Posted in Finance, Accounting and Economics Terms, Total Reads: 591
Definition: Auto Industry ETF
It is an exchange traded fund that invests specifically in automotive or automobile industry. Basically a auto industry Etf follows/tracks a benchmark index that consists of automobile manufacturing industry and companies that provide parts to automobile sector.
An Exchange Traded Fund basically is a security that can be traded on a stock exchange, they basically follow a commodity index or a basket of assets. As Etf are traded publically on stock exchanges their value move up and down throughout the day. It is fund, but the primary difference between this and a mutual fund is, unlike mutual fund where we calculate Net Present Value (NPV), we don’t calculate NPV for a Etf as it is traded on a stock exchange. For an Etf you would get the advantage of diversification as is present in an index fund as well as all the advantages of trading in a stock exchange like short sell, buy on margin etc. Another added advantage would be that the expense ratio (basically management expense ratio or what it costs for an investment company to operate a fund – mutual or Etf) for an Etf would be less compared to an Mutual Fund, this is because it just follows an index and doesn’t require active management.
As for Automobile Etf, this security follows an index involving companies from automobile industry. The advantage would be you would be able to diversify your risk over various companies, as the index basically involves many automobile companies and the commission to be paid will also be same as for any other security order. But a major point would be as the Etf would only follow a automotive industry index, there would be no industry diversification attached to it. So it could be risky as in case of a negative outlook of the automobile industry the Etf security could easily fall.
An example of an Automobile Etf is the FIRST TRUST NASDAQ GLOBAL AUTO INDEX FUND, it is present on the NASDAQ stock exchange in USA. This is basically an index etf and follows the NASDAQ OMX global Auto Index. This Index basically follows the largest companies and also the most liquid companies engaged in the manufacturing of automobiles. The Etf Funds ticker is CARZ on the NASDAQ.