From the July 2011 issue of Research Magazine • Subscribe!

Auto ETF Drives to Market

First Trust Advisors introduced a new ETF that targets the global automobile industry.

The First Trust NASDAQ Global Auto Index Fund (CARZ) follows a newly established benchmark called the
NASDAQ OMX Global Auto Index, which is designed to track the performance of the largest and most liquid companies engaged in the manufacturing of automobiles.

“We are launching this fund as a way for investors to potentially capitalize on the trend toward increasing demand of automobiles, which has led automakers and suppliers to grow in emerging markets and consolidate operations in mature markets,” says Ryan Issakainen, vice president and ETF Strategist at First Trust Advisors.

CARZ has 32 holdings and the median market size of stocks within the fund is $9.49 billion. The fund’s top three holdings are Daimler AG, General Motors and Honda Motor.

For the first quarter of 2011, General Motors (GM), Ford Motors (F) and Chrysler Group all posted quarterly profits. It was the first time since 2004 that Detroit’s Big Three have been simultaneously in the black. Just two years ago, the U.S. auto industry was mired in bankruptcy reorganizations and federal bailouts.

The NASDAQ Auto Index, which serves as CARZ’s underlying benchmark, uses a modified market cap weighting methodology in which larger companies receive a larger index weighting. The index weighting methodology also includes caps or ceilings to prevent high concentrations among larger stocks. The index is reconstituted annually, rebalanced quarterly and dividends are distributed semi-annually.

J.D. Power and Associates expects auto sales in the U.S. to reach 13 million units, up 12 percent from 2010. A larger portion of sales is expected to come from emerging markets with China as the key driver for global market growth. The annual expense ratio for CARZ is 0.70 percent.

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