Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the auto industry to thrive over time as our global economy recovers and starts growing more briskly, the Global X Auto ETF (NYS: VROM) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
ETFs often sport lower expense ratios than their mutual fund cousins. The auto ETF's expense ratio -- its annual fee -- is 0.65%, which is a bit higher than many ETFs, but also considerably lower than the typical stock mutual fund.
This ETF is so young that it hardly has a performance to evaluate. It's very small, too, so if you're thinking of buying, beware of occasionally large spreads between its bid and ask prices.
What's in it?
Within the auto industry, several stocks have performed fairly strongly over the past year. Replacement-parts maker Genuine Parts (NYS: GPC) advanced about 24% over the past year, with its electrical division benefiting from rising copper prices and acquisitions.
Other companies didn't do as well but could improve in the years to come. Ford (NYS: F) shed 37%, for instance, while General Motors (NYS: GM) lost 44%. Both struggled in Europe, where economic crises lessened automotive enthusiasm. But the future looks brighter, especially for Ford. It's seeing its new Focus and Explorer selling well, has reached an agreement with its labor force, and is planning to expand in emerging markets. General Motors, with its sizable pension liabilities worrying some investors, has more work to do. Investors might want to watch how its 2013 Chevy Malibu fares against chief rivals such as Toyota's Camry and Honda'sAccord.
India's Tata Motors (NYS: TTM) , down 34%, has many excited about its Nano vehicles, touted as the world's most inexpensive car. It also pays a dividend of about 2.5%. As the world's emerging markets grow and more people can afford cars, Tata is well positioned to supply them.
The big picture
Demand for vehicles isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.
At the time thisarticle was published Longtime Fool contributorSelena Maranjianowns shares of Ford, but she holds no other position in any company mentioned. Check out herholdings and a short bio. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of General Motors and Ford, as well as creating a synthetic long position in Ford. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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