Car lover? Some ETFs for the road

These funds target the auto industry, which has performed well despite macroeconomic headwinds.

By TheStreet Staff Nov 3, 2011 12:45PM

Image: Car salesman showing couple new silver hatchback in car showroom © Juice Images/Cultura/Getty ImagesBy Don Dion, TheStreet TheStreet


After an October for the record books, the markets kicked off November on a choppy note. Approaching the end of the year, investor fears have been rekindled by the European debt crisis.


While the sour start to the month may be enough to drive some investors back toward havens, I encourage them to avoid shunning the markets entirely.


Post continues below.

The ongoing saga in Europe will continue. As we have seen, however, in regions outside the EU, hints of strength are shining through.


The automotive industry is an example of one sector that has managed to stay buoyed even in the face of mounting macroeconomic headwinds. This past week investors were greeted to strong news on this front. in October, U.S. sales of new vehicles rose to the highest levels since February.


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According to Reuters, some of the strongest performers last month included Volkswagen, Chrysler and Nissan. Sales from Ford (F) rose 6%, falling in line with expectations.


The past month's strong car and truck sales indicate hardiness across global auto manufactures. In addition, they highlight consumers' impressive resilience. Even amid high unemployment and a seemingly endless deluge of negative news, folks remain willing to spend on large purchases.


So the auto industry may be a region of interest among investors looking to target pockets of market strength. Unfortunately for ETF investors, gaining exclusive access to companies like Ford, General Motors (GM) and Toyota (TM) has been notoriously difficult.


In 2011, two fund companies have unveiled ETFs designed to allow investors to target the auto industry. However, in their opening months of trading, neither the Global X Automotive ETF (VROM) nor the First Trust NASDAQ Global Auto Index Fund (CARZ) has managed to gather the type of following necessary to be considered adequately liquid. As of the start of November, both funds have failed to see their average daily trading volume breach the 2,000 mark.


In the absence of an appropriate pure play option, auto hungry ETF investors have been focused to direct their attention toward proxy products.


With more than 12% of its portfolio dedicated to companies related to autos, a fund like the SPDR S&P Retail ETF (XRT) may be appealing. Rather than targeting car markets, XRT spreads its auto exposure across retailers including Group 1 Automotive (GPI) and Pep Boys (PBY). The iShares Dow Jones U.S. Consumer Goods Index Fund (IYK) is another product to consider. The 9% slice of IYK dedicated to the auto industry includes both automotive retailers and car manufacturers.


Precious metals may not be the most obvious choice for investors looking for exposure to the car industry, but funds like the ETFS Physical Palladium Shares (PALL) and the ETFS Physical Platinum Shares (PPLT) are two additional funds auto bulls may want to keep in mind. These two shiny metals are used extensively in the production of catalytic converters and will therefore be in a position to benefit as vehicles continue to roll off the lots.



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