Bumpy September for Auto ETFs as UAW Strike and Higher Rates Take Toll

Introduction

In the fast-paced world of automotive exchange-traded funds (ETFs), September proved to be a bumpy ride, marked by significant challenges. The United Auto Workers’ (UAW) strike against the “Detroit Three” and the specter of rising interest rates cast a shadow over the industry, leading to net outflows in several key funds. Let’s delve into the specifics of this tumultuous month for auto ETFs.

UAW Strike and Production Woes

The ongoing UAW strike, now in its 20th day, has dealt a severe blow to production at major automakers such as General Motors (GM.N), Ford (F.N), and Stellantis (STLAM.MI). Investors are evidently wary, as evidenced by the $41.2 million First Trust Nasdaq Transportation ETF (FTXR.O), which saw net outflows of $11.6 million in September—a stark increase from the $3 million outflows recorded in August.

Bryan Armour, director of passive strategies research for North America at Morningstar, notes the prevailing caution among investors, citing uncertainty about the strike’s outcome and duration as key factors. The ripple effect of the strike is significant, with JPMorgan estimating a hit to operating profit of $191 million for GM and $145 million for Ford in the third quarter.

Impact on ETFs

The repercussions of the UAW strike are evident in the performance of key ETFs. The First Trust fund, with GM as a major holding, experienced a 4.4% decline in September, reflecting investor concerns. Simultaneously, the $719.63 million Global X Autonomous & Electric Vehicles ETF (DRIV.O), where the affected automakers constitute only 5% of the portfolio, saw net outflows of $12.3 million—a notable improvement from the prior month’s outflows of $59.3 million.

Despite the strike’s impact, the broader electric vehicle (EV) market faces its own set of challenges. Todd Sohn, ETF and technical strategist at Strategas Securities, highlights the continued depression of EV-focused funds, attributing it to both longstanding market conditions and the recent strike-induced agitation. The Global X fund, focusing on autonomous and electric vehicles, experienced a 5.7% decline in September.

Rate Pressure and Its Role

The persistent pressure on rates is another factor contributing to the overall unease in the market. As Sohn suggests, “Rate pressure is definitely an agitation,” compounding the challenges faced by the automotive industry. The strike’s occurrence, against the backdrop of existing rate pressures, adds an additional layer of complexity.

Tesla’s Conundrum

Funds tracking Tesla (TSLA.O) failed to draw anticipated inflows despite the expectation that the strikes might bolster the electric vehicle giant’s market share. The $1.02 billion Direxion Daily TSLA Bull 1.5X Shares ETF (TSLL.O) experienced its first month of outflows in four, underscoring the general apprehension prevailing in the market.

Looking Ahead

As we navigate the turbulent terrain of the automotive ETF landscape, uncertainties linger. The UAW strike‘s resolution and the trajectory of interest rates will undoubtedly shape the industry’s near future. Investors, strategists, and enthusiasts alike are keeping a watchful eye on developments, assessing how these variables will impact their portfolios.

In conclusion, September’s challenges for auto ETFs serve as a stark reminder of the industry’s sensitivity to external factors. The interplay between labor disputes, interest rates, and market sentiment creates a dynamic environment that demands a nuanced approach from investors.