Car ETF In Focus On Mixed Auto Sales Report

U.S. auto sales inched up around 0.5% year over year to 1.55 million units in March 2015, compared with a gain of around 5.3% in February. However, sales on a seasonally adjusted annualized rate (“SAAR”) amounted to 17.1 million units in March, surpassing the consensus estimate of 16.8 million. The sales figure was also higher than the February’s tally of 16.2 million units. Meanwhile, the auto sector posted an increase in sales of around 5% during the first quarter.

The marginal year-over-year improvement came on the back of higher sales by some of the major automakers such as Toyota (NYSE:TM) and Fiat Chrysler Automobiles (NYSE:FCAU) N.V. However, most large players such as General Motors (NYSE:GM), Honda Motor (NYSE:HMC) and Ford Motor (NYSE:F) reported a decline in sales. Despite the decline, General Motors sold the highest number of vehicles in March.

Market participants blamed the harsh winter for the slowdown in sales growth. However, it is speculated that strong consumer sentiment helped auto sales to register moderate gains despite the inclement weather. And not to forget the low oil prices which remained one of the main contributors to the rise in auto sales. Though crude prices have registered gains in recent times, the overall trend remained negative (read: Short Oil ETFs in Focus as Crude Prices Keep Falling).

Auto Sales in Detail

In March, Toyota’s sales increased 4.9% year over year to 225,959 units, fueled by strong demand in truck and SUV segments. Sales in the Toyota division improved 5.3% last month. Moreover, the company’s Lexus segment witnessed strong year-on-year growth of 8.6% in March. Meanwhile, Fiat Chrysler’s sales rose 1.7% in March, featuring year-on-year gain for 60 consecutive months. Additionally, Daimler AG (XETRA:DAIGn) reported that a 10.2% rise in sales in the Mercedes-Benz section boosted its sales by 9.3% in March from the year-ago level.

Separately, Ford reported a 3.4% decline in sales in the U.S. to 235,929 units in March. Sales in the Ford division decreased 3.6% last month from the year-ago level. Also, its Lincoln segment registered a year-on-year decline of 3.1% in sales. Moreover, General Motors reported that a sharp decline in sales in Cadillac and Chevrolet segments dragged down overall sales by 2.4% in March. However, a 1.3% gain in the GMC segment limited further losses. Also, Honda’s sales plunged 5.3% in March to 126,293 units.

On the other hand, the auto sales report showed that all of the above mentioned automakers posted solid gains in the first quarter of 2015. Except for Honda and Ford, the automakers have registered above 5% gains in the first quarter. Also, analysts speculated that though the harsh winter slowed down sales growth in the first quarter, the auto industry is poised to experience strong sales growth in the second quarter. As a reminder, the auto industry enjoyed a good run last year led by plunging fuel prices, high incentives and discounts and easy credit conditions.

Meanwhile, rise in consumer spending is likely to have a positive impact on auto sales in the upcoming quarter. According to the third estimate by the U.S. Department of Commerce released last month, real personal consumption expenditure increased 4.4% in the fourth quarter, reflecting its biggest quarterly rise since the first quarter of 2006. Also, it was one of the major contributors that boosted GDP in the fourth quarter (read: 2 Retail ETFs to Play the Consumer Spending Surge).

Given the improving trends, investors could take the advantage of the upcoming surge through the auto ETF – FirstTrust NASDAQ Global Auto (NASDAQ:CARZ) in a diversified way. This fund has a decent exposure to the above-mentioned stocks, excluding Fiat Chrysler, and has a favorable Zacks ETF Rank #3 (Hold) with High risk outlook.

CARZ in Focus

The ETF tracks the Nasdaq OMX Global Auto Index, giving investors exposure to automobile manufacturers across the globe. The product holds 36 stocks in the basket with Toyota, Honda, Daimler, General Motors, and Ford comprising the top five holdings with a combined allocation of more than one-third of fund assets.

In terms of country exposure, Japan takes the top spot at 35.3% while the U.S. takes the second spot having around 23.1% allocation, followed by Germany with 20.2% exposure (see all Consumer Discretionary ETFs here).

The ETF is unpopular with $32.05 million in its asset base and sees light trading volume. The product seems to be slightly expensive with 70 bps in annual fees and has a dividend yield of 1.6%. The fund has gained 10.6% year-to-date.

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