VROM: And Then There Were Three Automotive Funds

May 23, 2011 by  
Filed under Commentary, ETF IPOs (New ETFs)

U.S. investors somehow survived for 25 years with just one automotive fund.  In the last ten days their choices jumped to three.  Global X Advisors rolled out the newest entrant, the Global X Auto ETF (VROM) last Thursday (5/19/11).

Global X Auto ETF tries to represent the entire automotive industry.  Sub-industry allocations in VROM are currently at 73.9% for Automobile Manufacturers, 20.6% Auto Parts & Equipment, and 5.5% Tires & Rubber.  The new ETF provides access to all key components of the automotive industry and offers diversity by including suppliers as well as manufacturers.

The underlying S-Network Global Automotive Index is a modified capitalization-weighted, float-adjusted index of the fifty largest and most actively traded publicly traded companies engaged in the production of automobiles, automobile parts, tires and related activities.  Holdings in any one country are capped at 25% with the excess reduced on a proportional basis and added to smaller countries.

Whether any countries are currently capped is not entirely clear, but Germany, Japan, and the U.S. would be likely candidates.   Geographic allocations currently stand at Germany 23.2%, Japan 22.9%, U.S. 22.5%, South Korea 11.1%, France 6.4%, China 4.8%, India 2.3%, Indonesia 2.0%, Italy 1.9%, Canada 1.8%, and Sweden 1.1%.

VROM has 50 holdings with the 10 largest being Toyota Motor Corp. (TM) 10.3%, Daimler (DDAIF) 10.2%, Ford Motor Co. (F) 9.4%, Bayerische Motoren Werke (BAMXY) 5.2%, Honda Motor Co. Ltd. (HMC) 5.0%, Hyundai Motor Co. 4.9%, Johnson Controls Inc. (JCI) 4.3%, Volkswagen (VLKAY) 3.9%, Hyundai Mobis 3.1%, and General Motors Co. (GM) 2.7%.

Global X Auto ETF will compete with First Trust NASDAQ Global Auto Index Fund (CARZ).  CARZ, introduced on May 10, invests only in auto manufacturers while excluding the parts suppliers that comprise more than 26% of VROM.  CARZ also excludes companies from in India, and therefore has no allocation to Tata Motors (TTM).  Tata is the twelfth largest holding in VROM at 2.5%.  CARZ has a slightly higher expense ratio of 0.70% versus VROM’s 0.65%.

VROM’s other competitor is Fidelity Select Automotive (FSAVX), the first automotive industry fund (launched nearly 25 years ago in June 1986).  Like VROM, FSAVX is not limited to just auto manufacturers and can invest in the automotive components industry as well.  FSAVX is not an ETF (exchange-traded fund); it is a traditional open-end mutual fund that employs active management with an expense ratio of 0.99%.

Additional literature from Global X includes an Automotive Industry Investment Case (pdf), the VROM summary, fact sheet (pdf), and prospectus (pdf).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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