Time to Consider Auto ETFs as Sales Rise? (F, GM, VROM)
Thanks to an improving U.S. economy and impressive sales figures in the critical China market shares of U.S. auto giants Ford (NYSE: F) and General Motors (NYSE: GM) have been solid performers this year. Well, "solid" can be applied to Ford and its 10% year-to-date gain before the start of trading today. GM has been reborn with a gain of better than 20%.
In a note out today, S&P Capital IQ gives a four-start rating to Ford and a five-star rating to GM. "Our fundamental outlook for automobile manufacturers is positive. We see U.S. automotive demand trending higher on a year-over-year basis. While we expect to see uneven geographic progress, including weakness in Europe, we look for global demand to rise in 2012," the research firm said in the note.
While bullish on Ford and GM, S&P Capital IQ applies an Underweight rating to the Global X Auto ETF (NYSE: VROM), one of just two ETFs devoted to the global auto industry. VROM carries an expense ratio of 0.65% and it is those cost factors that prompt the Underweight rating from S&P.
However, in the Performance Analytics and Risk Considerations categories, it is ranked Marketweight relative to other equity ETFs ranked by S&P Capital IQ. S&P acknowledges "if you are looking for a diversified way to invest in global automotive growth, VROM is a candidate to consider."
VROM competes with the First Trust NASDAQ Global Auto Index (Nasdaq: CARZ). Both funds debuted in 2011 and were predictably impacted by skittishness regarding the global economic recovery. CARZ and VROM have shifted gears and put the pedal the metal in 2012, though. VROM is up almost 22% year-to-date while CARZ is approaching a gain of 21%.
There are important differences to consider between the two funds. For example, CARZ is even more expensive than VROM with an expense ratio of 0.7%. CARZ is home to less than 40 stocks while VROM tracks 50 names.
Obviously, both ETFs are heavy on automobile manufacturers, but VROM features the heavier allocation to parts and components makers such as Johnson Controls (NYSE: JCI). VROM's combined allocation to Ford and GM is just under 12% while CARZ allocates about 12.1% to the two American auto kingpins.
In terms of liquidity, VROM trades an average of nearly 6,400 shares per day while the average daily turnover for CARZ is almost 2,600 shares.
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