CARZ: Small Auto ETF With Big Returns

July 24, 2013

The First Trust auto ETF provides a return-rich glimpse of a recovering global auto industry.

The First Trust Nasdaq Global Auto Index Fund (NYSEArca: CARZ) is a small automaker-focused fund with some $26 million in total assets—and it’s been the market’s only ETF to focus exclusively on the segment for almost a year. It has also been quietly delivering outsized returns thanks to an auto industry that’s booming despite the slow pace of the U.S. economic recovery.

Ford Motor Co. on Wednesday delivered better-than-expected quarterly earnings that showed record-high second-quarter and first-half pretax profits thanks largely to strong U.S. consumer demand for new cars. That demand, analysts say, is the result of a recovering economy marked by improving labor and housing markets.

CARZ traded and closed above $37 a share Wednesday, reaching its highest prices ever during the session, putting year-to-date gains at more than 25 percent. In the past 12 months, the ETF, which has an 8 percent allocation to Ford, has rallied 64.5 percent, significantly outpacing a broad stock market that’s also breaking through record-high levels.

In an immediate sense, that upside momentum could get another shot in the arm following General Motors better-than-expected quarterly results released Thursday. The automaker has seen steady earnings for roughly two years now. GM represents 4.6 percent of CARZ’s portfolio, the seventh-largest holding behind names such as Toyota, Daimler AG, Ford, Honda and Volkswagen.

Improvement for carmakers is part of broader momentum for the U.S. manufacturing sector. The latest Purchasing Managers Index, or PMI, rose in July to its highest level in four months, according to MarketWatch. New orders and improving employment were behind the manufacturing growth, even if demand from export markets remains a concern.

However, the auto sector could be poised for further growth ahead, thanks in part to the Federal Reserve’s so-called quantitative easing measures that have fueled investors’ appetite for riskier assets, and that should also benefit cyclical growth stocks such as autos.

“Certain stock market sectors are potentially poised for more upside than others as the Fed’s actions filter into the economy,” Viktoria Palushaj, market analyst at Citrin Group, told IndexUniverse in a recent interview.

“As economic activity continues to pick up steam, cyclical-growth industries such as autos, housing, technology and financials will consistently profit from stronger economic fundamentals,” she added.

Just over a third of CARZ’s portfolio is tied to Japanese firms, with U.S. automakers representing 19.5 percent of the overall country exposure, according to information provided by First Trust.

CARZ came to market in May 2011, the same month as the now-defunct Global X Auto ETF (NYSEArca: VROM). The Global X fund shut down late last summer, a casualty of weak asset gathering that amounted to just $2.5 million when the plug was pulled.


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