The Top Automotive Aftermarket Companies of 2020

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I have written many times before that the best way to profit from the automotive industry is not invest in the car manufacturers themselves but in the part suppliers. Aftermarket parts companies flourish during boom and bust cycles of the economy. Currently the chip supply issue is severely affecting the new auto sales market. In addition, prices of used autos have sored as well. Consumers are holding their autos much longer than usual with the average age exceeding twelve years.

The loosening of new car supply is projected to take many months. Hence the demand for auto parts should continue to remain strong for the foreseeable future. Investors looking to benefit from this situation can consider adding some of the top auto parts makers. The following chart shows the Top Auto Aftermarket Companies in 2020:

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Source: Bizvibe

Three of the top five firms – The Bosch Group, Continental AG(CTTAY) and ZF Friedrichshafen AG -listed above from Germany. Goodyear Tire & Rubber Company(GT), DRiV Incorporated (Tenneco), BorgWarner(BWA) and Cooper Tire & Rubber Company(CTB) are some of the best American auto parts makers.

Disclosure: Long CTTAY

Related:

Ten Facts About The UK Automotive Industry

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The automotive industry is one of the largest industries in the UK providing jobs to hundreds of thousands of workers and involving billions of pounds in economic activity. At the end o 2019, there were 7 major luxury and sports car manufacturers in the country. Some of the top British brands include Aston Martin, Bentley, Land Rover and Jaguar (part of India’s Tata Motors), Lotus, McLaren and Mini and Rolls Royce(owned by Germany’s BMW Group). From the size perspective, the UK auto industry is small relative to the US auto industry. But still there are over 800 companies operating in the country.

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Source: The Society of Motor Manufacturers and Traders (SMMT)

The following are ten interesting facts about the auto industry in the UK:

  1. In 2019, auto products exports accounted for 13% of total UK’s goods exports.
  2. The top five models by production are Jaguar Land Rover, Nissan, Mini, Toyota and Honda.
  3. A total of 1.30 million cars were produced out of which 81% were exported.
  4. The top export markets are the EU, USA, China, Canada and Japan.
  5. The UK auto industry output is small when compared to other countries. UK ranked 16th well behind countries like Canada, India, South Korea, Germany, etc.
  6. The UK is also home to more than 2,400 auto parts suppliers.
  7. Commercial vehicles such as buses, trucks and vans are also manufactured in the UK though their numbers are smaller relative to autos.
  8. The sector generated about £100.0 billon in trade in 2019.
  9. On a given day, over 1,100 trucks from the EU deliver components to auto plants in the country.
  10. The top color chosen by British consumer is gray followed by black, white, blue and red.

Source: Motor Industry Facts 2020, SMMT

Referenced Companies:

  • Tata Motors Limited (TTM)
  • BMW (BMWYY)
  •  Toyota Motor Corp (TM)
  • Honda Motor Co Ltd (HMC)

Disclosure: No positions

Five Risks of the MSCI Emerging Markets Index

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The MSCI Emerging Markets Index is one of the most popular indices for tracking the performance of emerging markets. Many ETFs and mutual funds are benchmarking against this index. The index is comprised of 1,424 companies across 24 emerging markets. The performance of the index relative to the MSCI World and MSCI ACWI indices over from May,2006  thru May, 2021 in US dollar terms is shown in the chart below:

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Source: MSCI

Despite the popularity of The MSCI Emerging Markets Index there are many risks and disadvantages of using this as the benchmark for emerging markets. The following are five concentration risks that investors need to be aware of when investing in a fund that is based on this index:

  1. From a country weights perspective, just China accounts for about 38% of the index.
  2. In addition, five countries – China, Taiwan, South Korea, India and Brazil – account for about 80% the index leaving just 20% for all the remaining countries.
  3. The top five holdings amount to more than one-fourth of the index composition.
  4. Moreover stocks from China, Taiwan and South Korea make up almost two-thirds of the index.
  5. Just four firms – Taiwan Semiconductor Manufacturing Co.(TSM), Tencent(TCEHY), Alibaba Group(BABA) and Samsung Electronics – account for 20% of the index. Or to put it another way, tech dominates the index. Any correction or major decline in this sector will have a higher impact on the performance of the index.

Related ETFs:

  • iShares MSCI Emerging Markets ETF (EEM)
  • Vanguard MSCI Emerging Markets ETF (VWO)

Disclosure: No Positions

Vanguard Total Stock Market ETF Celebrated its 20th Anniversary Last Month

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The Vanguard Total Stock Market ETF (VTI) is one of the largest ETFs currently trading on the US market. The fund provider celebrated the 20th anniversary of this successful ETF in May. The ETF cover the total market covering large,  mid and small cap growth and value stocks. Currently the fund has an asset base of about $244.0 billion and the expense ratio is just 0.03%.

Vanguard is known for its highly competitive expense ratios on its funds. For this ETF the expense ratio has declined from 2001 to just 0.03% this year.

Vanguard Total Stock Market ETF (VTI) AUM vs Expense Ratio Chart:

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Source: VTI: 20 years old and still going strong, Vanguard

The steady rise in assets under management has not negatively affected the performance. A $10K investment in 2011 would have growth to about $38K thru the end of May this year.

For more info on this fund visit the fund’s page on their site:

Disclosure:  No Positions

Volatility is One Hurdle to Cross to Achieve Long-Term Goals

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The S&P 500 is up about 13% so far this year. In the first quarter US equity markets had a smooth sailing. However volatility returned in the second quarter with last week had four down days in a row. Fear of rising interest rates and inflation caused market participants to evaluate the strength of the current economic recovery and the headwinds stocks will face moving forward.

It is too early to confirm if inflation will continue to linger for many months and the inflation rate will head even higher. The Fed has stated it is transitory. There are signs that inflation could decline, if not totally disappear. For example, a few days ago the journal reported that lumber prices are down 41% from the recent record. This should have a positive impact on housing prices though it may take a few months. Similarly prices of menu items at restaurants could decline as labor supply increases with many states cutting down unemployment benefits.

The key point to remember is the fear of adverse effects of inflation and myriads of other factors should not drive one’s long-term investment goals. Just because talking heads on tv and the media talk about inflation or the market is down continuously for a few days , does not mean its time to sell everything and sit out the market in cash. Even where this high volatility and sharp intra-year declines, markets can end with a positive return for the year. In the past 20 years there were many declines in the US market. But according to an article at Dimensional Fund Advisors, despite those downturns a broad index for the US equity market had positive returns in 15 out of those 20 years. Though the market plunged dramatically in early 2020 due to the pandemic, the calendar year return for the year was a gain of 21%.

The following chart shows the calendar year returns and the largest intra-year declines from 2001 to 2020:

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Note:

January 2001–December 2020, in US dollars. Data is calculated off rounded daily returns. US Market is represented by the Russell 3000 Index. Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes.

Source: Do Downturns Lead to Down Years?, Dimensional Fund Advisors

To take this strategy further, it is unwise to try to time the market. For most retail investors its next to impossible to sell stocks during market declines and try to back them back again at the trough.

Volatility is not abnormal in the equity market. In fact, volatility can help build a healthy market.

Update:

The following chart shows the S& 500 Full Year Returns and Intra-day declines from 2000 to 2019:

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The author of the below article noted: “Figure 1: Stock market corrections are fairly common. Pullbacks of 10% or more occurred in 11 of the past 20 years.”

Source: Market Corrections Are More Common Than You Might Think, Schwab

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • PDR Dow Jones Wilshire Mid Cap ETF (EMM)
  • SPDR S&P 400 Mid Cap Growth ETF (MDYG)
  • Vanguard Mid-Cap ETF (VO)
  • Vanguard Mid-Cap Growth ETF (VOT)
  • Vanguard S&P Mid-Cap 400 ETF (IVOO)
  • Vanguard S&P Mid-Cap 400 Growth ETF (IVOG)
Disclosure: No Positions