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CARZ ETF Zooms Ahead On 10-Year High Auto Sales

In August, the automakers witnessed the highest rate of increase in light vehicle sales in the U.S. in 10 years. Sales on a seasonally adjusted annualized rate (“SAAR”) surged to 17.81 million units in August 2015 from 17.3 million units in August 2014. This was the highest pace since July 2005. Moreover, the SAAR finished above the 17 million mark for the fourth straight month in August. However, U.S. light vehicle sales nudged down 0.7% year over year to 1.51 million units in August 2015. Low oil price, a recovering economy, improving labor market condition, and easy availability of credit with lower interest rates and longer repayment periods were the main reasons behind the surge in sales on a SAAR basis. However, the inclusion of the Labor Day weekend in September this year, compared to August last year, resulted in a year-over-year decline in August sales figures. While Ford Motor Co. (NYSE: F ) registered the highest year-on-year improvement in August among the major automakers, General Motors Company (NYSE: GM ) recorded the best sales figure for the month in absolute terms. Auto Sales in Detail Ford reported a 5% increase in U.S. sales from the year-ago period to 234,237 vehicles, witnessing its best August sales in nine years. Meanwhile, FCA US LLC – controlled by Fiat Chrysler Automobiles N.V. (NYSE: FCAU ) – recorded a 2% year-on-year gain in sales to 201,672 vehicles, registering its highest August sales since 2002. This was also the 65th consecutive month in which the company reported a year-over-year gain in sales. However, General Motors recorded 270,480 vehicle sales in August, marking a 0.7% year-over-year decline. Though retail sales improved 5.9% to 224,978 units, the company witnessed a 24% plunge in fleet sales in August. Separately, sales performances from the major Japanese automakers were disappointing last month. Toyota Motor Corporation’s (NYSE: TM ) sales went down 8.8% year over year to 224,381 units. Sales also declined 5.3% on a daily selling rate (“DSR”) basis from the year-ago period. Moreover, Honda Motor Co., Ltd. (NYSE: HMC ) recorded a 6.9% year-over-year decline in sales on a volume basis to 155,491 vehicles in the month. Also, Nissan Motor Co. Ltd. ( OTCPK:NSANY ) reported a 0.8% year-over-year decrease in sales to 133,351 vehicles in August. Catalysts Behind the Surge The overall improvement in the U.S. economy has helped the auto sector to register solid gains in the past few months. The “second estimate” released by the U.S. Department of Commerce last month showed that the GDP in the second quarter advanced at a pace of 3.7%, significantly higher than the first quarter’s rise of only 0.6%. Though the economy created only 173,000 jobs in August, down from July’s tally of 245,000, the unemployment rate declined to 5.1% from July’s rate of 5.3%. Meanwhile, the market is witnessing a freefall in crude prices since the middle of last year. In fact, the price of West Texas Intermediate (WTI) fell nearly 60% as compared to mid-2014, when oil was trading above $100 each barrel. This oil plunge is also playing a major role in boosting auto sales. Moreover, automakers are aiming to increase market share by offering large incentives and discounts to customers. Additionally, banks are providing more car loans with lower interest rates and longer repayment periods. Further, the high average age of cars on U.S. roads has led to increased replacement demand both for cars and for parts. CARZ in Focus The auto ETF – First Trust NASDAQ Global Auto ETF (NASDAQ: CARZ ) – gained nearly 2% following the release of the auto sales report on Sept. 1 through Sept. 3, before losing 2.2% last Friday. It has a decent exposure to the above-mentioned stocks, excluding FCA US LLC, and is thus poised to gain from improving auto trends in the coming days. The ETF tracks the Nasdaq OMX Global Auto Index, giving investors exposure to automobile manufacturers across the globe. The product holds 37 stocks in the basket with Ford, Honda, Toyota, Daimler and General Motors comprising the top five holdings with a combined allocation of more than 40% of fund assets. In terms of country exposure, Japan takes the top spot at 36.6% while the U.S. takes the second spot having around 24.8% allocation, followed by Germany with 19.1% exposure. The ETF is unpopular with $32.4 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 more than 1.7%. The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook. Bottom Line The improving auto industry has been one of the drivers of the recent economic growth in the U.S. Auto sales will continue to be a tailwind for the economy in the coming days. It is also speculated that the auto sector is poised for further gains given the favorable macroeconomic fundamentals. Original Post Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Active Performance With WisdomTree

WisdomTree Investments (NASDAQ: WETF ) is an exchange traded fund (ETF) manager. They are the pioneers behind fundamentally-weighted ETFs that weigh stocks based on fundamentals like dividends and earnings, rather than market value. Their most popular products are international ETFs that hedge out currency movements. Their European and Japanese ETFs have been extremely popular with investors making them the 5th largest ETF provider in the US with nearly $60 billion under management. WETF have received the third largest inflows year to date behind only traditional market weighted indexes like Vanguard and BlackRock’s iShares. (click to enlarge) Source: WisdomTree investor presentation Unique among fund managers WETF is the only listed pure-play ETF manager. It’s a scarce asset with a superior business model to traditional managers. There is no key person risk, and because they construct the indexes have little chance of sustained under-performance. ETFs also benefit from first-mover advantage; once an ETF gains mindshare for its ticker, the volume and liquidity this generates makes it very difficult for new indexes to gain traction. Also unlike other fund managers, there are little concerns over capacity – an index is much more scalable than other investment strategies. No key person risk WETF have only 124 employees, there are no expensive fund managers and analysts to pay bonuses out to. The employees they do have are exceptional. The chairman and largest shareholder is Michael Steinhardt, a legend in the hedge fund world, who returned 24% per annum over a 28-year period. Jeremy Siegel, the Wharton professor and author of Stocks for the Long Run, is their investment strategy advisor. ETFs are the new mutual funds There are $2.1 trillion in ETFs in the US with $1.4 trillion in inflows since 2007 (see below). WETF has taken 4% of those inflows. This ETF trend is likely to continue with advisor moves to fee-for-service. The US ETF market grew at 18% last year. If market share continues to grow (only 13% see below), assuming that ETF inflows total $3 trillion over the next 10 years and WETF continues to take 4% of these inflows, WETF will eventually have hundreds of billions of funds under management. As funds under management triple, the stock should follow. Note these assumptions do not include the growth opportunities in Europe and the rest of the world who prefer the liquidity of ETFs based in the US. Their margins should also expand rapidly with this growth. It’s interesting to see that WETF is not only one of the fastest growing fund managers but also already one of the most profitable. Source: WisdomTree investor presentation The balance sheet is nice and simple. WETF is asset lite with $189 million in cash, free cash flow is very attractive due to tax losses. It’s also paying a 1.9% dividend. The risk is a weaker dollar and poor performance from the European and Japanese markets that will impact inflows. This is the key risk, but hedging is still low as a % of international ETFs being 15% of the international market. WETF have shown themselves to be innovative in coming up with new products, starting with a focus on dividends, emerging markets and currency hedging. Given their track record we believe they can come up with more fundamental products that the market needs. Outperforming with a passive investment WETF is the only listed pure-play ETF provider. Traditional funds management businesses are good businesses as they scale easily with very little people required. ETF providers have an even better business model. There is no key fund manager risk, it’s hard to underperform when you create your own benchmark, and indexes have few capacity constraints in how much capital they can manage. As advisers move to fee-for-service, the move to passive ETFs is a trend that will likely continue. WETF now has scale, but it’s also small enough to keep growing. As an active manager it’s a little ironic buying an ETF provider, but their superior business model should help WETF outperform the market. Disclosure: Decisive has a long position in WisdomTree ( WETF ). The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client’s or other person’s investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Returning To Some Popular ETF Trades

The WisdomTree Japan Hedged Equity ETF is still among the top 10 asset gatherers. It might be easy to assume some of this year’s most popular ETF trades among professional investors are losing momentum. Recently slowing momentum for currency hedged ETFs does not mean investors should abandon the asset class altogether. By Todd Shriber, ETF Professor The WisdomTree Europe Hedged Equity ETF (NYSEARCA: HEDJ ) and the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEARCA: DBEF ) , are still the top two asset-gathering exchange traded funds on a year-to-date basis, having hauled in more than $28.6 billion combined. Additionally, the WisdomTree Japan Hedged Equity ETF (NYSEARCA: DXJ ) is still among the top 10 asset gatherers as well. However, with the dollar recently faltering as traders pare back expectations that the Federal Reserve will raise interest rates next month and with the euro and yen seeing safe-haven buying in the midst of turmoil across global financial markets, it might be easy to assume some of this year’s most popular ETF trades among professional investors are losing momentum. ‘Just’ $5.9 Billion “ETFs that hedge against currency risk have attracted just $5.9 billion since the end of June as a rally in the greenback slowed. That compares with the $41 billion they lured in the first six months of the year, when a surging dollar imperiled international returns for U.S. investors,” according to Bloomberg as of August 19. “Just” $5.9 billion is no small sum and it bears noting that DBEF, a currency hedged play on the widely followed MSCI EAFE Index, and HEDJ have added over $3.8 billion combined in the current quarter. Only the Vanguard S&P 500 ETF (NYSEARCA: VOO ) has added more new money this quarter than DBEF. The Currency-Hedged Asset Class Recently slowing momentum for currency hedged ETFs does not mean investors should abandon the asset class altogether. In fact, some market observers see opportunity with some of these funds, even as some professional investors get skittish about the dollar rally. “The trades everyone had on at the beginning of the year, and have either since abandoned or plan to this week, are likely the trades that work into year-end-that is, a steeper curve in fixed income, strong U.S. dollar, long Japanese and European equities currency hedged, etc.,” said Rareview Macro founder Neil Azous in a recent note. A German Example Azous highlighted the iShares Currency Hedged MSCI Germany ETF (NYSEARCA: HEWG ) , as a potential area of opportunity following the savage correction endured by Germany’s benchmark DAX. There is a DAX-tracking ETF here in the U.S., the Recon Capital DAX Germany ETF (NASDAQ: DAX ) . Even with Tuesday’s 3.1 percent gain, DAX is still down more than 5 percent over the past month. Azous noted that German stocks are further along in their correction phase than their broader European and U.S. counterparts. Perhaps the green light on the hedged Germany trade, at least for contrarians, is this anecdote: Investors are abandoning the trade. Including HEWG, there are three euro-hedged Germany ETFs trading in New York and all three have lost assets this quarter to the tune of over $55 million. Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.