries, etc.
• Auto Industry ETFs include investments in products that provide various opportunities to a particular sector stock as it diversify the risks among different stocks and enhances those retail investors to invest opportunity in an industry.
• Auto Industry ETF includes different types of auto components and parts manufacturers along with those companies which conduct research and developments, work in materials distribution, and are engaged in the sale of automobiles and equipment, etc.

Keys points on Auto Industry ETF.

• Auto Industry ETF refers to an exchange-traded fund used to track or monitor auto industry-based stocks.
• Companies involved in manufacturing cars, trucks, vans and other commercial vehicles, etc., including those auto parts supplying companies, constitute the vast auto industry.
• Auto Industry ETFs, similar to other trading securities, are traded accordingly to monitor or track an index or any sector, etc.
• Asia, Europe, and the USA have strong commands and presence in the auto industry.
• Auto Industry ETFs like ticker symbol CARZ are available for the purpose of trading, etc.

Understanding an Auto Industry ETF

• Within the automotive industry, ETF includes such a group of manufacturers who manufacture all parts or products related to automobiles rather than limited to parts and labour only.
• Just because of such automobile industries, different exchange-traded funds are popular in Asia and Europe as they have such a strong presence in their markets.
• The rise in the stock of the auto industry totally depends upon the spending of consumers.
•  Usually, under the growing economy, auto companies are enhancing profits for investors.
• Auto industry stocks are associated with and based upon the spending of consumers and the growth of the economy. As the economy increases or grows well, the stocks are enhanced with a bull run. Usually, consumers purchase automobiles when they are financially stable; otherwise, the general public refers to public transportation systems, etc.
• Auto stock performance is linked and associated directly with consumer’s desire to spend. In case the auto industry performs financially well, then the auto ETFs are good for making investments.
• The prices of Auto Industry ETFs stabilize the volatility in individual stock prices.

Example of Auto Industry ETF

• The Nasdaq Global Auto Index Fund ETF (CARZ) was the first trust as an exchange-traded fund that focused on the auto industry sector and made investments only in classified auto manufacturers.
• CARZ is a U.S.-based company as First Trust and is not limited to investments only in the United States. It was created in the year 2011, holds an expense ratio of 0.70%, and includes different companies with more than $500 market cap value, etc. CARZ presently has 34 equities in its group in order to meet this standard.
• The majority of urban areas have their vast public transportation systems. However, rural areas are increasing with new transportation services such as ridesharing, Uber and Lyft support taxi services now, etc.

First Trust NASDAQ Global Auto Index Fund (CARZ) Top 10 Holdings (Q1 2021)

What are Auto Industry ETFs Funds in India?

• Auto sector ETF funds refer to those funds invested across the automobile makers (manufacturers), including 2, 3, and 4-wheelers. Currently existing 2 Auto Industry ETFs

Schemes within India with one transportation and logistics funds.

•  Usually, auto ETFs keep performance records of the automobile sector within India. One of the most important benchmark Auto ETFs is the Nifty Auto Index.
• Auto Industry ETFs are supposed to keep a close track of the index with fewer tracking errors. Meanwhile, under the logistics and transportation funds, invests only 80% of assets in the transportation and logistics sector.
•  Auto sector ETFs are under open-ended equity schemes, thus profitable in terms of long investing options.

Potential Growth in Indian Auto Industry EFTs

• In 2020, India was among the fifth largest auto markets across the world. Moreover, by the end of 2026, India will be the third automotive market due to its volume. India itself is the world’s largest tractor manufacturer and 2^nd largest bus manufacturer and holds the position of 3^rd in commercial truck makers. All these lift India to hold such a strong position within the International Automobile market.
• The two-wheeler auto industry has also dominated the Indian market as most of the Indian middle class, including youngsters, has a larger population. Indian auto market by the financial year 2026 is estimated to touch 300 billion USD.
• The auto components manufacturing sector supports India’s GDP by 2.3% and engages people more than 1.5 million, whether directly or indirectly. Till 2026, its contribution will reach up to 5-7% in the Indian economy. By 2026, the government is supposed to export it worth 30 billion USD—100% FDI sanctioned under automatic route for automobiles, including auto components, etc. Moreover, India predicts to hold, by 2026, the top 3^rd automotive industry across the globe.

Important Fact’s

• Tesla is the largest car company in the world, recognized by market cap with a value of $758 billion till 28 August 2023. At the same time, the second position is held by Toyota, owing a value of $226 billion, etc.

Benefits of Investing in Auto Industry ETFs Funds

Following are the benefits of investing in Auto Industry ETF funds

Better Potential

Some sectors bloom quite better than others because of favourable government policies, etc. A hike in demand for their products in the market is usually responsible for their growth. Being a good investor, you can easily opt for such a sector and make profits accordingly depending on the growth of such sectors. Thus, the Auto sector is usually a high growth and better potential with risks.

 Long term Investments

Auto Industry ETF funds support long-term growth. Usually, Auto ETF funds make investments in such companies having their strong financial status. It has a good potential to make huge and impressive returns under long-term investments.

New opportunities

Electronic vehicles are growing rapidly and thus have a good potential in terms of their growth. Using auto sector ETF funds to invest in such stocks brings more exposure. Therefore, investors should utilize such opportunities to make more profits on returns.

Professional Management

If you hold an interest in investing in auto industry ETF funds, then it would be difficult for you to recognize such profit-making stocks and make investments accordingly. Auto industry ETF funds are a good alternative for investments. You can get help from expert professionals and can easily invest in those auto industry ETF funds.